Lessons from Warren Buffett's off year

Berkshire Hathaway shares did not perform well in 2011.

By Jonathan Berr Jan 3, 2012 5:19PM
© Mario Tama/Getty Images
Warren Buffett is still history's greatest investor, even after a year in which Berkshire Hathaway (BRK.A) shares fell 4.7% and underperformed the Standard & Poor's 500 Index ($INX) for the second time since 1990.  

Investors in Berkshire should be thankful that their money wasn't with a hedge fund manager such as John Paulson, who recently released a 24-page letter of apology after his fund tumbled more than 32% in its worst performance in 17 years. Disappointing performance at Soros Investment Management led to the departure of the firm's chief investment officer and prompted billionaire George Soros to return money to outside investors. Pimco's Bill Gross gained headlines earlier this year after betting wrong on the direction of U.S. Treasuries.

As the Wall Street Journal recently noted, the misery in the hedge fund world was widespread. Liberal news site Mother Jones asked whether investors in hedge funds were "morons." That's hard to say, but they sure have been unlucky.
Last year was the ninth straight year of misses, the Journal reported. "Money invested in hedge funds since 2003 would have generated a return of 18% through November, according to data compiled by Hedge Fund Research," the newspaper added. The S&P 500 Index saw returns of 29% over the same period.

Even at Tuesday's closing price of $116,320, Berkshire's shares are a bargain for the cost-conscious 1 percenter, when viewed on a price-to-book ratio. Last year, Buffett announced a stock buyback, which surprised many since he has criticized these sorts of moves in the past as a crutch used by companies to artificially prop up stock prices. The stock is still trading well under its 52-week high of $131,463. 

As Bloomberg notes, Buffett's track record is still enviable. In 21 years, Berkshire gained about 17-fold while the S&P index quadrupled. Many of the issues that caused Berkshire's stock to decline, such as huge insurance losses from the Japanese natural disasters, were one-time events. Moreover, Buffett looks well-positioned to benefit from a rebound in the U.S. economy thanks to his $34 billion deal in 2009 to gain control of Burlington Northern Santa Fe railroad.   If the economy continues to improve, freight rail volumes should grow as well.

Buffett's off year proves he is mortal. Still, a bad year for Buffett looks great compared to many others.

--Jonathan Berr does not own shares of any of the listed stocks.


Jan 3, 2012 6:45PM

What many fail to realize is Warren and Charlie Munger, along with a few others built the Berkshires over a period of decades....


No one, normally attains great wealth or riches overnight.......


Those that do....Many times lose or squander it, in a similiar time fashion.  Or much of it.

Jan 3, 2012 6:57PM
SmileHi, I agree slow and steady win the race, in a 20 year period , Stocks and Bonds always out   perform any thing !
Jan 4, 2012 11:44AM
Nothing like sugar coating Berkshire Hathaway. Funny how the writer points out the 21 year return which includes the rip roaring '90's. BRK is up only 53% the past 10 years. Has gone nowhere the past 5. And is DOWN 16.8% the past 4! An off year? More like an off decade! A rising tide lifts all boats, including BRK.
Jan 4, 2012 3:06PM
I heard that there was a deal being worked out that would have freight being unloaded directly from the boat to the train in Long Beach thus cutting out truckers having to take it from the boat to the train and saving a couple days in the process.  That would make it faster for frieght to go China to Long Beach by boat and then to St. Louis by train rather than China to Houston through the Panama Canal and then up from Houston To St. Louis.  If this happens (and the teamsters allow it) it will be a great benefit to anyone that owns trains so Buffett  may still have some good years coming.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
266 rated 2
485 rated 3
660 rated 4
586 rated 5
652 rated 6
640 rated 7
504 rated 8
289 rated 9
159 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.