"Buffett Apologizes for Bad Year"
Dale: You'll get a kick out of this recent article. :)
Razor
Buffett Apologizes for Bad Year
Oracle of Omaha Also Issues Stock Market Warning, Sells Disney Shares
March 11, 2000: 10:35 p.m. ET
NEW YORK (CNNfn) - Billionaire investor Warren Buffett apologized Saturday for his company's dismal performance last year, calling 1999 the worst year in his tenure.
In his annual letter to shareholders of Berkshire Hathaway Inc. (BRK.A: Research, Estimates) - which Buffett runs - the respected stock picker also sounded a note of caution about the stock market, saying investors seemed "wildly optimistic in their expectations for future returns."
"If investor expectations become more realistic -- and they almost certainly will -- the market adjustment is apt to be severe, particularly in sectors in which speculation has been concentrated," he warned, in an apparent reference to Internet stocks and other high-flying technology issues.
In the past, Buffett's letters have attracted considerable attention on Wall Street because many investors try to pattern their holdings to mirror his strategy in the hope they will also duplicate his considerable wealth. However, over the last 12 months, Buffett's Omaha, Neb.-based Berkshire Hathaway has stumbled badly, prompting some stock watchers to wonder if Buffett's strategy of focusing on long term investments rather than high-flying technology stocks is losing some of its luster.
A bad year for the 'Oracle of Omaha'
Last year, Berkshire Hathaway earned $1.6 billion, or $1,025 per share, compared with $2.8 billion, or $2,262 per share in 1998. The company's stock price tumbled nearly $14,000 to $56,100 a share.
All that in a year when the Standard & Poor's 500 was up 19.5 percent, the Dow Jones industrial average was up 25.2 percent and the technology-driven Nasdaq soared 85.6 percent.
So far this year, Berkshire's stock price has continued to plummet, closing Friday at $41,300 per share, down 26 percent since January.
In his letter, the so-called Oracle of Omaha blamed himself for the firm's poor performance.
"We had the worst absolute performance of my tenure and, compared to the S&P, the worst relative performance as well," Buffett said. "Even Inspector Clouseau could find last year's guilty party -- your chairman."
Nevertheless, Buffett said the company has not lost faith in its long-term investments.
"We still like these businesses and are content to have major investments in them," Buffett said. "But their stumbles damaged our performance last year, and it's no sure thing that they will quickly regain their stride."
"Our problem which we can't solve by studying up is that we have no insights into which participants in the tech field possess a truly durable competitive advantage," Buffett said. "Our lack of tech insights, we should add, does not distress us."
Disney, Wells Fargo stakes reduced
Among Berkshire's investments are substantial insurance holdings, including auto insurer GEICO and General Re Corp., one of the largest reinsurers in the world, which suffered significant underwriting losses of $897 million last year. The company's top holdings also include American Express, Coca-Cola, Gillette and the Washington Post.
However, Walt Disney Co (DIS: Research, Estimates) is no longer among the list of top holdings worth at least $750 million. In 1998, Berkshire owned just over 51 million shares of Disney, worth about $1.5 billion at the time. The report does not say how many Disney shares Berkshire sold last year. Buffett apparently also reduced his stake in Wells Fargo Co (WFC: Research, Estimates) slightly last year.
As for the insurance business, Buffett said he did not expect a dramatic improvement in underwriting earnings and expected that GEICO's underwriting performance would likely weaken this year. He also said he expected auto insurers as a group to do worse in 2000.
Share buyback possible
Berkshire said it may consider share repurchases if its battered stock price remains depressed, but would most likely stick to private transactions.
"If we do find that repurchases make sense, we will only rarely place bids on the New York Stock Exchange," Buffett said. "Instead, we will respond to offers made directly to us at or below the NYSE bid."
"We will never make purchases with the intention of stemming a decline in Berkshire's price," Buffett said. "Rather we will make them if and when we believe that they represent an attractive use of the company's money. At best, repurchases are likely to have only a very minor effect on the future rate of gain in our stock's intrinsic value."
Despite the weak showing in 1999, Buffett said he expected Berkshire's returns to "modestly exceed" that of the S&P 500 Index over the next decade, although he added that he did not expect the index to perform as well over the next decade or two as it has since 1982.
"We can't guarantee that, or course," Buffett said. "But we are willing to back our conviction with our money. To repeat a fact you've heard before, well over 99 percent of my net worth resides in Berkshire. Neither my wife nor I have ever sold a share of Berkshire and -- unless our checks stop clearing - we have no intention of doing so."
-- from staff and wire reports.
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