Buffett Takes Blame For Firm's Ugly Year
Sunday, March 1, 2009
OMAHA, Feb. 28 -- The widely followed investor Warren E. Buffett issued his annual letter to shareholders yesterday, accepting blame for Berkshire Hathaway's worst showing in his 44 years as chairman and chief executive.
"During 2008 I did some dumb things in investments," he wrote, adding later, "I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action."
But Buffet wrote that he remains hopeful about the long-term prospects for his company and the nation despite the turmoil shaking the world's economies.
"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," he wrote.
America faced bigger economic challenges in the past, including two world wars and the Great Depression, he said.
"Though the path has not been smooth, our economic system has worked extraordinarily well over time," Buffett wrote. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."
Buffett estimated that Berkshire's book value -- assets minus liabilities -- declined 9.6 percent, to $70,530 per share in 2008 -- the biggest drop since he took control of the company in 1965. Berkshire's book value has declined one other time under Buffett's leadership, and that was a 6.2 percent drop in 2001 when insurance losses related to the Sept. 11 terrorist attacks hurt results.
Berkshire's Class A shares fell nearly 32 percent in 2008 and have declined 48 percent since setting a high of $151,650 in December 2007. That high came after an exceptionally profitable quarter that was helped by a $2 billion investment gain.
The S&P 500 fell 38 percent in 2008.
Within Berkshire, 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.
Berkshire's utility and insurance businesses delivered outstanding results in 2008 that helped balance out the other businesses, he said. Buffett praised Geico chief executive Tony Nicely's ability to increase Geico's market share to 7.7 percent of the auto insurance market last year.
"As we view Geico's current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere," Buffett wrote.