Comeback Kid Sitting on US$38B
raveninvestment.com
But despite losses, stock market looks 'far from exciting'
By William Hanley
National Post
Monday, March 12, 2001 -Seventy-year-old Warren Buffett, written off by some people on Wall Street more than a year ago as yesterday's man when he declined to invest in high-flying technology stocks, has been renamed the comeback kid after his Berkshire Hathaway Inc. reported blow-out earnings on the weekend.
Berkshire Hathaway stock bottomed out at US$40,800 on March 10, 2000 -- the same day the tech-heavy Nasdaq composite index peaked above 5000.
A year later, the Nasdaq is off 60% and Berkshire is up 74% at US$71,100.
Mr. Buffett, the legendary Omaha-based investor worth US$34-billion in Berkshire stock, also said the holding company is on the hunt for large acquisitions to add to an empire encompassing 50 companies and employing 112,000 people.
But in his chairman's letter accompanying the annual report published Saturday, Mr. Buffett emphasized that Berkshire is unlikely to deploy its US$38-billion cash pile in buying stocks, preferring instead to acquire the type of solid Old Economy companies it bought last year for US$8-billion.
The equity market "is far from exciting," he said.
"We see our equity portfolio as only mildly attractive. There are no 'bargains' among our current holdings. We're content with what we own but far from excited by it."
Berkshire reported net profit for 2000 of US$3.328-billion or US$2,185 a share, up 113% from US$1.157-billion or US$1,025 a share in 1999 as gains from investments in the fourth quarter more than made up for underwriting losses in its main insurance businesses.
On average, analysts were expecting Berkshire to earn US$923.50 a share.
Berkshire said its performance, when measured by the annual percentage change in the book value of its shares, beat the Standard & Poor's 500 index by a 15.6-percentage-point margin in 2000.
Berkshire stock increased in book value by 6.5% against a 9.1% drop in the S&P 500. The average Berkshire gain in the 36 years Mr. Buffett has been at the helm is 23.6% versus 11.8% for the S&P.
"It's impressive to show investment gains in 2000 at a time of the worst market for equities since 1929," said James Ellman, of Merrill Lynch Investment Managers in New York, adding that Berkshire's focus on insurance is looking smart in a period of falling interest rates and rising insurance prices.
Mr. Buffett said Berkshire sold almost all its considerable holdings in financial firms Freddie Mac and Fannie Mae and bought 15% positions in several mid-sized companies. Meantime, Berkshire raised its holding in American Express Co. to 151.6 million shares from 50.5 million a year earlier. Investments in Coca-Cola Co., Gillette Co. and Washington Post. Co. remained unchanged at 200 million shares, 96 million shares and 1.7 million shares, respectively. It cut its holding in Wells Fargo & Co. to 55 million shares from 59.1 million.
The Berkshire stock portfolio was worth US$37.619-billion at the end of 2000, up from about US$37-billion a year earlier.
"We own stocks in some excellent businesses, but most of our holdings are fully priced and are unlikely to deliver more than moderate returns in the future." Mr. Buffett said in his letter.
While Berkshire's realized gains on investments countered the underwriting losses at its General Reinsurance and Geico units, Mr. Buffett said he expects the insurance business to improve this year.
John Zemanovich, president of Raven Investment Management Ltd. of Oakville, Ont., which owns Berkshire shares, said he was very encouraged by the report and believes a combination of better results from insurance and the profits from last year's acquisitions could give Berkshire another blow-out year in 2001.
Among the eight companies acquired last year were building materials maker Johns Manville Corp., paint maker Benjamin Moore & Co. and carpet maker Shaw Industries Inc.
Mr. Buffett, who has said that finding big companies to buy is difficult, said he would like to make an acquisition in the range of US$5-billion and US$20-billion, and invited chief executives wishing to sell their firms to give him a call.
Displaying the famous wit that has endeared him to Buffetteers over the years, he said Berkshire "embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement."
Mr. Buffett, commenting on the tech-stock mania that often entailed "making money off investors rather than for them," said that when the bubble bursts, a new wave of investors learns some very old lessons: "First, many in Wall Street -- a community in which quality control is not prized -- will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest."
Mr. Buffett also said he and his partner, Charlie Munger, Berkshire's vice-chairman, applaud the crackdown on the corporate practice of selective disclosure that had "spread like a cancer in recent years.
"This was corrupt behavior, unfortunately embraced by both Wall Street and corporate America." |
