Buffett’s Moody’s Stake May Have Fallen 300m on S&P Lawsuit

[Liberty]

http://www.bloomberg.com/news/2013-02-06/buffett-s-moody-s-stake-may-have-plunged-on-s-p-lawsuit.html

 

Warren Buffett’s Berkshire Hathaway Inc., owner of the largest stake in Moody’s Corp., may have lost almost $300 million on the holding this week as shares of the credit-ratings company plunged.

[Guest wellmont]

it's up 20% over the last 12mo. that does not make a very good story, however.

[Liberty]

it's up 20% over the last 12mo. that does not make a very good story, however.

 

I posted it quickly because it's about Buffett and figured maybe it could lead to some interesting discussion about that holding, but I agree that the move in the stock price itself doesn't mean much.

 

I'm sure the only thing Buffett is thinking about is whether there's a permanent change in the business' intrinsic value or not.

[LC]

 

I'm sure the only thing Buffett is thinking about is whether there's a permanent change in the business' intrinsic value or not.

 

Do you think there is? I think they do provide value but I'm not sure how investors will utilize their rating system in 5-10 years. Will investors still just see AAA and trust them, or has that lesson been learned? 

 

Then again, laziness is a part of human nature. Will people always see the benefit of doing the due diligence themselves?  Or will memories of this past crisis fade...

[Liberty]

Do you think there is? I think they do provide value but I'm not sure how investors will utilize their rating system in 5-10 years. Will investors still just see AAA and trust them, or has that lesson been learned? 

 

Then again, laziness is a part of human nature. Will people always see the benefit of doing the due diligence themselves?  Or will memories of this past crisis fade...

 

That's the thing. If the alternative is doing the work yourself, then I think history has shown us that people won't do it. I think that if Moody does the minimum to show that its aware of past problems and working to improve things, they'll stick around for a long time. But I'm not expert in that field, just my best guess.

[valueorama]

Lots of things need to be changed before you can say intrinsic value is damaged.

 

One big thing is that most pension funds and insurance companies are told to hold investment grade securities. Who decides investment grade, Moodys and S&P. It is going to be difficult to tell pension funds/insurance cos to invest in whatever security without creating doubt in retiree's mind.

 

Plus there are so many mutual funds and others which restrict themselves to AAA or AA or A floors for investments. Even money market funds are restricted.

 

It will be very hard to change. If they do change, you need to create alternative universe where all the above mentioned funds can transfer smoothly without having a panic/run-in.

 

 

[Kraven]

Do you think there is? I think they do provide value but I'm not sure how investors will utilize their rating system in 5-10 years. Will investors still just see AAA and trust them, or has that lesson been learned? 

 

Then again, laziness is a part of human nature. Will people always see the benefit of doing the due diligence themselves?  Or will memories of this past crisis fade...

 

That's the thing. If the alternative is doing the work yourself, then I think history has shown us that people won't do it. I think that if Moody does the minimum to show that its aware of past problems and working to improve things, they'll stick around for a long time. But I'm not expert in that field, just my best guess.

 

A couple of thoughts.  Ratings became bastardized over time.  They were never intended to be used as a substitute for anyone doing their own due diligence and analysis.  Various legal and regulatory rules requiring certain ratings helped move the rating away from its intended purpose.  Think of it this way.  If someone picks a restaurant based on its Zagat's rating and they don't like the meal, they don't sue Zagat's.  Of course if you were required by law only to eat at restaurants that had certain Zagat's ratings it starts to become bastardized.  So there needs to be a change in law and regulatory requirements to move it back to its intended design.

 

Second, most people apparently don't realize that ratings have nothing to do with market movements.  A typical rating of a structured asset will relate to the ultimate payment of principal based on the terms of the instrument.  Some ratings will include timely payment of interest.  But technically for many of these securities it's not clear whether the rating was off or not.  If you have a 10-30 year maturity, there is plenty of time left for another housing boom or whatever and for the rating to ultimately prove just fine.  I'm not saying they weren't lax in their analysis, they were, but in addition to the points made above, ratings were never intended to relate in any way to market movements.

[Guest wellmont]

bloomberg was going off of sep 2012 filing. buffett has had 4 mo to lighten his position. MCO is a stock he has been exiting. lets see what the next 13f brings.