Even Warren Buffett is NOT Immune to World Financial Hurricane
A record of 34,500 faithful Warren Buffett investors flocked to Omaha over the weekend for much awaited Berkshire Hathaway’s annual shareholders’ meeting.
But not even the world’s most famous investor is immune to what he himself dubbed a World Financial Hurricane.
For the record, 2008 proved to be Buffett’s worst investment year on record, in large part due to his significant stake in the banking sector. Yet he’s convinced that the nation’s largest banks are in good shape.
- If the big investor like Warren Buffett is badly hit, What about Us?
This Warren Buffett’s Outlook for 2009:
Business Musings From Woodstock for Capitalists
by Scott Patterson and Alistair Barr
Tuesday, May 5, 2009
Buffett and Munger Play the Main Stage: Views on Newspapers, Triple-A Ratings, Complex Math and More
Here are some highlights of Warren Buffett’s and Charles Munger’s remarks at the Berkshire Hathaway Inc. shareholder meeting this past weekend.
Mr. Buffett on Newspapers
Mr. Buffett has long held himself out as a newspaper man. As a child, one of his first jobs was delivering newspapers. An Omaha newspaper Berkshire owned, Sun Newspapers, won a Pulitzer Prize in 1973 based in part on a tip Mr. Buffett provided. One of Berkshire’s biggest investments in the 1970s was the Buffalo News, which it still owns.
But his view on the future of the newspaper industry is dismal. "For most newspapers in the United States, we would not buy them at any price," he said. "They have the possibility of going to just unending losses."
As long as newspapers were essential to readers, they were essential to advertisers, he said. But news is now available in many other venues, he said.
Berkshire has a substantial investment in Washington Post Co. He said the company has a solid cable business, a good reason to hold on to it, but its newspaper business is in trouble.
Mr. Munger called newspapers’ woes "a national tragedy….These monopoly daily newspapers have been an important sinew to our civilization, they kept government more honest than they would otherwise be."
A Washington Post Co. representative couldn’t be reached for comment.
Mr. Buffett on Insurance
In response to a question about the worst possible development for Berkshire Hathaway’s vast insurance operations, Mr. Buffett responded: nationalization.
If inflation jumped and insurance policies became extremely expensive, pressure could rise on the government to nationalize the insurance industry, he said. "When people get outraged, politicians respond," Mr. Buffett said. It’s highly unlikely that such a development would happen, he added. But he did note the example of Social Security, which is a form of a nationalized annuity.
Mr. Buffett on Housing
"In the last few months you’ve seen a real pickup in activity although at much lower prices," Mr. Buffett said, citing data from Berkshire’s real-estate brokerage business, HomeServices of America Inc., which is one of the largest in the U.S.
In California, medium and lower-price homes — under $750,000 — have been selling more, though there hasn’t been a bounce back in sale prices, Mr. Buffett said. "We see something close to stability at these much-reduced prices in the medium to lower part of the market."
Mr. Buffett on Moody’s
Mr. Buffett was asked about Moody’s Investors Service, which gave a triple-A rating to billions of dollars of mortgage securities that subsequently lost value. Berkshire has a 20.4% stake in the company.
"Basically, four or five years ago, virtually everybody in the country had this model in their heads, formal or otherwise, that house prices could not fall significantly," Mr. Buffett said. He later added that "it was stupidity and the fact that everyone else was doing it."
He said that if Moody’s had started to take a negative view on residential real estate, the ratings provider would have been hauled before Congress to testify about why it was hurting the U.S. economy with its bearish ratings. "They made a huge mistake, and the American people made a huge mistake," he said.
A Moody’s representative couldn’t be reached for comment.
Mr. Buffett on Treasurys
Berkshire Hathaway had only one slide at this year’s annual meeting. It displayed a Dec. 19 trade ticket showing a Berkshire sale of $5 million of Treasury bills. They were coming due on April 29 this year, roughly four months after Berkshire sold them. Berkshire sold the bills for $5,000,090.70. If that buyer had instead put their money in a mattress, by April 29 they would have been $90.70 better off, he said. Negative yields on Treasury bills show how tumultuous last year was, Mr. Buffett added. "We may never see that again in our lifetimes," he noted.
Messrs. Buffett and Munger on Math and Theories
Messrs. Buffett and Munger made clear their complete disdain for the use of higher-order mathematics in finance.
