Jane Martinson
Warren Buffett, the world’s most famous investor, on Monday declared 1999 the worst blot on his copybook yet, but refused to alter his approach to investment. He continued to warn against stock market excesses as his annual statement to shareholders in Berkshire Hathaway was published on the Internet.
Berkshire, the investment vehicle run by the 69-year-old Buffett since 1965, produced a return of 0,5% last year, compared with 21% for the S&P 500 index of the leading American companies.
Never before, even during times of recession, has the company performed so badly. The dire performance partly reflects Buffett’s refusal to invest in hi-tech companies because he does not understand them. The companies he understands – from General Re, the insurer, to Coca-Cola and Gillette -performed badly last year as they struggled to adapt to changing global dynamics.
In his folksy report to investors, Buffett writes: “Even Inspector Clouseau could find last year’s guilty party: your chairman.”
But Buffett was confident he would be proved right in the end. He predicted a “modest” outperformance over the S&P 500 over coming years, citing the intrinsic value of his investments and the fact that the current exuberance of the market cannot continue. “Our optimism about Berkshire’s performance is also tempered by the expectation – indeed, in our minds, the virtual certainty – that the S&P will do far less well in the next decade or two than it has done since 1982.”
He also reveals his contempt for investors who believe there is any rational justification for current valuation levels. “If anyone starts explaining to you what is going on in the truly manic portions of this ‘enchanted’ market, you might remember still another line of song: ‘Fools give you reasons, wise men never try.'”
Buffett, who has become the world’s second richest man on the back of his “value-based” approach to investing, is likely to face tough questions from shareholders at his forthcoming annual meeting in Nebraska. The company’s share price, at an astonishing $41E300 last week, has all but halved over the past year and is trading marginally above the group’s net asset value.
Shareholders and analysts have called for Berkshire Hathaway to buy back the company’s shares, a move that is often seen as a sign of confidence in future performance. Buffett said he would consider such a repurchase in his annual report but added: “We will never make purchases with the intention of stemming a decline in Berkshire’s price.”
Other value-style investors who have failed to take advantage of fast-growth companies include the United Kingdom’s Phillips & Drew, and Tiger, the hedge fund managed by Julian Robertson.