Buffett finds scant sign of any recovery
A downbeat Warren Buffett warned there were few signs of economic recovery after the world was hit by a “financial hurricane” over the past year.
The 78-year-old legendary investor, called the Sage of Omaha, said his investment company Berkshire Hathaway, had seen another drop in profits during the first quarter of 2009. He offered a few more clues as to his potential successor as he addressed a record 35,000 crowd at the company’s annual meeting in Omaha over the weekend.
Buffett said there was little sign of housing prices stabilising and that retailers were likely to remain under pressure for “a considerable period of time”. He added the earning power of insurance companies, which comprise around half of Berkshire’s operations, was “not as good last year as normal”, and “won’t be as good this year”.
But he added the American government’s attempts to stimulate the economy were the “right thing to do”. He said: “It has been a very extraordinary year. When the American public pulls back the way it has, the government does need to step in. It is the right thing to do, but it won’t be a free ride.”
The value of Berkshire’s investments shrunk by 10 per cent last year, and Buffett saw his own personal wealth shrink by £17billion, although business magazine Forbes still rates him as the world’s second-richest man after Microsoft mogul Bill Gates.
For the first quarter to March, Buffett said underlying profit fell by 12 per cent to $1.7billion (£1.2billion) as most of Berkshire’s businesses were “basically down”. However, the company still holds more than $20billion in cash. Buffett said some parts of the business were now cutting jobs as managers “look at the reality of the current situation”.
But he said matters would look “better down the road”, although inflation could be an issue as a result of governments flooding the world with money.
Investors pressed Buffett and Berkshire’s 85-year-old vice chairman Charlie Munger on succession. Buffett is considered the world’s greatest investor, but recent miss-steps have raised questions he has lost his touch.
He said there were three internal managers in the running to become Berkshire’s chief executive. The contenders are thought to include Berkshire’s boss of MidAmerican Energy, David Sokol, Geico car insurance chief Tony Nicely and Ajit Jain, who runs the re-insurance business.
There are four candidates to become chief investment officer. Buffett said they had failed to miss the financial crisis. “But their average over 10 years has been modestly to significantly better than average, and I would say that will be the case over the next 10 years.”
Buffett defended his investments in banks, and dismissed the importance of US government stress tests. He said Wells Fargo would prosper whatever happened. “I think I know their future better than somebody that comes in to take a look,” he said.
