It's Been a Bear of a Year for Berkshire, but Managers Cite the Long View

It must be a bear market because even billionaire Warren E. Buffett's Berkshire Hathaway has slumped more than 20 percent since December.

The decline exceeds the drop of the Standard & Poor's 500-stock index and marks the worst first half for the investment and holding company since 1990. Price competition has driven down revenue at Berkshire's insurance units, which account for about half of its income.

Berkshire is "close to getting more fairly priced," said Charles Hamilton, an analyst at FTN Midwest Securities who has a "neutral" rating on Berkshire. "I wouldn't say it presents a buying opportunity right now."

After reporting record company earnings of $13.2 billion last year, the 77-year-old Buffett told shareholders in February that profit margins from insurance will drop.

"That party is over," Buffett wrote in his annual letter to shareholders in February. "It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008."

Berkshire also has been hurt by the declines of Wells Fargo, American Express and U.S. Bancorp, three of the company's 10 biggest equity holdings at the end of March. Wells Fargo, Berkshire's second-largest holding, dropped 18 percent in the second quarter, while American Express and U.S. Bancorp slipped 14 percent.

Berkshire shares closed at $116,700 in New York Stock Exchange composite trading Thursday, down 21.8 percent from their all-time closing high of $149,200, on Dec. 10. That exceeds the 16.7 percent slide of the S&P 500 in the same period. Berkshire spokeswoman Jackie Wilson didn't respond to a request for comment.

The slide hasn't deterred Buffett devotees, who think Berkshire's decline represents a buying opportunity.

"I'd put a new client in Berkshire right now," said Frank Betz, a partner at Carret Zane Capital Management, which oversees $800 million, including Berkshire shares. "It's probably the highest-quality collection of individual companies that's ever been assembled. Long slides are not in the Berkshire Hathaway lexicon."

Berkshire bulls are betting with history on their side: the shares advanced in 17 of the past 20 years. The last annual decline was 3.8 percent in 2002. The record earnings last year came as Buffett booked a $3.5 billion profit on a $500 million investment in the oil producer PetroChina and insurance units made money selling coverage against storms that never came.

The decline in financial shares may provide Buffett an opportunity to boost holdings, said Whitney Tilson, a principal at T2 Partners, a hedge fund that counts Berkshire among its investments.

"Where Buffett makes his money is taking advantage of weak, chaotic markets," Tilson said. "The odds that Buffett could do a large, transformative deal have gone up substantially."