Worst Year For Warren Buffett As Recession Bites

A new month, but it did not bring new hopes. This week’s stock market opening wasn’t any different as it continues to test new low. Asian bourses were jolted by bleak data while Wall Street fell to fresh 12-year lows on heightened fears about the murky financial sector.

AIG announced $62 billion losses (a cool $460,000 per minute) and a third bailout package was injected which brought the insurance giant closer to becoming absolutely owned by the US government. Britian’s HSBC, one of the “better capitalized” global banks sought a huge capital raise from investors by proposing a five for 12 rights issue to raise about $17.7 billion dollars.

For those who are deeply vested in the stock market, any consolation right now may sound patronizing, but if it does make you feel any better, 2008 is the worst year too for the most successful investor of our time: Warren Buffett .

The Oracle not only failed to outperform the market, his report card was splotched with red ink. 2008 was the worst year for the 44-year performance of Berkshire’s book value and the S&P 500 index. The decrease in Berkshire’s net worth during 2008 was $11.5 billion, which reduced the per-share book value of both our Class A and Class B stock by 9.6%.

To be sure, if you have touched either stocks, corporate bonds, real estate or commodities, you end up with a bloody nose. Since Warren Buffett, for all his intuition and stellar judgment, is kicking himself for getting into the stock market too early, we should not be too harsh on our own portfolio losses too.

Seriously, nobody can time the market, nor make the right calls on the scale of subprime crisis and upheaval of financial institutions, unless they have the benefit of hindsight or a crystal ball. Or that investment expert happens to be Bernard Madoff, who ran a $50 billion Ponzi scheme.

Madoff will be impervious to the gyrations of the stock market since he depends solely on the influx of new funds to pay off existing investors. The lovely Ponzi schemes are in a league of their own but if I ever want to get adventurous, I will prefer making a trip to the casino. At least, I know my winnings are legitimate rather than worrying about my principal when I feel like withdrawing from the scam.

Some financial critics are laughing about the “buy and hold” strategy and instead espouse momentum investing as the best way to make money. I must say that patience is key and only time will prove the victor. I am still holding on to my investments. Warren Buffett may be licking his wound but I have little doubt that he will come out ahead again when the stock market rebounds.

For now, I am doubtful if the global economy will pick up by late 2009. The US government has put its name behind lots of loans and injected cash into the system but to no avail where the credit crunch is concerned. How Obama’s administration deals with the dysfunctional credit market will be crucial in the coming months.

By the way, check out Warren Buffett’s full report below.

berkshireletter 2009

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2 Comments

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2 Responses to Worst Year For Warren Buffett As Recession Bites

  1. Tome the great thing about the letter was the optimism about it. Though most publications focused on Buffet’s comments about about a bad 2009, he did write a lot about how US has seen worse times before and it has always been able to come out of it.

  2. I think Buffet made some good deals. To get 10% and option to convert it to regular stock on Harley and some other companies. He will look back 3 years from now with a big smile.

    Best etf funds lists last blog post..Gold double long etf.

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