"There is so much that’s false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that’s a goal you should reasonably hope for," Mr. Buffett said. Regarding complex calculations used to value purchases, he said: "If you need to use a computer or a calculator to make the calculation, you shouldn’t buy it."
Said Mr. Munger: "Some of the worst business decisions I’ve ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn’t. They teach that in business schools because, well, they’ve got to do something."
Mr. Buffett said: "If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won’t get tenure….Higher mathematics my be dangerous and lead you down pathways that are better left untrod."
Mr. Munger on the Future
"As I move close to the edge of death, I find myself getting more cheerful about the economic future," Mr. Munger said.
Mr. Munger sees "a final breakthrough that solves the main technical problem of man," he continued.
By harnessing the power of the sun, electrical power will become more available around the world. That will help humans turn sea water into fresh water and eliminate environmental problems, Mr. Munger explained. "If you have enough energy you can solve a lot of other problems."
Sources from Yahoo Finance
of course lah! hehe..
The rich are the most battered people in terms of crisis because of their various investments.
Buffett Posts Worst Stock Performance Against S&P 500 in Decade
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Warren Buffett recorded his worst performance against the stock market in a decade last year after committing $26 billion to a railroad takeover and lowering his expectations for investment returns.
Berkshire Hathaway Inc., the company Buffett has led as chairman for more than four decades, advanced 2.7 percent on the New York Stock Exchange in 2009, less than the 23 percent return in the Standard & Poor’s 500 Index. It was Berkshire’s worst showing since falling 20 percent in 1999, compared with a 20 percent gain in the index. Berkshire beat the index in 15 of the last 22 years.
Buffett, whose acquisitions and stock picks propelled Omaha, Nebraska-based Berkshire’s 30-fold increase in 20 years, is finding it harder to duplicate those returns as his company expands. The purchase of Burlington Northern Santa Fe Corp., announced in November, wasn’t “cheap,” Buffett said. The deal adds another business, along with luxury flights and manufactured housing, that suffers when the economy falters.
“This isn’t your father’s Berkshire,” said Jeff Matthews, the author of “Pilgrimage to Warren Buffett’s Omaha” and founder of the hedge fund Ram Partners LP. “It’s a protector of wealth and hopefully steady growth, but very dependent on the economy in ways that it hasn’t been in the past.”
Buffett, 79, won global renown as the “Oracle of Omaha” for stock picks, including Capital Cities/ABC Inc. in the 1980s and PetroChina Inc. in 2003, that produced multibillion-dollar gains. Berkshire doesn’t pay dividends or buy back stock, and Buffett’s main occupation as the company’s chief executive officer is deciding where to invest earnings from a portfolio of operating companies and securities.
Railroad Investment
The Burlington Northern deal, which Buffett calls an “all- in wager” on the U.S. economy, brings Berkshire 37,000 workers and a share of a regulated industry. Berkshire expects to own the railroad for the next century and get “a decent return,” Buffett said in a November interview with Charlie Rose on PBS.
“Reasonable return is good enough,” Buffett said in the interview. “You know, 50 years ago I was looking for spectacular returns, but I can’t get ‘em.”
Berkshire’s performance against the S&P 500 has slipped even according to Buffett’s favorite metric, book value per share. The measure of assets minus liabilities, which Buffett says most closely indicates a firm’s value, trailed the index three times in the 10 years through 2008 after lagging just three times in the previous 34. In the first nine months of 2009, Berkshire’s book value-per share gain trailed the S&P 500 again, 15 percent to 17 percent.
Outlook for Profit
Berkshire’s annual profits may return to growth this year, according to an estimate by Meyer Shields, an analyst at Stifel Nicolaus & Co. Profit, which fell by more than half in 2008, may rise 51 percent to $7.55 billion, according to Shields. Berkshire reported record profit of $13.2 billion in 2007.
Buffett, the second-richest American, positioned Berkshire to weather the contraction in the U.S. economy by stockpiling $44 billion in cash. Starting in 2008, when corporate borrowing costs surged, he drew on that hoard to finance Goldman Sachs Group Inc., General Electric Co., Swiss Reinsurance Co. and the Mars Inc. takeover of chewing-gum maker Wm. Wrigley Jr. Co.
Those transactions are paying coupons that helped boost investment income in the first nine months of the year. Still, losses at Berkshire’s NetJets subsidiary and earnings declines at Clayton Homes contributed to a pretax profit plunge of more than half to $1.57 billion at Berkshire’s manufacturing, service and retailing businesses.
