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On Wednesday we learned that Berkshire Hathaway recently sold another 1.4 million shares of Moody’s stock owned by the company. This means that they have already unloaded over 3 million shares this month of the credit rating agency, and we are only eight days in.

But Berkshire Hathaway still actually controls a total of 11% of Moody’s shares. They currently own 25.3 million shares even after the sale.

We also learned that Berkshire reported these transactions between last Thursday and this Monday to the Securities and Exchange Commission.

At one point, Berkshire and Warren Buffett owned 48 million shares of Moody’s during March 2009, right before it started selling the stock.

Berkshire has generated about 84 ½ million dollars from the sales of the shares. They sold them at prices between $60 and $62.78 per share. The company also reported that they sold 1.7 million Moody’s shares just last week.

Over the last two days, Berkshire Hathaway, Warren Buffett’s investment company, sold 1.7 million shares of their Moody’s investment. Once the sale was complete, Berkshire Hathaway still owned 11.9% of the company, which equates to 26.6 million shares. The average share price paid by Berkshire Hathaway is just over $60 per share.

Prior to June 2009, Berkshire Hathaway once had 48 million shares of Moody’s. The company received the shares as part of the spinoff of Dun & Bradstreet, with an overall cost base of about $10 per share. The stock once traded at $70 per share, but during the financial crisis their stock price dropped below $20 as the market crashed in 2009. When the price fell into the $20 range, Warren Buffett sold 15 million shares. The major bull market has pushed Moody’s share price back up to the $60 range again, so Warren Buffett decided to sell some more.

Warren Buffett was a fan of Moody’s because the company has a unique position in credit ratings. It is a wide moat business and it does not require a lot of capital. But Moody’s lost its greatest asset during the most recent financial crisis, which is its credibility. That’s a good enough reason for Warren Buffett to sell his shares.

Even though Warren Buffett and Berkshire Hathaway still own over 26 million shares of the company, it wouldn’t be surprising to see them continue to sell more. Watch closely to see what happens over the coming months and years.

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.

Insurance is a big reason why Berkshire Hathaway’s risk-adjusted investment return has been able to beat every mutual fund since the year 1976.

We learn this according to a new research paper from New York University and AQR Capital Management, told by The Economist.

The insurance and reinsurance companies that are part of Berkshire Hathaway lend money to the Berkshire Hathaway parent company, and they actually provide more than one third of the company funding. Buffett is then able to use this leverage as a way to purchase large quantities of stocks as an investment.

“This would be an expensive strategy if the [insurance] company undercharged for the risks it was taking,” states The Economist.

“But thanks to the probability of its insurance operations, Berkshire’s borrowing costs from this source have averaged 2.2%, more than three percentage points below the average short-term financing cost of the American government over the same period.

The insurance company also gives Warren Buffett a way to borrow money during both good times and bad times. “The long-term nature of the insurance funding has protected Mister Buffett during periods (such as the late 1990s) when Berkshire shares have underperformed the market,” states the magazine.

“Without leverage… Mister Buffett’s return would have been unspectacular,” says The Economist.

By having the insurance company leverage available to him, Warren Buffett is able to tap into this resource and by stock shares in high-quality companies that are struggling and going through hard times. He did this with Coca-Cola during the 1980s, and he was also able to gobble up shares of General Electric during the most recent financial crisis, we also learned from The Economist.

The magazine quotes Warren Buffett as saying, “It’s far better to buy a wonderful company had a fair price then a fair company at a wonderful price.”

Buffett has also “steered largely clear of more volatile sectors, such as technology, where he cannot be sure that a company has a suitable advantage,” notes The Economist.

All in all, not everything touched by Warren Buffett turns to gold. Berkshire Hathaway is the biggest shareholder of Moody’s rating company, and they lost roughly $340 million when the stock plummeted 22% last week.

This drop happened because the government is considering suing Standard & Poor’s, a rival of Moody’s, because of ratings practices that they implemented prior to the financial crisis taking place.

Billionaire investing juggernaut Warren Buffett isn’t worried about the debt ceiling so much as some of the other issues that this country is facing.

Over the weekend, Buffett mentioned that the $16.4 trillion worth of debt the US currently has isn’t something that most people should be focused upon.

“It is not a good thing to have it going up in relation to GDP, that should be stabilized, but the debt itself is not a problem,” said Berkshire Hathaway CEO to CBS Sunday Morning over the weekend.

Buffett mentions that the US debt is a “lower percentage of GDP than it was when we came out of World War II. You’ve got to think about it in relation to GDP.”

Here’s why Buffett pays attention to debt to GDP.

Why Debt to GDP Matters

The ratio of debt to GDP is how we measure the United States’ federal debt as it relates to the country’s gross domestic product. When you compare what the US produces to what it owes, this ratio tells us its ability to pay back its debts. The higher the ratio of debt to GDP, the riskier it is that the country will default.

This ratio matters because:

• The rating agencies like Moody’s, S&P and Fitch use debt to GDP ratios as a way to determine if a country is credit worthy.
• When someone purchases a country’s debt, they do so under the impression that the money will be paid back on time.
• When an economy is thriving, a debt to GDP ratio of an elevated level isn’t a major issue because future earnings show that the country will be able to pay back the money quickly. If an economy is stagnant, a high debt to GDP ratio is a major red flag.
• If the country in question does not have a plan in place to handle the high debt to GDP ratio, it will increase the risk of default and lead to downgrades in their credit rating, it will tarnish their reputation and reduce debt sales.

Since the US recently hit the debt ceiling on December 31, it is now operating on emergency funds from the U.S. Treasury Department until they raise the debt ceiling. In the meantime, the debt to GDP ratio is on the rise.

At the current time, the debt to GDP ratio is roughly around 100%. You can compare this to World War II when the US’s ratio was about 109%.

Buffett’s Take on Congress

Now we will take a look at what Warren Buffett believes is the biggest problem that America faces: Congress.

Warren Buffett was very critical of how Congress handled the fiscal cliff issue, and he encouraged the Republican Party to “put country before party” in order to come to an agreement.

Congress has the ability to reduce the United States’ high debt to GDP ratio by spending cuts at the federal level and by increasing taxes. But they need to implement these measures in a way that will not suspend growth. If they encourage growth by lowering interest rates, they will implement another very effective way to lower the debt to GDP ratio.

Warren Buffett is very supportive of the highest-paid American earners paying higher taxes – and obviously he is among them – and this is especially beneficial as a way to help those who are less fortunate.

Buffett mentioned on Sunday, “I would say in a country with $50,000 of GDP per person, that nobody should be hungry, nobody should lack a good education, nobody should be worried about medical care, you know, nobody should be worried about their old age.”

Warren Buffett is actually optimistic that the issues in Washington will get better as we move forward.

“What is right about America just totally dwarfs what’s wrong with Washington,” said Buffett. “535 people are not going to mess up 315 million over time. I know it.”

I think Buffett might be a little bit off base. Even though he made a lot of money on the stock market, does not mean he has all the answers. Most people either know or should know that taxing the wealthy takes away any incentive to create new jobs and businesses. In actuality, taxing the rich and asking them to pay their “fair share” will scare these businesses right out of the United States of America, like it is currently happening in France. In the United States of America, the rich already support those less fortunate in many ways.

Even though interest rates have been very low, it really has not helped the US economy all that much. The stimulus has not provided much help either because the banks aren’t lending out the money received by the Fed, and they are just keeping it. A better plan needs to be made, and it should happen quickly.