Buffett explains Berkshire's setbacks

OMAHA, Neb. -- Berkshire Hathaway's annual meeting Saturday was dominated by somber topics, as Warren Buffett explained to roughly 40,000 shareholders how the company had been battered by a trusted former employee's misdeeds and a string of natural disasters.

Buffett assured the crowd at an Omaha convention center that Berkshire is strong enough to withstand both the David Sokol scandal and the estimated $1.7 billion in insurance losses that drove profits down 58 percent in the first quarter.

Buffett said he doesn't think he will ever understand why Sokol bought stock in Lubrizol shortly before recommending that Berkshire buy the chemical company. Buffett said he believes Sokol clearly violated Berkshire's ethics and insider trading policies.

"It's a situation that's sad for Berkshire and sad for Dave," Buffett said.

Buffett acknowledged that he made a mistake by not asking Sokol more about his Lubrizol stock when they first discussed the company in January.

Buffett said he had no reason to think Sokol had just bought the stock the week before.

Buffett previewed Berkshire's earnings at the annual meeting, ahead of their scheduled release on Friday.

He said the biggest factor in the earnings drop was roughly $1.7 billion in pretax losses related to the Japanese earthquake and tsunami, Australian floods and the New Zealand earthquake.

"We had probably the second-worst quarter for the insurance industry in terms of disasters around the globe," Buffett said.

Buffett and Berkshire vice chairman Charlie Munger spent nearly six hours answering questions at the annual meeting.

Buffett also told the shareholders that the country's lenders are less attractive investments than they once were and that lawmakers should not keep the current debt ceiling.