Berkshire Hathaway Reports Record Losses
February 28th, 2009 at 1:06 pm - by Ana Danijela
World renowned investor and chairman of investment company Berkshire Hathaway, Warren Buffett released a document full of bad news to shareholders, after net income fell by nearly 65 per cent in 2008.
“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.”
Buffett concedes that “investment mistakes,” are to blame, rather than taking the cop out of bad market conditions. Buffett’s investment style depends on market conditions like the current, where “bargains” and “sales” allow the investment company to make purchases which are based on real economic value, rather than emotion or irrationality.
The investor admits that mania associated with oil prices and a purchase in the company ConocoPhillips, dependent on oil and gas prices, when they were at a peak. The company’s stake in Conoco increased from 17.5 million to 85 million by the end of 2008.
“I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year, I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong,” said Buffett.
The chairman also discussed the credit crisis, saying that tumbling home and stock prices had “paralyzed” the economy with fear, resulting in a freefall in business activity.
“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. ”
Buffett says he was unimpressed with the actions of boards and bosses on Wall Street, as well as placing blame on weak government regulations for the current financial crisis and global recession.
“When I read the pages of ‘disclosure’ in 10-Ks of companies that are entangled with these (derivative) instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some Aspirin).”
