Warren Buffett is held in high esteem for his financial wisdom, massive wealth, philanthropic endeavors and stewardship of one of the world's most profitable companies. So how has the Oracle of Omaha's portfolio done so far this year?
Not so hot.
It is impossible to say with certainty how much money Buffett's company,
, has earned or lost in its stock investments this year, since the timing and pricing of transactions are murky, and it is difficult to account for other factors, like dividends. But in light of Berkshire's disclosure that its stock holdings lost about $9 billion in the month of October alone, it's worth taking a look at hypotheticals.
If an investor had, at the end of 2007, placed $100,000 in a portfolio identical to Berkshire's, and sold the shares on Friday, he would have lost $20,716.97 purely in market value, according to an analysis of Morningstar and
. Of Berkshire's 40 common stock holdings, just three have posted positive returns through mid-November. A large majority of them -- 82.5% -- have posted double-digit declines.
Berkshire's main business isn't equity investments, it is insurance, and its investment strategy has always been to look past short-term fluctuations to seize opportunities in reliable, blue-chip names. Even so, Berkshire's $76.04 billion
has beat benchmarks like the
Dow Jones Industrial Average
But investors still look to the company's stock picks as a guide for their own -- Buffett's bullish stance on the long-term prospects for U.S. equities last month was seen by many investors as a lonely bright spot in several dismal months on Wall Street. Buffett acknowledged in a
New York Times
op-ed that he doesn't have "the faintest idea" where stock values will go over the next year, but is buying now because he feels certain firms are undervalued, and desperate enough to provide incentives for the massive investments Berkshire can make.
If you wait for the robins," he warned, "spring will be over."
Still, as equity and equity-index prices dropped with a thud,
have suffered too. Even the company's best-performing stock,
, comes with some bad news.
The King of Beers' stock has shot up significantly this year as the Budweiser-brewer mulled a take-over bid from foreign competitor
. The protracted negotiations ended in July when Anheuser accepted a sweetened offer of $70 per share. But unfortunately, Berkshire sold some 21.7 million Anheuser shares during the second quarter, when the stock traded in a range of $46.72 to $62.99. That means the company left at least $152 million -- and as much as half a billion dollars -- on the table.
On the other end of the spectrum lies Berkshire's stake in newspaper publisher
, whose performance has been the most dismal of all its stocks. Gannett's shares have tumbled nearly 80% this year as the print-media industry struggles with rising costs and a readership that is rapidly flocking to alternative sources of news.
Luckily for Berkshire, Gannett comprises just a tiny fraction -- 0.08% -- of its portfolio. But even one of its top holdings,
has fallen 25% as the market left nearly no stock unpunished. Berkshire's 200 million shares of the beverage-maker make up about 15% of its entire stock portfolio.
Berkshire Hathaway invests in safer, value stocks and has made some very large, high-profile investments this year in major players like
, on what seem to be very lucrative terms. The company infused $8 billion worth of cash into the two companies, in exchange for preferred stock with 10% dividends, and warrants to buy up to 43.5 million Goldman shares at $115 apiece, and 134.8 million GE shares at $22.24 apiece.
While the bear market has clawed Goldman's stock down to about $63, and GE's down to about $16, both companies were trading far above Berkshire's strike prices as recently as September. When a healthier sentiment prevailed a year ago, Goldman was nearly double the strike price, while GE was about 40% higher.
Berkshire's most recent disclosure on Friday that it acquired a majority stake in the integrated oil conglomerate
seems to be in a similar, bargain-hunting vein. Shares of the Houston-based company have been hammered nearly 45% this year as commodity prices plunged. But over the long run, experts foresee higher
due to supply-and-demand fundamentals.
Since Berkshire has time to wait and capital to spare -- and is led by a man with a proven sense for golden opportunities -- it's tough to argue that these bets won't pay off eventually.
"Berkshire has a long-proven ability to determine when opportunities are worth seizing, and when it makes those determinations, it does so in a big way," Morningstar analyst Bill Bergman said in a recent report. He noted that the companies Berkshire has selected to invest in are "very good businesses in need of cash," and that the firm "didn't do so out of a sense of obligation and will earn relatively high rates on preferred securities in long-successful firms."
Under Buffett's leadership, the company also made some wise investment decisions long before the nightmares of 2008 unfolded. For instance, Berkshire cashed out most of its holdings in
in 2001, as others held onto the seemingly safe and profitable firms. That was long before the government was forced to save the companies from collapse this year, and even before the accounting scandals of 2003.
Berkshire's portfolio holds some of the largest and sturdiest names in corporate America -- including
Johnson & Johnson
Procter & Gamble
, just to name a few. At the moment, the company appears bullish on consumer staples, industrials and energy, while holding steady in longstanding firms that have fallen out of favor due to the economic turmoil.
Such a strategy makes sense for a long-term investor looking at global energy demand, as well as the struggling U.S. consumer, who will continue to use basic necessities while cutting back on discretionary items. It's safe to say that the average American will still need food, clothing and power, even if he carpools to
instead of chugging along in an SUV to Bloomingdales and Delmonico's.
Berkshire added 24.3 million shares of ConocoPhillips, which now accounts for 8.8% of its portfolio. It also acquired a stake of 2.9 million shares in
, which makes electrical systems and components, and added to its position in the utility
At the other end of the dial, Berkshire began paring down its holdings in consumer- or housing-related companies, like
While it still has significant stakes in financial institutions, Berkshire shifted its weight to add 4.3 million shares to its top position in
, while selling off 4.1 million shares of
Bank of America
and 247,200 of
. Despite a nearly 12% decline in
market value, Berkshire held steady in that firm, as well as
Although Berkshire's holdings have taken a beating this year, investors can take heart that it is not alone in the carnage. The S&P 500 gave up 39% of its value as the
Dow Jones Industrial Average
dropped 34% through mid-November. By contrast, Berkshire's own A-shares gave up 29%.
In its quarterly statement, Berkshire management -- perhaps sensing that ordinary investors would hang on its every stock-related word -- emphasized that gains or losses related to such investments over the course of a quarter or year are "
" The company has stated that it intends to retain some holdings "forever," and noted in its recent filing that it will retain its current investments at least "until fair value recovers."
"Berkshire management believes that these extraordinary conditions are temporary and that equity prices will ultimately rise over time," the company said in its 10-Q filing. "However, the fair values of Berkshire's investment portfolios and its equity index put option contracts remain subject to considerable volatility, particularly over the short term."
In other words, there's a good chance that Berkshire's investment strategies will provide hardy returns -- but only for those who are patient enough to wait for the robins to return.