Buffett After His Disastrous 2008 : Even I Cannot Tell The Future.
The long-awted letter to his Berkshire Hathaway Shareholders was released yesterday by billionaire Warren Buffet and he admits to having had a very bad 2008 with record losses and share value drops.
He is also convinced that 2009 is out the window given the disastrous state of the US and global economies but beyond that he is hesitant to predict the future - at least the immediate future.
Let us take a look at what his investor letter contained and where Mr Buffet sees it all heading.
MarketWatch quotes Buffet from his letter with regards to future predictions :
We’re certain, for example, that 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 wrote.
The article goes on to quote a brutally honest Buffett on his 2008 mistakes and bad investment choices and timings :
Buffett, known as the “Oracle of Omaha,” admitted to mistakes last year. “During 2008 I did some dumb things in investments,” he said. One such error, he said, was the purchase of a large amount of Conoco Phillips Inc. stock when oil and gas prices were nearing peak levels.“I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year,” he said. “I still believe the 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. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.”Buffett also said his acquisition of shares in two Irish banks have turned out badly — with losses of more than 89%.
On the positive side, the investor is pleased with buys totaling $14.5 million in fixed-income securities issued by General Electric Co. and William Wrigley Co. “We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus.”
Commenting on the federal government’s actions to resolve the economic crisis, Buffett said: “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.”Inflation is likely to be one such effect, Buffett said.“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.”
For all of 2008, profit at Berkshire Hathaway (nyse: BRK.B - news - people ) fell 62.1%, to $5 billion from $13.2 billion. Earnings were the lowest since 2002. Revenue fell 8.8% to $107.8 billion.
But Buffett still handily outstripped the S&P 500. Berkshire’s per-share book value fell 9.6% in 2008 (his worst performance), vs. a 37% drop in the index. It was only his second decline in Berkshire’s per-share book value since 1965, the year he took over running the company; in that time, the S&P 500 has had 11 losing years.
NYDailyNews.com quotes Mr Buffett on his predictions for a full recovery having seen similar or even worse times in that past :
“By year end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game,” he wrote.
Yet he expressed confidence that the nation’s economy would turn around, citing the country’s resilience through two World Wars and the Great Depression.
“Amid this bad news, however, never forget that our country has faced far worse travails in the past,” Buffett wrote in his 21-page review.
“America has had no shortage of challenges. Without fail, however, we’ve overcome them.”
The veteran businessman did say he had never experienced anything like the economic woes that hit the country during the last year of the Bush administration.
“A paralyzing fear … engulfed the country,” he said. “A freefall in business activity ensued, accelerating at a pace that I have never before witnessed.”
It remains a fact that Warren Buffett has got it right many more times than he got it wrong and he is still widely regarded as one of the world’s smartest and most successful investors so whilst he may have mis-timed some investments in 2008, and most notably the Conoco Phillips one, he is more than likely to bounce back in the years to come and this blogger advises his readers to keep a close eye on the activities of Berkshire Hathaway Inc.
Read his full investor letter here.
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