“Many of Berkshire’s businesses were perhaps hit worse” than companies in the S&P 500, said Guy Spier, a principal at hedge fund Aquamarine Funds LLC, which owns Berkshire shares. “They have a huge exposure to the housing market; NetJets has been impacted.”
from:businessweek.com/news/2010-01-04/buffett-posts-worst-stock-performance-against-s-p-500-in-decade.html
Billionaire Buffett says bailout money will be paid back
OMAHA, Nebraska: Billionaire Warren Buffett and Henry Paulson, the former Treasury chief, said U.S. taxpayers will recover every cent paid out to banks during the economic meltdown and may even turn a profit.
The staunch Democrat investor and the Treasury secretary under President George W. Bush spoke onstage Tuesday before 2,400 at the Greater Omaha Chamber of Commerce’s annual meeting.
Paulson in his recently released book defended the government which scrambled to prevent failing U.S. banks from dragging down the global economy with them.
“As bad as this is, when we look back it’s not as bad as it could have been,” Paulson said.
And he said the United States is better off today than most countries.
“Every other major economy has many more significant challenges than we do,” Paulson said. But he said several significant challenges remain.
Paulson said he thinks compensation is normally out of whack on Wall Street, but now in the wake of all the government bailouts, many executive pay packages are excessive.
“I think today restraint is very much in order for the top people,” Paulson said.
Paulson’s 500-page book, “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System,” offers a chronological account of the rush to prevent an economic disaster as Lehman Brothers and American International Group spun toward collapse in September 2008.
Paulson served as treasury secretary from June 2006 to January 2009.
Buffett led the talk by asking Paulson about the book but didn’t make many comments himself.
Buffett said Paulson’s book gave him an appreciation of how well former President George W. Bush understood the economy and events during the crisis.
“Through the book, I gained more appreciation for what he did in this situation,” Buffett said.
But Buffett, the longtime Democrat, also pointed out Paulson’s positive statements about President Barack Obama.
Buffett praised the actions of Paulson, Federal Reserve Chairman Ben Bernanke and Paulson’s successor, Treasury Secretary Timothy Geithner.
Paulson also thanked Buffett, an icon to thousands of investors, who advised the former Treasury chief during the worst days of the economic downturn.
“He was a real source of strength during the financial crisis,” Paulson said.
Buffett, is chairman and CEO of Omaha’s Berkshire Hathaway Inc., a holding company with a roughly $173 billion market capitalization.
He plowed $5 billion one in Paulson’s former firm, Goldman Sachs, as the company struggled
fr:biz.thestar.com.my/news/story.asp?file=/2010/2/10/business/20100210080528&sec=business
Buffett criticizes corporate risk management
OMAHA, Nebraska (AP): Billionaire Warren Buffett said Saturday that CEOs and the boards that hired them should pay a steep price if their companies get into trouble with risky investments.
As part of his annual letter to Berkshire Hathaway Inc. shareholders, Buffett encouraged other corporations to develop meaningful penalties for top executives who misjudge risk so they will be more careful.
Buffett lamented that shareholders, not chief executives and directors, have borne most of the burden of company failures during the economic crisis of the past two years.
“In my view a board of directors of a huge financial institution is derelict if it does not insist that its CEO bear full responsibility for risk control,” Buffett wrote. “If he’s incapable of handling that job, he should look for other employment.
And if he fails at it – with the government thereupon required to step in with funds or guarantees – the financial consequences for him and his board should be severe.”
Buffett told his shareholders he initiates and takes full responsibility for every derivative contract Berkshire writes. Those contracts helped deliver a largely unrealized $787 million gain in investments in 2009 after a $7.5 billion loss recorded in 2008.
That gain in the value of investments helped Berkshire post net income of $8.055 billion, or $5,193 per Class A share, for 2009. That’s up 61 percent from the previous year’s $4.994 billion, or $3,224 per share, and better than analysts expected. Revenue rose 4.4 percent to $112.5 billion in 2009 from $107.8 billion a year earlier.
But Buffett also acknowledged mistakes he made in the past year, including allowing debt and losses at fractional jet ownership unit NetJets to grow for too long, and suggesting a credit card through the Geico insurance unit that turned into a fiasco.
Some 98 percent of Buffett’s net worth is tied up in Berkshire stock as part of the company’s owner-manager philosophy, meaning he takes a personal hit if the company performs badly.
