Buffett's Berkshire Hathaway Fails to Beat S&P 500 Last Year, But Says Burlington Northern Deal "Better Than Expected"
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Warren Buffett's Berkshire Hathaway (NYSE: BRK/A) (NYSE: BRK/B) released its highly anticipated annual report and shareholder letter over the weekend. The results showed that Berkshire grew book value by 13% in 2010, underperforming the 15.1% gain in the S&P 500. This is the second year in a row the conglomerate failed to beat its benchmark and only the eighth time in its 46 year history.
While Mr. Buffett didn't top his goal last year, all is not lost. Shareholders of Berkshire have seen a compounded annual gain of 20.2% from 1965-2010, more than double the S&P 500's 9.4% during the same time period.
In his letter to shareholders, Mr. Buffett indicated the 2010 purchase of Burlington Northern Santa Fe is "working out even better than I expected." Burlington Northern is now expected to increase the company's "normal" earning power by nearly 40% pre-tax and by well over 30% after-tax.
Buffett sees this year free of a "mega-catastrophe" in insurance. He sees the business climate "somewhat better than that of 2010 but weaker than that of 2005 or 2006."
He sees the "normal" earning power of current Berkshire assets of about $17 billion pre-tax and $12 billion after-tax, excluding any capital gains or losses.
Mr. Buffett advised shareholders that no matter what the doomsdayers say about the country, "America's best days lie ahead."
More major acquisitions will be needed a Berkshire to continue to grow, and according to Mr. Buffet they are prepared. "Our elephant gun has been reloaded, and my trigger finger is itchy," Buffett stated.
Commenting on the five large fixed income investments, Buffet noted that the Swiss Re note was redeemed in the early days of 2011, and two others – Goldman Sachs (NYSE: GS) and General Electric (NYSE: GE) preferred stocks – are likely to be gone by year end. According to Buffet, GE is entitled to call the preferred in October and has stated its intention to do so. Goldman Sachs has the right to call our preferred on 30 days notice, but the Federal Reserve has held its back, but according to Buffett "unfortunately will likely give Goldman the green light before long."
While the Fed's actions will hurt the company's Goldman Sachs fixed income investment, it will benefit their large holding of Wells Fargo (NYSE: WFC) common stock. Buffett noted that soon the Fed will give Wells Fargo and other banks the green light to raise their dividend. When this occurs, Buffet said, "we would expect our annual dividends from just this one security to increase by several hundreds of millions of dollars annually."
Buffett also expects Coke (NYSE: KO) to raise its dividend this year, as it has done every year since they purchased the stock in 1995. He expects to receive $376 million from Coke in 2011, up $24 million from last year. In ten years, he expects this to double and said that Berkshire's share of Coke's annual profit should exceed what was paid for the original investment.
While Mr. Buffett didn't top his goal last year, all is not lost. Shareholders of Berkshire have seen a compounded annual gain of 20.2% from 1965-2010, more than double the S&P 500's 9.4% during the same time period.
In his letter to shareholders, Mr. Buffett indicated the 2010 purchase of Burlington Northern Santa Fe is "working out even better than I expected." Burlington Northern is now expected to increase the company's "normal" earning power by nearly 40% pre-tax and by well over 30% after-tax.
Buffett sees this year free of a "mega-catastrophe" in insurance. He sees the business climate "somewhat better than that of 2010 but weaker than that of 2005 or 2006."
He sees the "normal" earning power of current Berkshire assets of about $17 billion pre-tax and $12 billion after-tax, excluding any capital gains or losses.
Mr. Buffett advised shareholders that no matter what the doomsdayers say about the country, "America's best days lie ahead."
More major acquisitions will be needed a Berkshire to continue to grow, and according to Mr. Buffet they are prepared. "Our elephant gun has been reloaded, and my trigger finger is itchy," Buffett stated.
Commenting on the five large fixed income investments, Buffet noted that the Swiss Re note was redeemed in the early days of 2011, and two others – Goldman Sachs (NYSE: GS) and General Electric (NYSE: GE) preferred stocks – are likely to be gone by year end. According to Buffet, GE is entitled to call the preferred in October and has stated its intention to do so. Goldman Sachs has the right to call our preferred on 30 days notice, but the Federal Reserve has held its back, but according to Buffett "unfortunately will likely give Goldman the green light before long."
While the Fed's actions will hurt the company's Goldman Sachs fixed income investment, it will benefit their large holding of Wells Fargo (NYSE: WFC) common stock. Buffett noted that soon the Fed will give Wells Fargo and other banks the green light to raise their dividend. When this occurs, Buffet said, "we would expect our annual dividends from just this one security to increase by several hundreds of millions of dollars annually."
Buffett also expects Coke (NYSE: KO) to raise its dividend this year, as it has done every year since they purchased the stock in 1995. He expects to receive $376 million from Coke in 2011, up $24 million from last year. In ten years, he expects this to double and said that Berkshire's share of Coke's annual profit should exceed what was paid for the original investment.
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