Warren Buffett’s Berkshire Hathaway Not Immune to Stock Market Blood Bath of 2008

February 28, 2009

(ChattahBox) — Just like most of us, revered investor Warren Buffet got killed in the stock market last year. Buffett released his annual letter to Berkshire Hathaway Inc. shareholders Saturday morning, and it was mostly bad news, with the worst performance in his 44 years leading the Omaha-based insurance and investment company.

Berkshire’s 2008 net income of $4.99 billion, or $3,224 per Class A share, was down from $13.21 billion, or $8,548 per share, in 2007.

Buffett says the economic turmoil that contributed to a 62 percent profit drop last year at Berkshire is certain to continue in 2009.

Buffett wrote he’s certain “the economy will be in shambles throughout 2009 and, for that matter, probably well beyond _ but that conclusion does not tell us whether the stock market will rise or fall.”

Buffett did offer a hopeful outlook of the nation’s future.

He said America has faced bigger economic challenges in the past, including two World Wars and the Great Depression.

Berkshire owns a diverse mix of more than 60 companies, including insurance, furniture, carpet, jewelry, restaurants and utility businesses. And it has major investments in such companies as Wells Fargo & Co. and Coca-Cola Co.

Buffett said the company’s retail businesses, including furniture and jewelry stores, and those tied to residential construction, such as Shaw carpet and Acme Brick, were hit hard last year, and they will likely continue to perform below their potential in 2009.

But he said Berkshire’s utility and insurance businesses, which includes Geico, both delivered outstanding results in 2008 that helped balance out the other businesses.

Buffett devoted nearly five pages of his letter to shareholders explaining the role derivatives played in the company’s investment losses last year.

Buffett said he initiated all of Berkshire’s 251 different derivative contracts because he believes they were mispriced in Berkshire’s favor.

Buffett also admitted investment mistakes last year including buying a large amount of ConocoPhillips stock when oil and gas prices were near their peak.

Berkshire increased its stake in ConocoPhillips from 17.5 million shares in 2007 to 84.9 million shares at the end of 2008.

Buffett said he did not anticipate last year’s dramatic fall in energy prices (me neither), so his decision cost Berkshire shareholders several billion dollars.

Buffett says he also spent $244 million on stock in two Irish banks that appeared cheap. But since then, he’s had to write down the value of those purchases to $27 million.


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