Billions Lost By Warren Buffett

Posted On UK Telegraph.

Warren Buffett loses billions

• Billionaire Warren Buffett, the Sage of Omaha, has recorded his worst financial performance since taking over famed US investment group Berkshire Hathaway in 1965.
  
  The group's net worth dropped by $10.9bn (£7.6bn) in the final quarter of 2008 to end the year at $109.2bn.
  
  His investments and broad mix of insurance, utility, manufacturing and services businesses barely broke even, with quarterly net income sinking 96pc to $117m.
  
  In his annual letter to shareholders, released yesterday, Mr Buffett pointed the finger at $4.61bn of pre-tax losses booked on falls in the market value of 251 derivative contracts that he had personally approved. These included 15-20 year bets that the FTSE 100 and S&P 500 would recover all their recent losses.
  
  Mr Buffett described derivatives as "dangerous", but he remained convinced that they were a good bet. "I believe each contract we own was mispriced at inception, sometimes dramatically so. If we lose money on our derivatives, it will be my fault," he wrote.
  
  Nineteen of top 20 stocks in Berkshire's US portfolio, valued at $51.9bn, fell last year. Coca-Cola, its top holding, dropped 26pc and American Express plunged 64pc.
  
  Mr Buffett, 78, said he would maintain Berkshire's "Gibraltar-like financial position" during 2009 by retaining "huge amounts of excess liquidity, near-term obligations that are modest and dozens of sources of earnings".
  
  But he offered a gloomy outlook, saying: "The [US] economy will be in shambles throughout 2009 – and probably well beyond."
  
  He also upped his attack of the US government's bail-out of his insurance and banking rivals. "Though Berkshire's credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing," he wrote. "At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one."
  
  He said he would continue to buy shares and bonds from companies. "Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down," he quipped. However, he hinted that his focus this year would be in snapping up companies at bargain prices that had the potential for solid earnings growth in the future. "We like buying underpriced securities, but we like buying fairly-priced operating businesses even more," he wrote.
  
  Despite his near-mythical status, Mr Buffett readily admitted that he was fallible. "During 2008 I did some dumb things in investments," he said, pointing to his decision to increase the fund's stake in oil and gas giant ConocoPhillips at peak prices as he did not anticipate the dramatic fall in energy prices in the second half of the year. It cost Berkshire shareholders several billion dollars.
  
  Berkshire Class A shares closed on Friday at $78,600 (£55,138) and have fallen 44pc since the end of February 2008. Over the last 44 years, the value of Berkshire's net assets has rocketed from $19 to $70,530 a share, a growth rate of 20.3pc compounded annually.

Here is his shareholders letters for 2008: http://www.berkshirehathaway.com/letters/2008ltr.pdf

Do give it a nice read. :D