Delayed Losses, Delayed Lessons: Berkshire's $8B Wake-Up Call

1. What Actually Happened?

Berkshire Hathaway has finally marked down the carrying value of its Kraft Heinz stake to $8.4 billion, nearly half of what it was at the end of 2017 ($17 billion). Meanwhile, the stock has cratered 62%, while the S&P 500 soared 202% over the same time frame.

So yes, this investment was a lemon. But here’s the kicker: Berkshire held it at an inflated book value for years - until mid-2025.

2. Why Can Berkshire Do This?

Accounting Rules Work Differently for Institutions

Large firms like Berkshire use “mark-to-market” rules selectively, particularly for long-term holdings. Under U.S. GAAP:

• Fair value doesn’t always have to be reported on the balance sheet unless the company classifies the asset as “available for sale” or “trading.”
  

• For equity method investments (like Kraft Heinz), companies can report based on historical cost—until a permanent impairment is deemed.
  

Translation: Buffett didn’t have to markdown Kraft Heinz until they judged it was permanently impaired. And apparently, they only reached that conclusion now.

Retail investors, on the other hand, see daily prices. If Kraft Heinz drops 60%, your ISA, SIPP, or brokerage account reflects it immediately. There’s no “carrying value” fantasy for us. The hit is real-time and brutal.

3. Is This Performance Manipulation?

Not necessarily - but it is performance smoothing.

By holding an investment on the books at $17B even as market value eroded, Berkshire:

• Avoided hitting its reported earnings with a massive loss.
  

• Preserved perceived investment acumen, avoiding headlines like “Buffett Blunders Again.”
  

• Postponed reputational damage—until now, when perhaps media attention is muted and Buffett is 94.
  

It’s legal. But it’s also the kind of accounting flexibility ordinary investors will never benefit from.

4. Retail vs Institutional: Not a Level Playing Field

This case is a good reminder of several key advantages large institutional investors hold:

• Access to friendlier accounting treatment
  

• Boardroom influence in companies they invest in (Buffett helped orchestrate the Kraft-Heinz merger)
  

• Patient capital that doesn’t trigger margin calls or redemptions
  

• Narrative control: They can shape the story—even if it’s a slowly deflating balloon.
  

5. What Can Investors Learn?

• Narratives fade, numbers don’t. Kraft Heinz may have been a “Buffett stock,” but it was a fundamentally weak performer.
  

• Diversify. Buffett once said, “Diversification is protection against ignorance.” Even Berkshire got it wrong on a mega-deal.
  

• Watch fair value vs. book value. Especially in fund reports—if assets are held at cost or valuation hasn't been updated, be wary.
  

Final Word

Berkshire didn’t manipulate markets - but they certainly benefited from institutional latitude retail investors don’t enjoy. The real lesson? Even the Oracle of Omaha gets it wrong—and when he does, the pain is papered over… until it’s not.

📉 For further reading:

• SEC on Fair Value Measurement

• Berkshire Hathaway's latest 10-Q filings

  
  

  Disclaimer:

  This article is for educational purposes only and does not constitute financial advice or an offer to invest. Investing in private or public companies involves risk. Always do your own research or consult with a regulated financial adviser. Past performance is not indicative of future results.

  
  

  Alpesh Patel OBE

  www.campaignforamillion.com