Billionaire investor Warren Buffett’s Berkshire Hathaway slumped 32pc last year, the worst performance in more than three decades, as the U.S. recession forced down the value of the firm’s equity holdings and derivative bets.
Most of the decline in shares happened in the last three months as Berkshire posted a fourth straight profit drop amid sagging insurance results.
However, the company still beat the 38pc tumble of the Standard & Poor’s 500 Index, the 14th year in 20 that Buffett outperformed the benchmark.
Just six of 1,591 US stock mutual funds with at least $250m (£174m) in assets made money for investors last year, according to data compiled by Bloomberg.
“In 2008, there was nowhere to hide,” said Guy Spier, chief investment officer at Aquamarine Capital Management, which holds shares in the Omaha, Nebraska-based company.
“Berkshire can’t escape the general fate of American businesses. What Buffett tries to do is ensure that Berkshire Hathaway does less badly than other companies.”
Mr Buffett, 78, poured money into stocks as prices fell and increased Berkshire’s pace of deals as the contraction in credit markets hobbled buyout firms.
He spent about $3.9bn on equities in the third quarter, making Berkshire the biggest shareholder in ConocoPhillips, the second-largest US refiner. Berkshire announced 12 acquisitions in 2008, compared with eight in 2007, and also agreed to buy $8 billion in preferred shares from Goldman Sachs Group Inc. and General Electric Co.
“Buffett has the opportunity to do what he does best, which is acquire new companies at prices that have him licking his lips,” said Frank Betz, a partner at Warren, New Jersey-based Carret Zane Capital Management, which holds Berkshire shares.
“I don’t think Mr. Buffett is bummed out at all.” Jackie Wilson, a spokeswoman for Berkshire, “Didn’t return a call seeking comment.”
Most of the top holdings in Berkshire’s stock portfolio, valued at $76bn as of September 30, declined at least 15pc in the past three months of 2008. ConocoPhillips plunged 29pc in the fourth quarter. Coca-Cola Co., Berkshire’s top holding, dropped 14pc, and No. 2 Wells Fargo & Co. plummeted 21pc.
Declines in the value of derivatives also pressured Berkshire shares. Buyers of the contracts would be entitled to billions of dollars from Berkshire if four stock indexes drop below agreed-upon levels on dates beginning in 2019. Mr Buffett said the liability on the contracts was $6.73bn at the end of the third quarter. Berkshire has collected $4.85bn on the contracts and can profit from investing the funds, the firm said.
All four indexes, including the Standard & Poor’s 500, would have to fall to zero for Berkshire to be liable for the entire $35.5bn that’s at risk, Mr Buffett said in November.
Acknowledging investor concern, Mr Buffett has said he’ d provide more information on how he calculates losses on the contracts.
Mr Buffett built Berkshire over four decades from a failing textile maker into a $150bn company by buying out-of-favor stocks and businesses whose management he deemed superior.