Warren Buffett acknowledged on Saturday that his Berkshire Hathaway Inc would probably lose money on some of the derivatives contracts that have prompted some to speculate that the world’s most famous investor has lost his touch.
At Berkshire’s annual shareholder meeting, Buffett offered a gloomy forecast for parts of the US economy and Berkshire itself, though he said massive federal efforts to stimulate activity could pay off at a possible cost of higher inflation.
“It has been a very extraordinary year,” Buffett said. “When the American public pulls back the way they have, the government does need to step in ... It is the right thing to do, but it won’t be a free ride.”
PHOTO: BLOOMBERG
The meeting attracted a record 35,000 people to the Qwest Center in downtown Omaha to see the world’s second-richest person, often considered the world’s greatest investor.
But it had a decidedly more serious and somber tone from years past as many investors expressed worries about the economy, Berkshire’s investments, and how long the 78-year-old Buffett plans to stay on the job.
Buffett said housing prices have yet to stabilize broadly, that retailers may be under pressure for a “considerable period of time,” and that he would not buy most US newspaper companies “at any price.”
He also said that in insurance, which comprises about half of Berkshire’s operations, the earnings power “was not as good last year as normal” and “won’t be as good this year.”
Buffett also said the four candidates to replace him as Berkshire’s chief investment officer failed to outperform the Standard & Poor’s 500 last year, but remained confident they could perform well over time. Berkshire still has three internal candidates to replace Buffett as chief executive.
Berkshire’s stock has fallen 39 percent since December 2007, and profit last year fell 62 percent from a year earlier. Buffett said he would not buy back Berkshire stock now, because its share price was not “demonstrably below” the company’s intrinsic value.
Buffett had transformed Berkshire since 1965 from a failing textile maker into a conglomerate with close to 80 businesses that sell such things as Geico car insurance, paint, ice cream and underwear. It also has tens of billions of dollars of investments.
Much of the worry about Berkshire has focused on Buffett’s use of derivatives in making long-term bets on the direction of stocks and junk bonds, and which have so far resulted in billions of dollars of paper losses.
While Buffett still expects the contracts tied to equity stock indexes to make money, he said “we have run into far more bankruptcies in the last year than is normal.”
He said he now expects the contracts tied to credit defaults will show a loss before investment income and perhaps after as well.
Buffett still distinguishes his derivatives from others such as credit default swaps, given that he collects billions of dollars of premiums upfront to invest and posts little collateral.
He called other derivatives “a danger to the system. There is no question about that.”
The more serious mood extended to the traditional movie made by Buffett’s daughter Susie, which dispensed with its usual humorous cartoon, though it showed Buffett attempting to teach Tiger Woods how to improve his golf game.
Buffett expressed confidence in Wells Fargo & Co, one of Berkshire’s biggest investments, saying it has “by far the best competitive position” of any large US bank.
RETHINK? The defense ministry and Navy Command Headquarters could take over the indigenous submarine project and change its production timeline, a source said Admiral Huang Shu-kuang’s (黃曙光) resignation as head of the Indigenous Submarine Program and as a member of the National Security Council could affect the production of submarines, a source said yesterday. Huang in a statement last night said he had decided to resign due to national security concerns while expressing the hope that it would put a stop to political wrangling that only undermines the advancement of the nation’s defense capabilities. Taiwan People’s Party Legislator Vivian Huang (黃珊珊) yesterday said that the admiral, her older brother, felt it was time for him to step down and that he had completed what he
Taiwan has experienced its most significant improvement in the QS World University Rankings by Subject, data provided on Sunday by international higher education analyst Quacquarelli Symonds (QS) showed. Compared with last year’s edition of the rankings, which measure academic excellence and influence, Taiwanese universities made great improvements in the H Index metric, which evaluates research productivity and its impact, with a notable 30 percent increase overall, QS said. Taiwanese universities also made notable progress in the Citations per Paper metric, which measures the impact of research, achieving a 13 percent increase. Taiwanese universities gained 10 percent in Academic Reputation, but declined 18 percent
UNDER DISCUSSION: The combatant command would integrate fast attack boat and anti-ship missile groups to defend waters closest to the coastline, a source said The military could establish a new combatant command as early as 2026, which would be tasked with defending Taiwan’s territorial waters 24 nautical miles (44.4km) from the nation’s coastline, a source familiar with the matter said yesterday. The new command, which would fall under the Naval Command Headquarters, would be led by a vice admiral and integrate existing fast attack boat and anti-ship missile groups, along with the Naval Maritime Surveillance and Reconnaissance Command, said the source, who asked to remain anonymous. It could be launched by 2026, but details are being discussed and no final timetable has been announced, the source
CHINA REACTS: The patrol and reconnaissance plane ‘transited the Taiwan Strait in international airspace,’ the 7th Fleet said, while Taipei said it saw nothing unusual The US 7th Fleet yesterday said that a US Navy P-8A Poseidon flew through the Taiwan Strait, a day after US and Chinese defense heads held their first talks since November 2022 in an effort to reduce regional tensions. The patrol and reconnaissance plane “transited the Taiwan Strait in international airspace,” the 7th Fleet said in a news release. “By operating within the Taiwan Strait in accordance with international law, the United States upholds the navigational rights and freedoms of all nations.” In a separate statement, the Ministry of National Defense said that it monitored nearby waters and airspace as the aircraft