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When the Oracle of Omaha Speaks..

Posted by Larry Doyle on February 28, 2009 4:20 PM |

Warren Buffett’s annual letter to shareholders is always a highly anticipated event by market participants. Given the fact that Berkshire is effectively a diversified holdings company, Buffett has a unique perspective into a wide array of businesses. He also has the wisdom of investing over many years and through many challenging markets.

Well, if misery loves company, it has a solid partner in the person of Warren Buffett because 2008 was Berkshire Hathaway’s worst year ever. In reviewing Buffett’s letter allow me to offer some highlights. For those who have an even passing interest in the markets and investing, reading this letter is akin to attending an opera by Pavarotti.

I beg your indulgence as I attempt to be the opening act and provide an overview of the “Oracle of Omaha’s” thoughts on the markets and economy:

1. Berkshire’s 4th quarter 2008 generated net income of $117 million, a mere 96% decline vs 2007!!

2. The results suffered primarily due to significant exposure to insurance companies, Coca-Cola, and American Express.

3. The stock, down 32% for all of 2008, marginally outperformed the major indices. The stock is down 19% for 2009, in line with the market.

4. In regard to the economy, Buffett forecasts it will be in a shambles throughout 2009 — and for that matter probably well beyond.

5. “The U.S. Treasury bubble of late 2008 may be regarded as almost equally extraordinary” to the internet bubble of the 1990’s and the housing bubble of the 2000’s.”

6. He is humble enough to highlight some investment mistakes made in Conoco Phillips and Irish banks.

7. Buffett repeats his railing on derivatives as too complex so that auditors can’t audit and regulators can’t regulate. He specifically calls out the Office  of Federal Housing Enterprise Oversight for its failure to properly regulate Freddie Mac and Fannie Mae.

I do know at one point that Berkshire held a major stake in at least one, if not both, of these agencies as he highlighted them as the closest thing to a monopoly in American business. I am gathering he liquidated those holdings or otherwise the press would have made more of it.

8. Buffett also points out the impending problems in municipal finance with major concerns on the funding of pension obligations by municipalities. In speaking with a professional in this space, he highlighted the exact same point. Municipalities will have to pay higher rates to borrow money and municipal insurers will be hit with increased charges.

Read all of what the oracle has to say along with a whole host of other info as Berkshire Hathaway Reports Worst Year Ever.


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