UNITED STATES-BUFFET GETS IT WRONG AND HE IS ADVISING THE GOVERNMENT.
Warren Buffett’s Berkshire Hathaway Inc. (BRKA, BRKB) reported Saturday morning that 2008 was the legendary investor’s worst year ever. It also reported a grim fourth quarter, though it eked out a slight gain.
A common metric Berkshire uses to track performance, book value per share, fell 9.6% in 2008, its biggest decline since Buffett took over the company in 1965.
It was only the second year in more than 40 years that Berkshire posted negative results. In 2001, Berkshire’s book value per share fell 6.2%. The company’s performance in 2008 still far outpaced the Standard & Poor’s 500-stock index, which fell 37% last year, including dividends.
Berkshire’s fourth-quarter net income was $117 million, a whopping 96% decline from last year’s $2.9 billion fourth-quarter income. The results mark Berkshire’s fifth year-over-year quarterly decline in a row.
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. (KO) and American Express Co. (AXP). Berkshire also owns See’s Candy, Fruit of the Loom and Benjamin Moore paint, but its insurance businesses generate the bulk of the parent company’s results.
In his letter to shareholders, Buffett conceded that he "did some dumb things" in the past year, such as boosting the company’s holdings of the oil giant ConocoPhillips (COP) 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. Buffett said he believes "odds are good that oil sells far higher in the future than the current $40 to $50 price. But so far I have been dead wrong."
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.
Buffett also said that in the fourth quarter, a "series of life-threatening problems within many of the world’s great financial institutions was unveiled.." Credit markets turned "non-functional," Berkshire’s chairman said.
Still, Buffett struck an upbeat note in his letter that detailed the current woes of the financial system. "[N]ever forget that our country has faced far worse travails in the past. ...Without fail, however, we’ve overcome them."
Amid the turmoil of last year, Buffett did make some moves that could pay off in the long run. In late September, he agreed to buy $5 billion of perpetual preferred stock with a 10% yield from Goldman Sachs Group Inc. (GS), which was reeling after the collapse of Lehman Brothers Holdings Inc. (LEH).
The deal, concocted in the heat of the moment during the September swoon, was agreed to in a matter of hours as Buffett swigged Cherry Coke and munched mixed nuts from his office in Omaha.
Berkshire also received warrants to purchase Goldman common stock at $115 a share. While the vote of confidence in Goldman by the savvy investor temporarily helped stabilize the bank’s share price at around $120, since then Goldman’s stock has wilted well below $100.
In October, Buffett agreed to invest $3 billion, and potentially as much as $6 billion, in General Electric Co. (GE) preferred shares, which also sport a 10% yield. Friday, GE said it would slash its quarterly stock dividend by more than two-thirds to 10 cents a share, letting the company salt away about $9 billion a year. The move doesn’t have an impact on Buffett’s preferred holdings, however.
Berkshire recently has made other high-yielding investments in companies ranging from Swiss Reinsurance Co. to Harley-Davidson Inc.
