Warren Buffet's Berkshire Hathaway shows strong growth in 2009 but behind market

This weekend Berkshire Hathaway Inc. (NYSE: BRK-B, BRK-A) sent out its annual shareholder letter. The company said its annual shareholder value rose by 19.8% and book value per share rose to $84,487.00 (though this was behind the 25% rebound in the S&P 500 in 2009). It was the strongest gain since 2003 with net earnings rising 61% last year to $5,193 per share. Total Common Stocks Carried at Market are listed as $34,646 billion cost basis and $59,034 billion in market value. In 2005, Berkshire’s book value rose 6.4 per cent, against 4.9 per cent for the S&P; in 2006 it was 18.4 per cent versus 15.8 per cent; in 2007 11 per cent against 5.5 per cent; and in 2008 -9.6 per cent versus -37 per cent. Today the B shares were down 1% to $79.3.

Berkshire’s Warren Buffett was less cautious than in the past and broadly optimistic about the future - “We entered 2008 with $44.3 billion of cash-equivalents, and we have since retained operating earnings of $17 billion. Nevertheless, at year-end 2009, our cash was down to $30.6 billion (with $8 billion earmarked for the BNSF acquisition). We’ve put a lot of money to work during the chaos of the last two years. It’s been an ideal period for investors: A climate of fear is their best friend. Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.” Berkshire holds a strong porfolio of companies and has had a consistent and exceptional track record. However, the persistent threat of the retirement of the "sage of Omaha" Warren Buffett is now a real possibility at 80 years of age. Following the strong rise in the company's shares when Berkshire entered the S&P 500 following a stock split in February, Berkshire does not look cheap based on earnings expectations for 2010. As Buffett would say himself, "don't buy when everyone else is buying" and therefore BRK may be an ideal candidate for an entry point on any uncertainty about the future leadership of the company i.e. sell on current strength.

Buffet’s advice for investment success is (courtesy of Marketwatch.com) :
Stay liquid. "We will never become dependent on the kindness of strangers," he wrote. "We will always arrange our affairs so that any requirements for cash we may conceivably have will be dwarfed by our own liquidity. Moreover, that liquidity will be constantly refreshed by a gusher of earnings from our many and diverse businesses."
Buy when everyone else is selling. "We've put a lot of money to work during the chaos of the last two years. It's been an ideal period for investors: A climate of fear is their best friend ... Big opportunities come infrequently. When it's raining gold, reach for a bucket, not a thimble."
Don't buy when everyone else is buying. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance," Mr. Buffett wrote. The obvious corollary is to be patient. You can only buy when everyone else is selling if you have held your fire when everyone was buying.
Value, value, value. "In the end, what counts in investing is what you pay for a business-through the purchase of a small piece of it in the stock market-and what that business earns in the succeeding decade or two."
Don't get suckered by big growth stories. Mr. Buffett reminded investors that he and Berkshire Vice Chairman Charlie Munger "avoid businesses whose futures we can't evaluate, no matter how exciting their products may be.". Most investors who bet on the auto industry in 1910, planes in 1930 or TV makers in 1950 ended up losing their shirts, even though the products really did change the world. "Dramatic growth" doesn't always lead to high profit margins and returns on capital. China, anyone?
Understand what you own. "Investors who buy and sell based upon media or analyst commentary are not for us," Mr. Buffett wrote.
Defense beats offense. "Though we have lagged the S&P in some years that were positive for the market, we have consistently done better than the S&P in the eleven years during which it delivered negative results. In other words, our defense has been better than our offense, and that's likely to continue." All timely advice from Mr. Buffett for turbulent times.

Micron Technology benefits from potential legal case settlement and rising chip prices

According to court papers released last week, the major manufacturers of DRAM memory chips have reached a settlement in principle in an antitrust case that has been in federal appeals court since 2008. Companies including Micron Technologly (MU) are defendants in the case brought by the state of California and others. No details of the financial terms of the settlement were in the court papers.  "The parties have informed the Court that they have reached an agreement in principle to the terms of a settlement in this and related actions and are currently negotiating a final settlement agreement," said a U.S. Ninth Circuit Court of Appeals order filed Feb. 17. Micron was recently up to $9.50, nearly 5% as chip price sentiment continues to improve. The Semiconductor Industry Association [SIA] said Monday that worldwide chip sales in January rose to $22.5 billion, a 47.2% increase from the same month a year ago. Chip sales were also up 0.3% from December.

Positive start to March on both sides of the Atlantic

The FTSE 100 is currently up 28 points to 5,838 with DOW Futures up 35 to 10,361. Gains in the FTSE were pruned, after Prudential’s announcement that it was going ahead with the purchase of AIG’s Asian business for £23 billion ($35.5) sent the insurer down 11% to £5.34 (when the shares came back from suspension at 10.30, they were down 14%). The acquisition will be funded by a $20bn rights issue, the largest ever seen in the UK. Prudential will also issue $5bn of senior debt, while AIG will receive $5.5bn in new Prudential shares plus $3bn of convertible shares and $2bn of preferred shares. AIG is 80% owned by the US government, which will mean the US taxpayer owning a stake in the UK’s largest insurer.



The news of a possible €25-30 billion bail-out of Greece by Germany and France was circulating this morning. Greek debt would be purchased in the form of bonds, through their respective state owned banks. But the Greek government will need to commit to at least €4bn worth of cuts in public spending which given union opposition may be difficult to execute.


The British Pound has continued to fall heavily against the U.S dollar and Euro today after a weekend opinion poll put Labour only 2 points behind the Conservatives and there were fears that the Prudential deal with AIG would mean it would need to sell the Pound Sterling to buy U.S. dollars . The pound/dollar hit £1.49, a 2% fall on the day. Currency investors are increasing worried that the increasing likelihood of a “hung” parliament will delay any moves to reduce the size of the U.K. budget deficit.