Is Warren Buffett losing his touch?

By Jonathan Stempel - Analysis

NEW YORK (Reuters) - Investors are wondering if Warren Buffett has lost his touch.

They are bailing out of Berkshire Hathaway Inc (BRKa.N) (BRKb.N) stock and have lost some confidence that the insurance and investment company, run by one of the world's most admired investors since 1965, can pay its debts.

Berkshire stock has lost close to half its value since hitting a record high last December, as the company struggles with lower returns at its insurance businesses, the declining value of its stock holdings, and paper losses on derivative contracts.

Meanwhile, the cost of protecting Berkshire's "triple-A" rated debt has soared to a level more befitting a "triple-B" or even a junk-rated company.

Omaha, Nebraska-based Berkshire has nearly 80 businesses -- from car insurance to carpeting, clothing, food, kitchen utensils, and manufactured housing -- and owns tens of billions of dollars of stock.

Buffett's empire is diversified enough so that at any given moment many parts are unlikely to run on all cylinders.

"Everything you're seeing that affects other companies is eventually going to catch up with Berkshire," said Vahan Janjigian, author of the 2008 book "Even Buffett Isn't Perfect." "I'm not saying Berkshire is not well-run, but that even well-run companies will be hit in a severe recession."

Buffett, 78, was not available for comment.

Berkshire Class A shares fell as low as $74,100 a share on Thursday, their lowest level since August 2003.

That's down 51 percent from their record $151,650 set last December 11. It's also down 34 percent since Berkshire said on November 7 that lower insurance returns as well as investment losses led to a 77 percent drop in third-quarter profit, the fourth straight quarterly decline. Operating earnings were down 18 percent. Berkshire ended September with $33.37 billion in cash.

"We're buying Berkshire like crazy. It was our largest position, and we have made it much larger in the last two weeks," said Whitney Tilson, managing partner at T2 Partners LLC, a hedge fund firm.

"Investors are looking at the derivative exposure, seeing Berkshire marking losses, and it reminds them of AIG and other companies whose derivative exposures got them into trouble," he added. "They are coming to the insane conclusion that Berkshire faces similar risks."

He referred to American International Group Inc (AIG.N), which got a $152 billion government bailout.

'UNUSUAL' MARKET

In Thursday afternoon trading, the shares were down $2,760, or 3.3 percent, to $81,240 a share on the New York Stock Exchange. The cost of protecting $10 million of Berkshire debt against default for five years rose to $490,000 annually on Thursday from $294,000 a week ago and $31,000 at the start of 2008, according to Markit.