One year later...The stock has risen 74 percent from the same day 12 months ago. The tech-heavy Nasdaq has fallen 59 percent in the same time.
Berkshire Doubles Profits
By Bill Rigby
NEW YORK (Reuters) - Billionaire investor Warren Buffett bounced back from disappointments on Saturday as his Berkshire Hathaway Inc. (NYSE:BRKa - news) reported doubling profits for the year 2000, fueled by growth in its patchwork of old-economy subsidiaries and gains from long-standing investments.
Last year -- which Buffett called the worst ever for the firm -- profits were cut by shabby investment returns largely due to Buffett's refusal to join the technology stock craze.
Buffett emerged triumphant on Saturday as Berkshire reported net profits rose 114 percent for 2000, as investment gains more than made up for underwriting losses in its main insurance businesses.
``Overall, we had a decent year,'' said 70-year-old Buffett, in his annual letter to shareholders, posted on Saturday on the firm's Web site (www.berkshirehathaway.com).
Buffett reiterated his view that Berkshire prefers to make money in old-fashioned businesses and investments, rather than speculating on overvalued stocks.
``We have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint,'' said Buffett in his letter. ``Try to control your excitement.''
Berkshire reported net profit for 2000 of $3.328 billion, or $2,185 per share, up from $1.557 billion, or $1,025 per share, in 1999.
Berkshire's stock, which has never been split in Buffett's 36 years in charge, closed at $71,100 on Friday on the New York Stock Exchange.
The stock has risen 74 percent from the same day 12 months ago. The tech-heavy Nasdaq has fallen 59 percent in the same time.
CASHES IN SOME INVESTMENTS
The Omaha, Nebraska-based holding company -- whose main business is insurance but also has subsidiaries in a range of old-economy sectors, from furniture to jewelry to plane leasing -- made its profits from cashing in some investments.
The 2000 figure was largely made up of realized investment gains -- which the firm notches up when its sells stocks or bonds -- of $2.392 billion. The year before, Berkshire reported similar realized gains of only $886 million.
During last year, Berkshire sold nearly all its shares in the U.S. mortgage finance company Freddie Mac (NYSE:FRE - news), which were worth about $2.8 billion at the end of 1999. Berkshire now owns only 0.3 percent of Freddie Mac, down from 8.6 percent at the end of 1999.
Berkshire's other major stock holdings remained largely unchanged during 2000. The firm still owns 11 percent of credit card giant American Express Co (NYSE:AXP - news), 8 percent of soft-drink maker Coca-Cola Co. (NYSE:KO - news), 9 percent of consumer goods firm Gillette Co. (NYSE:G - news) and 18 percent of newspaper publisher The Washington Post Co. (NYSE:WPO - news).
These and other stock holdings were worth $37.6 billion in value at the end of 2000, the company said. That is only slightly higher than $37.0 billion at the end of 1999, reflecting the poor returns on U.S. stocks last year.
``There are no 'bargains' among our current holdings,'' said Buffett in his shareholders' letter. ``We're content with what we own but far from excited by it.''
Buffett reiterated his comments from the previous year's letter that he would rather buy whole companies than blocks of shares.
``We remain awash in liquid assets and are both eager and ready for even larger acquisitions,'' said Buffett. Berkshire closed two medium-sized acquisition deals in 2000 and agreed six more, adding to his diverse mix of old-economy operations.
Berkshire took 15 percent interests in several other mid-sized firms by buying stock, Buffett said, but sold most of its shares in the U.S.'s other major mortgage firm, Fannie Mae (NYSE:FNM - news).
Berkshire also bought high-yield bonds of a few issuers, such as troubled loan firm FINOVA Group Inc. (NYSE:FNV - news) -- which it is planning to take over in conjunction with another finance firm -- and upped its holdings of high-grade, mortgage-backed securities.
INSURANCE LOSSES
Berkshire said after-tax profits excluding the realized gains from investments were $936 million for 2000. That compares with $671 million in 1999.
Profits were hit by a pre-tax underwriting loss of $1.4 billion at its General Re unit, which sells reinsurance, due to a large one-off loss and the continuing effects of too-low premiums. General Re lost $1.4 billion on underwriting the year before.
GEICO, Berkshire's cut-price car insurer, lost $224 million on underwriting before tax, as the unit struggled to win new accounts despite expensive advertising. Last year GEICO made $24 million underwriting profit.
Both these losses were offset by investment returns garnered from the premiums the firms hold before paying out claims.
The underwriting losses, however, effectively meant that Berkshire had to pay a high price to get hold of the money it needs to fuel its investments. Berkshire's 'float' -- the huge pile of money it holds from insurance premiums -- cost 6 percent during 2000, Buffett said. That is a slight increase from 5.8 percent in 1999.
When Berkshire's insurance units make underwriting profits, the cost of the float is effectively free. Buffett's aim is to keep the cost of the float below the cost of borrowing money from anybody else.
At the end of 2000, Berkshire's float stood at $27.8 billion, up from $25.3 billion at the end of 1999. |
