Warren Buffett loses billions
Berkshire Hathaway drops $10.9bn in investor's worst year since 1965.
By Richard Tyler
Last Updated: 8:07PM GMT 28 Feb 2009
Warren Buffett Billionaire Warren Buffett, the Sage of Omaha, has recorded his worst financial performance since taking over famed US investment group Berkshire Hathaway in 1965.
The group's net worth dropped by $10.9bn (£7.6bn) in the final quarter of 2008 to end the year at $109.2bn.
His investments and broad mix of insurance, utility, manufacturing and services businesses barely broke even, with quarterly net income sinking 96pc to $117m.
In his annual letter to shareholders, released yesterday, Mr Buffett pointed the finger at $4.61bn of pre-tax losses booked on falls in the market value of 251 derivative contracts that he had personally approved. These included 15-20 year bets that the FTSE 100 and S&P 500 would recover all their recent losses.
Mr Buffett described derivatives as "dangerous", but he remained convinced that they were a good bet. "I believe each contract we own was mispriced at inception, sometimes dramatically so. If we lose money on our derivatives, it will be my fault," he wrote.
Nineteen of top 20 stocks in Berkshire's US portfolio, valued at $51.9bn, fell last year. Coca-Cola, its top holding, dropped 26pc and American Express plunged 64pc.
Mr Buffett, 78, said he would maintain Berkshire's "Gibraltar-like financial position" during 2009 by retaining "huge amounts of excess liquidity, near-term obligations that are modest and dozens of sources of earnings".
But he offered a gloomy outlook, saying: "The [US] economy will be in shambles throughout 2009 – and probably well beyond."
He also upped his attack of the US government's bail-out of his insurance and banking rivals. "Though Berkshire's credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing," he wrote. "At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one."
He said he would continue to buy shares and bonds from companies. "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down," he quipped. However, he hinted that his focus this year would be in snapping up companies at bargain prices that had the potential for solid earnings growth in the future. "We like buying underpriced securities, but we like buying fairly-priced operating businesses even more," he wrote.
Despite his near-mythical status, Mr Buffett readily admitted that he was fallible. "During 2008 I did some dumb things in investments," he said, pointing to his decision to increase the fund's stake in oil and gas giant ConocoPhillips at peak prices as he did not anticipate the dramatic fall in energy prices in the second half of the year. It cost Berkshire shareholders several billion dollars.
Berkshire Class A shares closed on Friday at $78,600 (£55,138) and have fallen 44pc since the end of February 2008. Over the last 44 years, the value of Berkshire's net assets has rocketed from $19 to $70,530 a share, a growth rate of 20.3pc compounded annually.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4885828/Warren-Buffett-loses-billions.html
From The Sunday TimesMarch 1, 2009
Warren Buffett: ‘I was dumb in 2008’
‘Sage of Omaha’ admits his mistakes contributed to company’s worst year everDominic Rushe
WARREN BUFFETT admitted yesterday that he did “some dumb things” in 2008, as the world’s richest investor announced that Berkshire Hathaway, his company, had its worst year on record.
In his annual letter to shareholders, Buffett said his investments lost $11.5 billion (£8 billion) last year.
He also offered a gloomy outlook for the year ahead. “The economy will be in shambles throughout 2009 – and for that matter, probably well beyond,” Buffett wrote.
The firm was hit by the deteriorating economy, the collapse of the credit markets and share prices and the second-worst hurricane season on record.
Berkshire owns a wide portfolio of companies, including leading American insurers and has stakes in firms such as American Express, Coca-Cola, Goldman Sachs and Tesco.
This diversity and Buffett’s cautious approach saved the firm from further losses, but he admitted that he contributed to the fall through some “dumb” moves of his own.
The man known as the “Sage of Omaha” said he spectacularly mistimed his purchase of Conoco Phillips stock last year when oil prices were near their peak. They have fallen by $100 a barrel since last July.
“I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong,” he wrote.
Conoco Phillips shares closed at $37.35 on Friday, less than half the price they fetched last spring and summer when Buffett was buying.
Buffett also said he made a $244m investment in two Irish banks “that appeared cheap to me”. At the year end Berkshire wrote down the holdings to their market value of $27m, an 89% loss on the investment. The stocks have since declined further.
The measurement Berkshire uses to track its performance, book value per share, fell 9.6% in 2008, its biggest decline since Buffett took over the company in 1965.
Berkshire still beat the Standard & Poor’s 500-stock index, which fell 37% last year, including dividends. It was only the second year that Berkshire has posted negative results. In 2001 Berkshire’s book value per share fell 6.2%.
Buffett sees little hope of a quick recovery. While he argues that the American government was right to take “strong and immediate action”, he believes the short-term consequences are likely to be bad. Doling out economic medicine “by the barrel” is likely to trigger an “onslaught of inflation”, he wrote.
“Moreover, big industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.”
But long term, Buffett remains bullish on the prospects for the American economy. “Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21.5% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years.
“America has had no shortage of challenges. Without fail, however, we’ve overcome them,” wrote Buffett. “America’s best days lie ahead.”
http://business.timesonline.co.uk/tol/business/markets/article5822125.ece
Berkshire Hathaway drops $10.9bn in investor's worst year since 1965.
