Investors watching Buffett carefully

Chairman Warren Buffett played cards and cracked jokes at a bash for 20,000 investors at Berkshire Hathaway's annual meeting. But despite the usual accolades from shareholders, it wasn't quite business as usual for Buffett.

The past few months have been disquieting for the Oracle of Omaha. Two Berkshire subsidiaries were linked to a messy accounting scandal involving insurance giant American International Group. Some investors grew impatient with Buffett for not putting $44 billion in cash to good use. It didn't help that Berkshire reported a 12 percent drop in first-quarter profits, mainly because of a $307 million loss from a bad bet against the dollar.

Investors also worry about the longevity of Buffett, 74, and his sidekick and vice chairman Charles Munger, 81. Berkshire's directors have approved a succession plan, but details are a closely held secret.

All of this is weighing on Berkshire's stock. Between February and mid-May, both of Berkshire's share classes sank 9 percent — the A shares to $83,000 and the B shares to $2,767.

But investors may be making too much of temporary blips. Buffett's bearish dollar bet hurt recently, but it boosted Berkshire's 2004 profits by $1.8 billion. No one expects any of the AIG improprieties to stick to the squeaky-clean Buffett. And Buffett's judgment about when to spend Berkshire's cash to buy stakes in companies, or to buy entire companies, is the reason he's a legend in his own time.

Buffett broke his dry spell in late May. Berkshire's MidAmerican Energy Holdings unit announced that it would pay $5.1 billion to acquire electric utility PacifiCorp — parent company of Utah Power — from ScottishPower PLC.

Putting that deal aside, the fact that Buffett hasn't bought much might make Berkshire more attractive.

Some analysts say that if investors are worried about the direction of the stock market, Berkshire Hathaway could be a good countercyclical play. "A sustained decline in the market would give Buffett targets to buy and stronger earnings growth longer term," says Morningstar's Dreyfus Neenan.