Tags: michael | carr | Write-Offs | Buffett | Underperformance | berkshire

Write-Offs Don’t Explain Buffett’s Underperformance

By    |   Wednesday, 11 May 2011 08:26 AM

When Berkshire Hathaway formally announced first-quarter results, we learned that the Securities and Exchange Commission had forced Warren Buffett to recognize losses of a little more than half a billion dollars in Kraft and Wells Fargo.

Adding this figure back in, the Oracle of Omaha still only shows a gain of 1 percent on his stock portfolio, substantially lagging the S&P 500 which gained nearly 6 percent in the first three months of the year.

The write-offs themselves seem to be unusual. Neither company is struggling to survive and further stock gains seem likely in the long-term. Regulators don’t publicly explain their actions, and the earnings announcement doesn’t offer much detail.

Kraft is trading only about 20 percent below its all-time high, and has been trending higher this year. The company has a solid history of earnings and dividends. It seems unlikely that the losses Berkshire has in Kraft will be permanent. In five years, the dividends alone would make up for the reduced equity gains.

Berkshire paid an average price of about $17.50 a share for its position in Wells Fargo. The company, like every other financial power house, has struggled during the recent economic crisis. However, the worst seems to be in the past, and Buffett has an unrealized capital gain of more than $3.5 billion in the bank.

Buffett probably hasn’t lost his golden touch. His stock portfolio has underperformed in the past, especially near market tops where he seems to get protective early, which may very well be the key to preserving his great fortune.

Regulatory scrutiny is new for Berkshire, and that may limit Buffett’s ability to act in the market. We may see more of his cash go to private equity deals, rather than endure losses when regulators choose to dictate write downs in publicly traded equity stakes.

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MichaelCarr
When Berkshire Hathaway formally announced first-quarter results, we learned that the Securities and Exchange Commission had forced Warren Buffett to recognize losses of a little more than half a billion dollars in Kraft and Wells Fargo. Adding this figure back in, the...
michael,carr,Write-Offs,Buffett,Underperformance,berkshire
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2011-26-11
Wednesday, 11 May 2011 08:26 AM
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