Buffett: Too Much Cash on Sidelines

In his letter accompanying Berkshire Hathaway's annual report, the Oracle of Omaha regrets not finding more companies to buy.
By TSC Staff ,

Mighty Warren says he struck out in 2004.

Warren Buffett, in his

shareholder letter accompanying

Berkshire Hathaway's

(BRK.A) - Get Report

2004 annual report, rued not finding better use for the holding company's cash hoard.

Still, the Omaha, Neb., company had a sound fourth quarter, as profit rose 40% over last year on a $1.63 billion gain from betting against the dollar.

Berkshire's net income rose to $3.34 billion, or $2,171 a Class A share, from $2.39 billion, or $1,553, a year earlier. For all of 2004, profit was $7.3 billion, down from $8.2 billion. Revenue rose 16% to $74.4 billion.

Although the company, which operates diverse concerns including Geico auto insurance and reinsurer General Re, increased its net worth by $8.3 billion last year, it wasn't enough to keep pace with the

S&P 500

.

"Last year, Berkshire's book value gain of 10.5% fell short of the

S&P 500 index's 10.9% return," the chairman wrote. "Our lackluster performance was not due to any stumbles by the CEOs of our operating businesses. As always, they pulled more than their share of the load.

"My message to them is simple: Run your business as if it were the only asset your family will own over the next 100 years. Almost invariably, they do just that, and after taking care of the needs of their business, send excess cash to Omaha to me to deploy.

"I didn't do that job very well last year. My hope was to make several multibillion dollar acquisitions that would add new and significant streams of earnings to the many we already have. But I struck out. Additionally, I found very few attractive securities to buy. Berkshire therefore ended the year with $43 billion of cash equivalents, not a happy position. Charlie

Munger, vice chairman and I will work to translate some of this hoard into more interesting assets during 2005, though we can't promise success."

Although Berkshire benefited from a decline in the dollar with its large forex contracts -- $21.4 billion in 12 currencies -- the 74-year-old Oracle of Omaha had plenty of opinions on what the U.S. faces if it doesn't get its foreign trade imbalance righted.

"We hope the U.S. adopts policies that will quickly and substantially reduce the current account deficit," Buffett wrote. "True, a prompt solution would likely cause Berkshire to record losses on its foreign-exchange contracts. But Berkshire's resources remain heavily concentrated in dollar-based assets, and both a strong dollar and low inflation environment are very much in our interest."

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