Close

Warren Buffett Has Worst Year Ever, In Market He's "Never Before Witnessed"

February 28, 2009 1:27 PM EST
Like most everyone else, 2008 was a rough year for legendary investor Warren Buffett. But while the common investor lost thousands in investment value The Oracle of Omaha, as he is commonly referred, lost billions.

Buffett's Berkshire Hathaway (NYSE: BRK.a) holding company showed a 9.6% decline in per-share book value in 2008, which, while better than the 37% decline (including dividends) in the S&P 500, was his worst year since taking over in 1965. In fact, it is only the second time Berkshire has shown a decline in book value - the other was 2001 with a 6.2% drop.

Berkshire's fourth-quarter net income fell a mind-blowing 96%, to $117 million, from last year's $2.9 billion fourth-quarter income. Annual income dropped to $4.99 billion in 2008 from $13.21 billion.

Buffett also painfully admitted, "During 2008 I did some dumb things in investments." He said one of those mistakes was buying a large amount of ConocoPhillips (NYSE: COP) stock when oil and gas prices were near their peak. He said the ConocoPhillips purchase has cost Berkshire several billion dollars, although he still thinks oil prices can recover. Buffett said a smaller mistake was paying $244 million for shares of two Irish banks that lost 89% by year end. Buffett said he was happy with his high-yielding fixed-income investments in General Electric (NYSE: GE), Goldman Sachs (NYSE: GS) and Wrigley. He regrets having to sell some stocks he would have liked to keep to fund the fixed-income investments, including Johnson & Johnson (NYSE: JNJ), Procter & Gamble (NYSE: PG) and ConocoPhillips (NYSE: COP). Link to all Buffett's holdings and moves from the fourth quarter.

In Buffett's 2008 letter to shareholders, he said, "By year end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game." He noted a dysfunctional credit market turned into a non-functional one, and the watchword throughout the country became the creed he saw on restaurant walls when was young: "In God we trust; all others pay cash."

Buffett noted that by the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had "produced a paralyzing fear that engulfed the country". A freefall in business activity ensued, accelerating at a pace that Buffett himself has "never before witnessed."

Buffett noted that to combat a vicious negative-feedback cycle the Fed was forced to go "all in." He said once-unthinkable dosages of "economic medicine" were dispensed by the barrel, which he warns will almost certainly bring on unwelcome aftereffects. On the effects, Buffett said, "their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation."

Still, despite the 2008 set-back, Buffett's Berkshire has shown a compounded annual gain of 20.3% from 1965-2008 and an overall gain of a whopping 362,319% during that time.

Buffett also had some words of encouragement, nothing that the U.S. has faced far worse travails in the past, including, two great wars; a dozen or so panics and recessions; virulent inflation that led to a 21 1⁄2% prime rate in 1980; and the Great Depression. We've overcome them all and Buffett confidently states "America's best days lie ahead." We all hope he's right, and if anyone has a history of being right much more than he is wrong it is Mr. Buffett.

You can track more on Warren Buffett here or view his portfolio here.

You May Also Be Interested In





Related Categories

Hot List, Insiders' Blog, Trader Talk

Related Entities

Warren Buffett, Goldman Sachs, Standard & Poor's, Dividend