Buffett devoted much of his annual letter to educating new shareholders about the company. Berkshire added about 65,000 stakeholders in February as part of its $26.7 billion acquisition of railroad operator Burlington Northern Santa Fe Corp.
So those new investors may not be familiar with Buffett’s hands-off approach to managing its roughly 80 subsidiaries or just what’s included in the Omaha-based company.
Berkshire’s holdings include clothing, furniture and jewelry businesses, but its insurance and utility businesses typically account for more than half of the company’s revenue. It also has major investments in companies such as Coca-Cola Co. and Wells Fargo & Co.
Buffett said he is “hoping to provide both a freshman orientation session for our BNSF newcomers and a refresher course for Berkshire veterans.”
Much of the reason for the increase in profit in 2009 had to do with the value of Berkshire’s investments and derivative contracts, some of which are tied to equity indexes. While Berkshire’s annual profit exceeded what analysts expected, the company fell short of the growth posted by the Standard & Poor’s 500 index, which is Buffett’s preferred measure of performance.
Buffett said Berkshire’s book value – assets minus liabilities _ grew 19.8 percent to $84,487 in 2009. The S&P 500, which Berkshire recently joined, gained 26.5 percent last year when dividends are factored in.
Three analysts surveyed by Thomson Reuters had estimated that Berkshire’s book value per share at the end of 2009 would be $83,391.44. They had expected full-year earnings per share of $4,712.47.
Berkshire finished the year with $30.6 billion in cash on hand, although it has since used about $8 billion of that to complete the BNSF acquisition. The company’s cash level is down 31 percent from the $44.3 billion it held at the end of 2008 because it made a number of investments.
“It’s been an ideal period for investors: a climate of fear is their best friend,” Buffett wrote.
fr:biz.thestar.com.my/news/story.asp?file=/2010/2/28/business/20100228084734&sec=business
Paper gains drive Berkshire’s profit skyward
OMAHA, Nebraska (AP): Berkshire Hathaway Inc.’s fourth-quarter profit bounced back sharply, thanks largely to an unrealized $1 billion gain on derivative contracts and investments.
Warren Buffett’s company said Saturday that its insurance and utility divisions performed well enough to help offset weakness in subsidiaries hurt most by the weak economy, such as NetJets, Acme Brick and other manufacturing and retail businesses.
Berkshire generated $3.056 billion in net income, or $1,969 per Class A share, during the quarter. That is up from $117 million net income, or $76 per share, a year earlier.
The three analysts surveyed by Thomson Reuters had expected Berkshire to report fourth-quarter earnings per share of $1,208.33 on average.
Berkshire said it generated $30.2 billion revenue in the fourth quarter. That is nearly 23 percent higher than the previous year’s fourth quarter revenue of $24.6 billion.
A year ago, largely unrealized losses of $3.3 billion from Berkshire’s investments and long-term derivative contracts weighed heavily on the Omaha-based company’s fourth quarter profit. But the value of the company’s investments and derivatives, some of which are tied to the value of stock market indexes, was significantly higher at the end of 2009 and added a $1.03 billion gain.
Buffett reiterated Saturday that he believes the derivatives will be profitable over their lifetime, partly because Berkshire held about $6.3 billion in derivative premiums at year’s end that it can invest.
Berkshire released its annual report along with Buffett’s letter to shareholders Saturday. The company describes the performance of its subsidiaries throughout 2009 in those reports, but doesn’t break out detailed information about the fourth quarter alone.
Buffett said Berkshire’s insurance unit, which includes Geico and reinsurance giant General Re, remains the “engine behind Berkshire’s growth” because the insurance companies give the company money to invest at little or no cost from premiums it holds until claims must be paid. That money, called float, grew to $62 billion at the end of 2009.
Buffett said Geico had 8.1 percent of the auto insurance market in 2009, but the company’s growth may slow this year because of slumping vehicle sales and high unemployment.
Berkshire’s insurance businesses generated $1.01 billion in net income from underwriting in 2009, down from $1.7 billion in 2008. But the investment income in the insurance division grew to $4.1 billion in 2009 from $3.5 billion a year earlier.
Berkshire’s utility division, which includes MidAmerican Energy Holdings Co. and PacifiCorp, added $1.07 billion net income during 2009, down from $1.7 billion in 2008.
