Buffett issues a Warning:
Billionaire Buffett issues stark warning
By Bill Rigby
NEW YORK (Reuters) - Billionaire investor Warren Buffett has issued a pessimistic outlook on the
world, saying the war on terror will never be won -- a potential problem for his insurance interests --
and warning that returns from the stock market over the next few years look meagre.
Buffet, known as the 'Oracle of Omaha' for his astute investments, also blasted executives for taking
millions of dollars out of businesses even as they fare badly, a practice he said went far beyond
Enron, the collapsed energy trader.
Buffett, 71, second only to Microsoft's Bill Gates among the world's multibillionaires, made his
remarks in his annual letter to shareholders of his Berkshire Hathaway.
The letter was published on the company's Web site (www.berkshirehathaway.com) on Saturday.
Omaha, Nebraska-based Berkshire -- a group of 50 or so operating companies, chiefly in insurance,
which generate money for Buffett to invest -- had a tough year in 2001. It reported drastically lower
net profits, cut by a whopping $2.4 billion (1.7 billion pounds) in claims from the September 11
destruction of the World Trade Centre by two hijacked airliners.
Berkshire made a net profit of $795 million in 2001, down from $3.3 billion the year before.
TERROR WAR CANNOT BE WON
Buffett said that further terror attacks on the United States were possible, and must be accounted for
by insurers.
"Fear may recede with time, but the danger won't," said Buffett. "The war against terrorism can never
be won. The best the nation can achieve is a long succession of stalemates."
Working on that assumption, Buffett said his reinsurance operations, including General Re -- the
largest reinsurer in the United States -- would only underwrite some coverage for terrorist attacks,
including some third party liability coverage for airlines.
Buffett once again called on the government to back up insurers covering terror risks, though that
seems unlikely after Congress failed to enact any legislation last year.
"Only the U.S. government has the resources to absorb such a blow," said Buffett. "If it is unwilling to
do so on a prospective basis, the general citizenry must bear its own risks and count on the
government to come to its rescue after a disaster occurs."
That essentially means that without government support, insurers will exclude terror coverage in most
policies, a trend which is already hurting policyholders, especially in real estate.
STOCK MARKET UNPROMISING
Buffett saw the size of his stock portfolio plummet last year, to about $29 billion from nearly $38
billion the year before, due mostly to wilting prices.
Buffett's major long-standing holdings, including American Express and Coca-Cola lost billions of
dollars in value.
"Our restrained enthusiasm for these securities is matched by decidedly lukewarm feelings about the
prospects for stocks in general over the next decade or so," Buffett said in his letter, on behalf of
himself and business partner Charlie Munger.
"Today's equity prices presage only moderate returns for investors," Buffett warned investors looking
for outsize returns. "The market outperformed business for a very long period, and that phenomenon
had to end. A market that no more than parallels business progress, however, is likely to leave many
investors disappointed, particularly those relatively new to the game."
BOSSES MAKE OFF WITH THE CASH
Buffett also returned to a favourite theme -- the shabby ethics of many businesses in the United
States -- encapsulated by the tech bubble and the fall of Enron.
"Charlie and I are disgusted by the situation, so common in the last few years, in which shareholders
have suffered billions in losses while the CEOs, promoters, and other higher-ups who fathered these
disasters have walked away with extraordinary wealth," he said.
Buffett repeated his long-held promise that he will never sell any of his 31 percent share in Berkshire,
taking the rough with the smooth along with other shareholders. Buffett's stake in Berkshire is worth
about $34 billion, which he says is 99 percent of his net worth.
"Many of these people were urging investors to buy shares while concurrently dumping their own,
sometimes using methods that hid their actions," said Buffett, making an implicit criticism of Enron.
"To their shame, these business leaders view shareholders as patsies, not partners."
Enron has become the symbol for shareholder abuse, Buffett said, but "there is no shortage of
egregious conduct elsewhere in corporate America," he warned. |
