Following the release of Buffett’s annual letter, there were a lot of headlines to the effect that it was his worst year ever. Not only did his stock get hammered, but as Jeff Matthews noted, the famed stock picker’s portfolio is now back to its original cost basis. It’s flat. Felix Salmon wondered why Buffett sold shared in Johnson & Johnson in order to raise cash for his latest preferred bets, when he would’ve been better off paring back on financial stocks.
But it doesn’t take much stretching to argue that actually 2008 may have been Berkshire’s best year. David Merkel of the Aleph Blog makes a point we’ve offered in the past, that if anything, 2008 showed that he’s been walking the walk all this time
But guess what? Berky is the biggest financial company in the US, bar none, by a wide margin. Financials have done horribly, Berky less so. Comparing the book value performance of Berky versus the market value of the S&P 500, this was one of Berky’s best years.
Looking at his divisions, insurance, utilities, and other businesses did well, and his investing did horribly, like most of the rest of us. Sure, his timing was bad with some of his preferred stock purchases, and his willingness to write index put options. But if those that Berky invested in survive the crisis, Buffett will come back smiling broadly.
Here’s another pillar of strength. A lot of capital has been destroyed in the insurance industry in the capital markets, reducing surplus. Those that have surplus will benefit.