Berkshire Hathaway Reports Worst Year Ever
By SCOTT PATTERSON
Mr. Buffett, in his annual letter closely read by shareholders and nonshareholders alike, said he didn't expect an improved economy any time soon but did expect better times eventually.
"Our country has faced far worse travails in the past," he said. "Without fail, however, we've overcome them." He declined to draw a correlation between stocks and economics, saying that while he was certain the economy would be "in shambles for 2009" that "does not tell us whether the stock market will rise or fall."
Mr. Buffett credited the federal government for stepping in with massive assistance last year, saying the intervention was "essential" to avoiding a total breakdown. But he cautioned there could be "unwelcome aftereffects," such as inflation.
Berkshire's annual net income fell to $4.99 billion in 2008 from $13.21 billion the previous year amid poor results from the firm's insurance holdings and big declines in stock holdings such as Coca-Cola Co. and American Express Co. Berkshire also owns See's Candy, Fruit of the Loom and Benjamin Moore paint, which are privately held, but its insurance businesses (GEICO) generate the bulk of the parent company's results.
Mr. Buffett conceded in his letter that he "did some dumb things" in the past year, such as boosting the company's holdings of the oil giant ConocoPhillips when oil prices were near their peak. Since then, oil prices have tumbled and shares of ConocoPhillips and many other energy outfits are down sharply.
He also said he made a $244 million investment in two Irish banks "that appeared cheap." At year-end, Berkshire wrote the holdings down to their market value of $27 million, an 89% loss on the investment.
The letter also provided new details on some moves Mr. Buffett made in late 2008 as the credit crisis worsened. Berkshire invested $14.5 billion in fixed-income securities from companies such as General Electric Co. and Goldman Sachs Group Inc. To fund the purchases, the letter says, he sold part of his holdings in ConocoPhillips, Johnson & Johnson and Procter & Gamble Co.--"holdings I would have preferred to keep," he said.
Berkshire Hathaway
Berkshire Hathaway (NYSE: BRKA and NYSE: BRKB) is a conglomerate holding company headquartered in Omaha, Nebraska, U.S., that oversees and manages a number of subsidiary companies. Berkshire Hathaway's core business is insurance, including property and casualty insurance, reinsurance and specialty nonstandard insurance. The Company averaged an annual growth in book value of 20.3% to its shareholders for the last 44 years, while employing large amounts of capital, and minimal debt.
Warren Buffett is the company's chairman and CEO. Buffett has used the "float" provided by Berkshire Hathaway's insurance operations (a policyholder's money which it holds temporarily until claims are paid out) to finance his investments.
Berkshire's class A shares sold for $96,600 as of December 31, 2008, making them the highest-priced shares on the New York Stock Exchange, in part because they have never had a stock split. Shares closed over $100,000 for the first time on October 23, 2006 and closed at an all-time high of $150,000 on December 13, 2007.
Berkshire's CEO, Warren Buffett, is respected for his investment prowess and his deep understanding of a wide spectrum of businesses. His annual chairman letters are read and quoted widely.
The following is an excerpt from Warren Buffett's 2008 Shareholder Letter
To the Shareholders of Berkshire Hathaway Inc.:
Our decrease in net worth during 2008 was $11.5 billion, which reduced the per-share book value of both our Class A and Class B stock by 9.6%. Over the last 44 years (that is, since present management took over) book value has grown from $19 to $70,530, a rate of 20.3% compounded annually.*
The table on the preceding page, recording both the 44-year performance of Berkshire’s book value and the S&P 500 index, shows that 2008 was the worst year for each. The period was devastating as well for corporate and municipal bonds, real estate and commodities. By yearend, investors of all stripes were bloodied
and confused, much as if they were small birds that had strayed into a badminton game.
As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”
By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralyzing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.
This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.
Moreover, major 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.
Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.
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 211⁄2% 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. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.
Friday - Feb 27, 2008 close
Berkshire Hathaway Inc.(Public, NYSE:BRK.A)
78,600.00 +250.00
Yes. That's $78,600.00 per share. Symbol BRK.A
Can't short that...
