Standard & Poor's warned yesterday that they are considering a downgrade to the creditworthiness of Berkshure Hathaway, Warren Buffett's legendary investiment vehicle. Why? Because of Buffett's $34 billion bid for the Burlington Northern Santa Fe railway company. S&P is concerned that the massive outlay could hamper the liquidity of Berkshire Hathaway's core insurance businesses. Berkshire got downgraded eariler this year by the two other main rating agencies, Moody’s and Fitch, after Berkshire's first quarterly loss since 2001.
Berkshire Hathaway already owns 22 percent of Burlington Northern. Buffett famously says his favored time for holding onto a stock is forever, so he must feel that if owning a fifth of a company is good, owning all of it is even better.
But the concerns of the ratings agencies would be familiar to any knowledgeable investor. In a sense, it's just a matter of diversification. Buffett is going to have to take cash out of his existing position to quadruple his position in another holding. It wouldn't be an especially judicious allocation of assets for an individual investor, so why would it necessarily work for Berkshire Hathaway?
At the same time, it's never a good idea to bet against Warren Buffett.
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