Berkshire Hathaway not immune to global economic crisis
02 Mar 2009
Warren Buffett, a value investor and often called lender of the last resort, is not immune to the global financial crisis as his investment company posted it worst ever loss in 44 years by a hefty $11.5 billion decline in net worth for 2008.
From $120.16 billion at the end of September, Berkshire's net worth fell to $109.27 billion at year end and fourth quarter net income quarterly dipped 96 per cent to and revenue by 12 per cent to $24.59 billion for the same period a year earlier.
The results were Berkshire's fifth year-over-year quarterly decline in a row.
The company's book value per share fell 6.2 per cent although its 2008 performance was far better than Standard & Poor's 500-stock index, which fell 37 per cent in the same year.
In his letter to shareholders, Warren Buffett says ''As the year progressed, a series of life-threatening problems within many of the world's great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: ''In God we trust; all others pay cash.''
By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced a paralysing fear that engulfed the country. A freefall in business activity ensued, accelerating at a pace that I have never before witnessed. The US, and much of the world, became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.
Omaha, Nebraska-based Berkshire's company book value-assets minus liabilities declined 9.6 per cent to $70,530 per share in 2008.
Buffett goes on to say that forth quarter was the worst that he had seen ''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 I have never before witnessed. The US and much of the world became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.
Buffett admited also that he did some 'dumb things' in 2008 like hiking the holding in ConocoPhillips at a time when oil prices were at the peak and since then has fallen sharply bring the share price of the oil giant along with it.
Praise for Ajit Jain
Indian born Ajit Jain, who runs Berkshire's reinsurance division headquartered in Stamford, came in for special praise in the letter. The division is staffed by only 31 employees.
"This may be one of the most remarkable businesses in the world, hard to characterise but easy to admire, said the legendary investor.
He said. "From year to year, Ajit's business is never the same. It features very large transactions, incredible speed of execution and a willingness to quote on policies that leave others scratching their heads. When there is a huge and unusual risk to be insured, Ajit is almost certain to be called.
Ajit came to Berkshire in 1986. Very quickly, I realized that we had acquired an extraordinary talent. So I did the logical thing: I wrote his parents in New Delhi and asked if they had another one like him at home.Of course, I knew the answer before writing. There isn't anyone like Ajit, " he said.
