Warren Buffet gives mainstream America a green light, to get on board the crack-up boom;
Buffett Buys Currencies, Holds Onto Junk, Regrets Keeping Stock
March 8 (Bloomberg) -- Warren Buffett, with cash piling up at Berkshire Hathaway Inc., said he invested $12 billion in currencies , held onto most of his high-yield, high-risk bonds and regretted not selling some of Berkshire's stock holdings.
Buffett, 73, Berkshire's chairman and the world's second- richest man, told shareholders in his annual letter that he saw few bargains in stocks and bonds. Cash at the Omaha, Nebraska- based company jumped to $36 billion from $31 billion in September, and was earning ``pathetically low interest.''
``It's a painful condition to be in -- but not as painful as doing something stupid,'' said Buffett, whose company owns Geico Corp. and International Dairy Queen Inc.
The dilemma so far hasn't prevented Buffett from increasing Berkshire's book value by an average of 22 percent a year during the past four decades. The company reported Saturday that fourth- quarter net income doubled to $2.39 billion, or $1,553 per Class A share, on a rebound in insurance units. Buffett said the company needs acquisitions to keep growing.
The foreign exchange purchases, made in five different currencies, represented Buffett's biggest investment in the last two years. Buffett said he started betting against the dollar in 2002 on concern that the U.S. trade deficit would erode the value of the country's currency. The dollar has dropped 11 percent against the euro in the past 12 months.
Playing Defense
``It's very consistent with a defensive posture in their financial accounts,'' said Thomas Russo, a partner at Gardner, Russo & Gardner, which manages more than $1 billion and owned $264.6 million of Berkshire stock as of December.
Shares of Berkshire, which owns energy, aviation, paint and carpet companies, increased 44 percent in the past year. They rose $1,000 to $93,000 in New York Stock Exchange composite trading Friday.
Investors scrutinize Buffett's letters, which accompany year- end results, in an effort to emulate his performance.
Last year, Buffett said Berkshire bought $8 billion of high- yield, high-risk, or junk, bonds. Though price increases halted his bond purchases in 2003, Berkshire retained most of its holdings, Buffett said in Saturday's letter.
Missed Opportunity
Buffett, who tends to buy and hold investments, said he missed an opportunity to dispose of some of Berkshire's stocks when markets soared in the late 1990s.
``I made a big mistake in not selling several of our larger holdings during `The Great Bubble,''' Buffett said. ``If these stocks are fully priced now, you may wonder what I was thinking four years ago when their intrinsic value was lower and their prices far higher. So do I.''
Berkshire is the biggest shareholder of Atlanta-based Coca- Cola Co., New York-based American Express Co. and Gillette Co., based in Boston. He didn't specify which stocks he regrets not selling. Coca-Cola shares have fallen 43 percent from their peak in 1998, while American Express shares are down 16 percent.
Fourth-quarter profits rose after Berkshire turned around General Re Corp., the reinsurance unit that had $7.5 billion in underwriting losses from 1998 to 2002.
General Re had a $28 million underwriting profit in the quarter, compared with a $727 million loss a year earlier because it sold policies too cheaply during the previous decade. Geico, Berkshire's auto insurer, more than tripled its underwriting profit to $154 million. Earnings from building-products units rose 46 percent to $131 million.
McLane Purchase
Total revenue rose 64 percent to $19.9 billion from $12.1 billion, mainly because of Berkshire's purchase from Wal-Mart Stores Inc. last year of McLane Co., a Temple, Texas-based food distributor that earns profit of about 1 percent of its revenue. Quarterly figures for individual business lines were not included in Berkshire's annual report and were calculated by subtracting nine-month results.
Buffett said Berkshire's board of directors is reviewing four executives from the company who are Buffett's potential successors. He didn't disclose their names. Executives that received praise in the letter include Joseph Brandon of General Re, Ajit Jain of Berkshire Hathaway Reinsurance Group, Tony Nicely of Geico, David Sokol of MidAmerican Energy Holdings Co., and Richard Santulli of NetJets Inc.
Omaha Pilgrimage
Over the last four decades Buffett transformed Berkshire from a failing textile manufacturer into a $143 billion holding company by buying out-of-favor securities and businesses on the cheap. About 10,000 admirers travel annually to Berkshire's shareholder meetings in Omaha to hear Buffett and Vice Chairman Charles Munger, 80. The meeting is scheduled for May 1.
Berkshire's book value increased 21 percent in 2003 to $77.6 billion, the biggest rise since 1998.
The letter, which Buffett uses each year to critique the state of U.S. business and industry, condemned directors of mutual funds for not firing management companies that allegedly let trading abuses boost managers' fees at the expense of shareholders. He applauded New York Attorney General Eliot Spitzer, whose investigation has led to civil actions against at least nine fund companies and 26 people.
``Hundreds of industry insiders had to know what was going on,'' Buffett wrote. ``It took Eliot Spitzer and the whistleblowers who aided him, to initiate a housecleaning. We urge fund directors to continue the job.''
Buffett, who is paid $100,000 a year, said he will search out places to invest the company's cash.
``Overall, we are certain Berkshire's performance in the future will fall far short of what it has been in the past,'' he said. ``I remain hopeful that we can deliver results that are modestly above average. That's what we're paid for.'' |
