Even the investor's friend is counting his losses

But fans of folksy wisdom did not leave empty-handed. Mr Buffett said that he never used spreadsheets or formulae to decide whether a company was a good investment.

“It should be so obvious that you don't have to carry it out to tenths of a per cent,” he said.

From The TimesMay 4, 2009

Even the investor's friend is counting his losses

Christine Seib in New York

They came in record numbers, more than 35,000 of them, searching, perhaps, for a chink of light amid America's recessionary gloom and the kind of homespun wisdom that gladdens an investor's heart — and they got yet more bad news. Gathered at the feet of the Sage of Omaha, gloomy shareholders heard Warren Buffett disclose that his Berkshire Hathaway investment company had suffered a 12 per cent drop in operating profits and a 6 per cent fall in book value in the year's first quarter.

Amid hymns of praise for President Obama's handling of the US economy and grim warnings about the risk of inflation and the dire state of the American newspaper industry, Mr Buffett, 78, indicated yesterday that the recession still had a grip on Berkshire businesses. He said that most were down as a result of the recession. “We will continue to do quite well in our insurance and utility operations,” he said. “We won't do well in other operations.”

Berkshire last year reported net income of nearly $5 billion (£3.3 billion), but this was 62 per cent less than in 2007 and its worst result since Mr Buffett took over the textile maker in 1965 and turned it into a conglomerate made up of about 80 companies.

Berkshire is to release first-quarter figures on Friday, but Mr Buffett warned investors that that operating profit would be about $1.7 billion, after $1.9 billion in the same period last year. Berkshire's operating profit does not include gains or losses on 251 derivative contracts that it has sold, which damaged its performance last year. However, ahead of Friday's results announcement, Mr Buffett said that he expected losses on contracts against credit defaults maturing between this year and 2013.

Berkshire sells derivatives against credit losses on groups and individual companies and on the future level of various indices, including those using junk bonds. Although some contracts will not pay out for many years, if at all, and Mr Buffett does not intend to sell the contracts, Berkshire must account for rises and falls in their value. Berkshire is also exposed to the retail and property markets, which are being hammered by the downturn. Mr Buffett said that Berkshire was cutting jobs in some of its businesses.

There was something to savour, at least if you were Mr Obama. The thousands who had gathered in Omaha, Nebraska, to hear Mr Buffett, the world's second-richest man, opine on Berkshire, investment and the economy heard him praise the US Government's efforts to stimulate the economy. However, he also warned that rising inflation could be the price of the President's stimulus plan. “It's the right thing to do, but it won't be a free ride,” he said.

There were few clues about Mr Buffett's succession plan. The famed stockpicker told investors that choosing a single heir would be a waste of talent. “I don't really see any advantages in having some crown prince around,” he said. He has said previously that there are three internal candidates to become Berkshire's next chief executive and four internal and external candidates to be chief investment officer (CIO). Ajit Jain, who runs Berkshire's reinsurance business, is a favourite to become chief executive: Mr Buffett did not dispel that perception, telling investors that Mr Jain was irreplaceable. “We won't find a substitute for him,” he said. The four CIO candidates failed to beat the S&P 500 last year, Mr Buffett admitted, but all have beaten the index over the past ten years.

Howard Buffett, Mr Buffett's son, who is on Berkshire's board, will eventually become the company chairman.

Mr Buffett had harsh words for the US newspaper industry. Although he reportedly reads five newspapers a day, and owns one, the Buffalo News, he said: “For most newspapers in the United States, we wouldn't buy them at any price. They have the possibility of near-unending losses.”

But fans of folksy wisdom did not leave empty-handed. Mr Buffett said that he never used spreadsheets or formulae to decide whether a company was a good investment. “It should be so obvious that you don't have to carry it out to tenths of a per cent,” he said.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6216496.ece