By Erik Holm
Aug. 4 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. reached $100,000 a share for the first time in eight months as its derivative bets and holdings in firms including Goldman Sachs Group Inc. and American Express Co. gained in value.
Berkshire, the most expensive stock on the New York Stock Exchange, gained $3,000, or 3.1 percent, to close at $100,000 yesterday. Berkshire shares are up more than 40 percent since the Omaha, Nebraska-based firm reached a six-year low in March.
Berkshire, where Buffett is chairman and chief executive officer, is benefiting as equity markets recover. Stocks that Berkshire held at the start of the second quarter gained about $11 billion over three months, and losses from derivative bets tied to the world’s stock markets may be reversing.
“People’s fears about the derivatives were all based on the perception from six months ago that the world was ending,” said Michael Yoshikami, chief investment strategist at Walnut Creek, California-based YCMNet Advisors. “They’re starting to recognize that Warren Buffett knew what he was doing there, and the performance of the financials in the investment portfolio has just been massive.”
Under the terms of the derivative contracts, Berkshire must pay out if, on specific dates starting in 2019, four market indexes are below the point where they were when he made the deals, Buffett said in February. In the meantime, Berkshire can invest the cash and keep any profits.
The indexes -- the Standard and Poor’s 500 Index, the U.K.’s FTSE 100 Index, the Dow Jones Euro Stoxx 50 Index and Japan’s Nikkei 225 Stock Average -- contributed to declining profits at the company last year as the indexes fell. Now, they are reversing, with the S&P passing 1,000 yesterday for the first time since November.
‘Big Gains’
The derivatives were sold to undisclosed buyers for $4.9 billion, according to Buffett’s most recent letter to shareholders. The firm had $10.2 billion in liabilities on the so-called equity puts as of March 31. The liabilities are accounting losses that reflect the falling value of the stock indexes, not cash that Berkshire has paid out.
“Those financial instruments are going to show big, big gains,” said Mitchell Kovitz, the founder of Chicago-based Kovitz Investment Group, which holds Berkshire shares. “All of his financial instruments are bullish.”
Berkshire is the largest shareholder in American Express, whose stock has more than doubled since the end of the first quarter. Buffett’s firm is also the biggest investor in Wells Fargo & Co., which has jumped about 81 percent, Goldman Sachs, which rose 55 percent, and Burlington Northern Santa Fe Corp., up by about a third.
‘Playing Catch-Up’
“The stock rally that we’ve been seeing has broadened out and is now emphatically including the big, solid blue-chip companies like the ones Warren Buffett owns,” said John Maloney, CEO of New York-based M&R Capital Management. “The Berkshire shares are rising partially because they’re playing catch-up now.”
Berkshire is set to report second-quarter results Aug. 7. Its highest closing price was $149,200 on Dec. 10, 2007.
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