According to Warren Buffett, he claims to follow the specific advice to “never invest in a business you cannot understand.”
But he may not have taken his own advice in this instance…
During a Congressional hearing a few years ago, Warren Buffett mentioned that he did not necessarily know a lot about the credit rating agency Moody’s. He also said that he didn’t understand the credit rating market in general. This was reported in the New York Times at the time of the statements being made.
It may appear that those gaps in knowledge have come back to haunt Warren Buffett. Last Wednesday, Bloomberg reported that the Berkshire Hathaway investment in Moody’s could have potentially lost up to $291.5 million in value for the holding.
Bloomberg tells us that Berkshire Hathaway owns a 13% stake in this company as of September 30, 2012. But the stock price of the credit rating agency took a major hit last week. The government recently took out a lawsuit against S&P, and Moody’s is their main competitor and they got hit in the crossfire. The government is alleging the S&P inflated its mortgage bond ratings during the time leading up to the financial crisis.
No one is saying that the stock will not bounce back. It could definitely happen. It does not appear that the government is going to sue Moody’s. When the Justice Department first decided to do a three-year investigation, Moody’s was initially included. But they later on dropped Moody’s from the probe, we learned from a source that is familiar to the investigation.
There’s no reason to feel bad for Warren Buffett. He is the fourth richest man in the world and is worth $52.4 billion. We learned this according to the Bloomberg Billionaires Index.