Unlike ordinary investors, Warren Buffet does not have to use mark to market accounting…..
I know Berkshire is an insurance company, so you can argue that it does not have to mark to market its investments (in the past this would mean its fixed income investments), but to say that the ‘prospects’ of a particular food company and a particular bank two years out are such that they do not require being market to market IMHO is a bit rich….who amongst us human beings can predict anything two years out, anyway?
Buffett Says U.S. Bancorp’s Prospects Negate Need for Writedown (By Hugh Son)
Oct. 25 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. opted against writing down its holdings in U.S. Bancorp and Kraft Foods Inc. because of the prospects their shares will recover, the billionaire’s company told regulators.
“The underlying businesses of Kraft Foods and U.S. Bancorp were each financially sound and continued to possess significant future earnings potential,” Berkshire said in a May 7 letter to the U.S. Securities and Exchange Commission that was released today. “It is reasonably possible that the market prices of Kraft Foods and U.S. Bancorp will recover to our cost within the next one to two years.”
Berkshire was asked by the SEC in April why it didn’t write down about $1.9 billion in market declines in the company’s equity portfolio. Unrealized losses as of Dec. 31 included $789 million on Kraft, the maker of Oreo cookies and Ritz crackers, and $646 million on U.S. Bancorp, Berkshire told the SEC.
The stake in Northfield, Illinois-based Kraft was down 18 percent from Berkshire’s cost, and the holding of Minneapolis- based U.S. Bancorp had dropped by 27 percent as of the end of 2009. Kraft advanced 17 percent this year through Oct. 22 and U.S. Bancorp climbed about 4.8 percent. Berkshire is the largest investor in Kraft stock and the No. 3 holder of U.S. Bancorp, according to data compiled by Bloomberg.
The SEC said Sept. 8 that it reviewed Berkshire’s response on questions related to filings including the 2009 annual report and had no further comments. Such correspondence is typically made public about 45 days after the completion of a review.
Steve Dale, a spokesman for U.S. Bancorp, declined to comment as did Kraft’s Michael Mitchell and John Nester of the SEC. An assistant to Buffett didn’t immediately return a message seeking comment.