In future quarters, Berkshire’s utility division will include its newest subsidiary, Burlington Northern Santa Fe railroad. Buffett said the railroad’s results and capital-intensive business are similar to a utility, so it made sense to put BNSF with Berkshire’s utilities.
The manufacturing, service and retail unit at Berkshire generated less than half the profit it did the previous year. Those businesses generated $1.1 billion in net income in 2009, down from $2.3 billion the year before.
Those businesses suffered because of the recession last year, and many of them, such as Acme Brick and Shaw Carpet, are tied to construction.
“These businesses continue to bump along the bottom, though their competitive positions remain undented,” Buffett said.
Berkshire owns roughly 80 subsidiaries, including clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses typically account for more than half of the company’s revenue. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
fr:biz.thestar.com.my/news/story.asp?file=/2010/2/28/business/20100228084629&sec=business
Buffett: I goofed on Geico credit card
NEW YORK: Warren Buffett is considered expert in many things in the financial world. Credit cards, apparently, are not among them.
The world’s second richest person often admits when he gets things wrong.
He did so on Saturday in his annual letter to shareholders of his insurance and investment company, Berkshire Hathaway Inc.
Buffett had a brainstorm – create a credit card for customers of Geico Corp, the third largest US car insurer, which Berkshire has owned since 1996.
Though Geico underwriting profit fell 29% last year as loss claims increased, premiums earned grew 9% as it won new business in part through US$800mil of advertising, many featuring a talking gecko.
Thanks to Geico chief Tony Nicely’s leadership, Buffett said he was “more excited” about Geico now than he was when he first visited the company in 1951, as a 20-year-old student. He’s probably referring to the car insurance.
“For many years,” Buffett wrote, “I had struggled to think of side products that we could offer our millions of loyal Geico customers. Unfortunately, I finally succeeded, coming up with a brilliant insight that we should market our own credit card.
“I reasoned that Geico policyholders were likely to be good credit risks and, assuming we offered an attractive card, would likely favour us with their business.”
And they did – but as at many traditional credit card lenders, it was the wrong type of business.
Buffett said Geico lost US$6.3mil pre-tax on cards before he “finally woke up.” It lost US$44mil more when it sold a US$98mil portfolio of card receivables, at 55 cents on the dollar.
“Your chairman closed the book on a very expensive business fiasco entirely of his own making,” Buffett wrote.
“Geico’s managers, it should be emphasised, were never enthusiastic about my idea,” he went on.
“They warned me that instead of getting the cream of Geico’s customers we would get the well, let’s call it the non-cream. I subtly indicated that I was older and wiser.”
Buffett said he was half-right. “I was just older.” Buffett is 79
fr:biz.thestar.com.my/news/story.asp?file=/2010/3/1/business/5767743&sec=business
Warren Buffet subsidiary buys liquor distributor
OMAHA, Nebraska: A subsidiary of Warren Buffett’s company said Monday that it’s buying a liquor distributor that serves Georgia and North Carolina.
Terms of the McLane Co.’s acquisition of Kahn Ventures Inc. and Empire Distributors weren’t disclosed in the statement announcing the deal.
Buffett, who is chairman and CEO of McLane’s Omaha-based parent company Berkshire Hathaway Inc., says he’s excited about the Empire deal because of the opportunities Berkshire, McLane and Empire envision in the beverage industry.
“We expect that the Empire acquisition will provide us with a solid platform for potentially acquiring other similar high quality wholesale distributors,” Buffett said in a statement.
Neither Buffett nor a McLane spokesman responded immediately to messages left Monday.
In keeping with Berkshire’s practice, no changes are planned at Empire.
The news release said the Atlanta-based distributor will continue operating just as it has for 70 years.
Empire has eight facilities equipped with high-tech equipment, including bottle scanning and GPS routing, to help them operate efficiently.
Berkshire said with the acquisition Empire will gain access to more resources and operational best practices.
McLane is one of Berkshire’s roughly 80 subsidiaries. It is based in Temple, Texas, and distributes groceries, tobacco and other items to convenience stores, drug stores, wholesale clubs and other retailers.
Berkshire bought McLane from Wal-Mart in 2003.
Berkshire owns clothing, furniture, jewelry and corporate jet firms, but its insurance and utility businesses accounted for more than one-third of the company’s revenue last year.
It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.
fr:biz.thestar.com.my/news/story.asp?file=/2010/3/23/business/20100323083024&sec=business