OMAHA — Warren Buffett remains optimistic about the prospects for his company and the nation even though Berkshire Hathaway Inc. turned in its worst performance in 2008 and the widely followed investor says the economy will probably remain a mess beyond this year.
Buffett used his annual letter Saturday to reassure shareholders that the Omaha-based insurance and investment company has the financial strength needed to withstand the turmoil and improve after the worst showing of Buffett’s 44 years as chairman and chief executive.
Buffett wrote that he is certain “the economy will be in shambles throughout 2009 — and, for that matter, probably well beyond — but that conclusion does not tell us whether the stock market will rise or fall.”
In between the news of Berkshire’s sharply lower profit and a thorough explanation of its largely unrealized $7.5 billion investment and derivative losses, Buffett offered a hopeful view of the nation’s future.
He said America has faced bigger economic challenges in the past, including two world wars and the Great Depression.
“Though the path has not been smooth, our economic system has worked extraordinarily well over time,” Buffett wrote. “It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”
Buffett’s letter appeared to mollify the concerns of many who follow the company, but it is not yet clear whether that will help Berkshire’s Class A stock extend its rebound from the new five-year low it set Monday at $73,500. On Friday, it closed up $250 at $78,600.
“If anything, I feel better than I did before I read it,” said Morningstar analyst Bill Bergman. Berkshire’s results could have easily been worse, he said.
But Buffett estimates Berkshire’s book value — assets minus liabilities — declined 9.6 percent to $70,530 per share in 2008.
The S&P 500 fell 37 percent in 2008.
Berkshire owns a diverse mix of more than 60 companies.
A few of his thoughts
Here’s what Buffett had to say:
THE ECONOMY: “The economy will be in shambles throughout 2009 — and, for that matter, probably well beyond — but that conclusion does not tell us whether the stock market will rise or fall.”
THE FUTURE: “Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 21.5 percent prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15 percent and 25 percent for many years. America has had no shortage of challenges. Without fail, however, we’ve overcome them. . . . America’s best days lie ahead.”
GOVERNMENT BAILOUTS: “In poker terms, the Treasury and the Fed have gone ‘all in.’ Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel.
“These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation.”
“. . . Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown.”
