Buffett still optimistic after rough 2008
Warren Buffett says the economic turmoil that contributed to a 62 percent profit drop last year at the holding company he controls is certain to continue in 2009, but the revered investor remains optimistic.
Buffett released his annual letter to Berkshire Hathaway shareholders Saturday morning, and detailed the worst of his 44 years leading the Omaha-based company. But in between the news of Berkshire's sharply lower profit and its nearly $7.5 billion investment and derivative losses, Buffett offered a hopeful view of the nation's future.
He said America has faced bigger economic challenges in the past, including two World Wars and the Great Depression.
"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."
Within Berkshire, Buffett said the company's retail businesses, including furniture and jewellery 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.
Berkshire's 2008 net income of $4.99 billion, or $3,224 per Class A share, was down from last year's $13.21 billion, or $8,548 per share, in 2007.
The two analysts surveyed by Thomson Reuters on average expected Berkshire to report a 2008 profit of $5,534.50 per share. But the estimates typically exclude one-time items.
Buffett estimates Berkshire's book value - assets minus liabilities - declined 9.6 percent to $70,530 per share in 2008. Berkshire's book value declined only one other time under Buffett, and that was a 6.2 percent decline in 2001.
But Berkshire's 9.6 percent decline still beat the S&P 500's 37 percent decline in 2008, the report said.
Buffett devoted nearly five pages of his letter to Berkshire Hathaway shareholders to explaining the role derivatives played in the company's investment losses last year.
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