As cool as his demeanor is, you really have to figure that Warren Buffett had stuck to his strict, no-derivatives-for-me attitude he seemed to hold all that time.
Reuters: Warren Buffett’s Berkshire Hathaway Inc underestimated the risks of falling stock prices to its billions of dollars of derivatives bets, yet still believes it is valuing the contracts fairly.
Berkshire revealed its error in a June 26 letter to the U.S. Securities and Exchange Commission, one of several pieces of correspondence with the regulator about the company’s annual report, and made public on Thursday.
The key issue:
The derivatives contracts are tied to four equity indexes in the United States, Europe and Japan, and are a big reason Berkshire’s earnings fell for six straight quarters. That string ended in the April-to-June period as stocks rebounded.
In the June 26 letter, Berkshire’s Chief Financial Officer Marc Hamburg told the SEC that last year’s 30 per cent to 45 per cent declines in the equity indexes “are in excess of our volatility inputs.”
The regulator also wants more info losses in auction-rate securities and stocks.
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