Even Buffett Sings the Blues
Glum about your stocks sinking? Well, consider the legendary stock picker and billionaire Warren Buffett. His portfolio is down more than $10 billion since mid-July.
Berkshire Hathaway Inc.--the Buffett holding company that makes big bets on selected companies--has seen its stocks’ value eroded by that amount since the stock market went into its summer swoon.
Berkshire’s own shares have tumbled 22% in the period, costing Buffett himself a mind-boggling sum. His net worth, which mostly reflects his 40% stake in Berkshire, has plunged by nearly $8 billion, to $28 billion.
Even so, he remains the nation’s second-richest person, behind Microsoft Corp.’s Bill Gates (who’s also lost billions in the market’s decline), according to Forbes magazine.
Several of Buffett’s top picks--such as Coca-Cola Co., Walt Disney Co. and Gillette Co.--have dropped much more severely than the general market, as measured by the 15% loss in the Standard & Poor’s 500 index since mid-July.
Berkshire has lost $5.8 billion alone on its 8.1% interest in Coke. With the giant soft-drink maker’s earnings under severe pressure from the foreign economic crisis, the stock has skidded 33%.
Gillette is having similar problems overseas, and the 35% drop in its stock since mid-July has erased $2 billion from the value of Berkshire’s 8.6% interest in the consumer-products company.
Berkshire also owns major stakes in Wells Fargo & Co., Washington Post Co. and Freddie Mac.
(These figures are based on Berkshire’s holdings as of Dec. 31, the most recent date made public by the company. Berkshire, based in Omaha, certainly could have slightly raised or lowered its positions in some stocks since then. But in cases where it owns 5% or more of the companies, Berkshire would be required to publicly announce any major change in its holdings, and that hasn’t happened.)
As usual, Buffett, 68, and other Berkshire officials declined comment. Buffett, known as the “Oracle of Omaha” for his history of picking winners, usually reserves market discussions for Berkshire’s annual meeting.
But it’s a tenuous stance to suggest Buffett has lost his touch, given the fortune that Coke, Disney and the other stocks already had returned on Berkshire’s original investments. As of Dec. 31, the market value of Berkshire’s stock holdings was $36 billion--five times the $7 billion the company had paid for the shares, according to Berkshire’s annual report.
In other words, even though Berkshire has given $10 billion back with the market’s drop, it was ahead $29 billion when the year began.
And Berkshire’s own stock--as a proxy for Buffett’s picks--has soared 10-fold in the past eight years, or about 34% a year, despite its recent decline. Berkshire, which has the most expensive issue on the New York Stock Exchange, closed Friday at $59,500 a share, up $1,600.
Berkshire is much more than a Buffett mutual fund, though. It’s a major insurance provider through GEICO and other outlets, and it is about to buy giant reinsurer General Re Corp. Berkshire also owns the See’s Candies chain, the Buffalo, N.Y., newspaper, and furniture and shoe companies, and it recently bought the International Dairy Queen ice cream chain.
Buffett made much of his fortune--and influenced generations of other investors--by promoting the idea that one should buy undervalued stocks, or stocks that offer strong potential but are temporarily being spurned by the market, and then be patient.
Wells Fargo is a perfect example. Berkshire began accumulating shares of the California banking giant eight years ago--when the bank was in dire trouble--and Berkshire’s average cost, as of Dec. 31, was $62 a share. Earlier this year, the stock nearly hit $400 a share.
Yet when some of Buffett’s picks climbed to high levels this summer, or what some would call vastly overvalued levels, Buffett didn’t cash out and take his profits. Coke and Gillette at times this summer traded for more than 50 times their estimated earnings per share for 1998, an exceptionally lofty level.
Indeed, some Wall Streeters contend those stocks got that high in good part because many other investors bought the shares to mimic Buffett’s actions.
But John Roberts, who follows Berkshire for the investment firm Hilliard Lyons Inc. in Louisville, Ky., said he’s not surprised Buffett stayed the course. Not only is Buffett the classic “buy-and-hold” investor, he’s also “become a franchise investor, buying stocks of companies he believes have good franchises” in their industries, such as Coke or American Express Co.
Unless Buffett can find a stock with a comparable franchise and selling at an attractive price, “he typically won’t sell” the stocks he already has, Roberts added.
Berkshire now sits on $9 billion of cash, much of it from having cashed out its Treasury-bond position.
In his typically folksy annual letter to stockholders this year, Buffett said investors should “rejoice when markets decline,” because that allows them “to deploy funds more advantageously.”
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Bruised Buffett
Of the stocks owned by Warren Buffett 3/8s Berkshire Hathaway that have taken a drubbing since the market began tumbling in mid-July, these are the worst-hit:
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Dollar % Shares Current change held* value from 7/15 from Stock (millions) (billions) (billions) 7/15 Walt Disney 65 $1.6 -$1.0 -36% Gillette 96 3.7 -2.0 -35 American Express 50 3.7 -2.0 -35 Coca-Cola 200 11.8 -5.8 -33 Berkshire Hathaway -22 S&P; 500 -15
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* As of Dec. 31, 1997, adjusted for splits in 1998
Source: Berkshire Hathaway, Bloomberg News