By Richard Tyler
Last Updated: 8:07PM GMT 28 Feb 2009
Warren Buffett Billionaire Warren Buffett, the Sage of Omaha, has recorded his worst financial performance since taking over famed US investment group Berkshire Hathaway in 1965.
The group's net worth dropped by $10.9bn (£7.6bn) in the final quarter of 2008 to end the year at $109.2bn.
His investments and broad mix of insurance, utility, manufacturing and services businesses barely broke even, with quarterly net income sinking 96pc to $117m.
In his annual letter to shareholders, released yesterday, Mr Buffett pointed the finger at $4.61bn of pre-tax losses booked on falls in the market value of 251 derivative contracts that he had personally approved. These included 15-20 year bets that the FTSE 100 and S&P 500 would recover all their recent losses.
Mr Buffett described derivatives as "dangerous", but he remained convinced that they were a good bet. "I believe each contract we own was mispriced at inception, sometimes dramatically so. If we lose money on our derivatives, it will be my fault," he wrote.
Nineteen of top 20 stocks in Berkshire's US portfolio, valued at $51.9bn, fell last year. Coca-Cola, its top holding, dropped 26pc and American Express plunged 64pc.
Mr Buffett, 78, said he would maintain Berkshire's "Gibraltar-like financial position" during 2009 by retaining "huge amounts of excess liquidity, near-term obligations that are modest and dozens of sources of earnings".
But he offered a gloomy outlook, saying: "The [US] economy will be in shambles throughout 2009 – and probably well beyond."
He also upped his attack of the US government's bail-out of his insurance and banking rivals. "Though Berkshire's credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing," he wrote. "At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one."
He said he would continue to buy shares and bonds from companies. "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down," he quipped. However, he hinted that his focus this year would be in snapping up companies at bargain prices that had the potential for solid earnings growth in the future. "We like buying underpriced securities, but we like buying fairly-priced operating businesses even more," he wrote.
Despite his near-mythical status, Mr Buffett readily admitted that he was fallible. "During 2008 I did some dumb things in investments," he said, pointing to his decision to increase the fund's stake in oil and gas giant ConocoPhillips at peak prices as he did not anticipate the dramatic fall in energy prices in the second half of the year. It cost Berkshire shareholders several billion dollars.
Berkshire Class A shares closed on Friday at $78,600 (£55,138) and have fallen 44pc since the end of February 2008. Over the last 44 years, the value of Berkshire's net assets has rocketed from $19 to $70,530 a share, a growth rate of 20.3pc compounded annually.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4885828/Warren-Buffett-loses-billions.html
From The Sunday TimesMarch 1, 2009
Warren Buffett: ‘I was dumb in 2008’
‘Sage of Omaha’ admits his mistakes contributed to company’s worst year everDominic Rushe
WARREN BUFFETT admitted yesterday that he did “some dumb things” in 2008, as the world’s richest investor announced that Berkshire Hathaway, his company, had its worst year on record.
In his annual letter to shareholders, Buffett said his investments lost $11.5 billion (£8 billion) last year.
He also offered a gloomy outlook for the year ahead. “The economy will be in shambles throughout 2009 – and for that matter, probably well beyond,” Buffett wrote.
The firm was hit by the deteriorating economy, the collapse of the credit markets and share prices and the second-worst hurricane season on record.
Berkshire owns a wide portfolio of companies, including leading American insurers and has stakes in firms such as American Express, Coca-Cola, Goldman Sachs and Tesco.
This diversity and Buffett’s cautious approach saved the firm from further losses, but he admitted that he contributed to the fall through some “dumb” moves of his own.
The man known as the “Sage of Omaha” said he spectacularly mistimed his purchase of Conoco Phillips stock last year when oil prices were near their peak. They have fallen by $100 a barrel since last July.
“I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong,” he wrote.
Conoco Phillips shares closed at $37.35 on Friday, less than half the price they fetched last spring and summer when Buffett was buying.
Buffett also said he made a $244m investment in two Irish banks “that appeared cheap to me”. At the year end Berkshire wrote down the holdings to their market value of $27m, an 89% loss on the investment. The stocks have since declined further.
The measurement Berkshire uses to track its performance, book value per share, fell 9.6% in 2008, its biggest decline since Buffett took over the company in 1965.
Berkshire still beat the Standard & Poor’s 500-stock index, which fell 37% last year, including dividends. It was only the second year that Berkshire has posted negative results. In 2001 Berkshire’s book value per share fell 6.2%.
Buffett sees little hope of a quick recovery. While he argues that the American government was right to take “strong and immediate action”, he believes the short-term consequences are likely to be bad. Doling out economic medicine “by the barrel” is likely to trigger an “onslaught of inflation”, he wrote.
“Moreover, big industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.”
But long term, Buffett remains bullish on the prospects for the American economy. “Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21.5% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years.
“America has had no shortage of challenges. Without fail, however, we’ve overcome them,” wrote Buffett. “America’s best days lie ahead.”
http://business.timesonline.co.uk/tol/business/markets/article5822125.ece
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