Why is this WORK?  Because I teach Financial Markets and Institutions - and Warren Buffett is an INSTITUTION (joke!).

Always the optimist, as the New York Times article states, here's a quote from Warren's Annual Letter to Berkshire Hathaway shareholders (the link goes DIRECTLY to the pdf file, Warren's letter):

 

 

 

 

 

 

 

 

 

 

 

 

“As we view Geico’s current opportunities,” he wrote, referring to the insurance company that Berkshire Hathaway owns, he and his company’s chief executive “feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere.”

Warren takes some blame but spreads it around too:

 

 

 

 

 

 

 

 

 

 

 

 

“The stupefying losses in mortgage-related securities came in large part because of flawed, history-based models used by salesmen, rating agencies and investors,” he wrote.

He went on: “These parties looked at loss experience over periods when home prices rose only moderately and speculation in houses was negligible. They then made this experience a yardstick for evaluating future losses. They blissfully ignored the fact that house prices had recently skyrocketed, loan practices had deteriorated and many buyers had opted for houses they couldn’t afford.”

Also blissfully ignored, he wrote, were the perils of relying on mathematical models devised without worst-case situations in mind. Too often, he wrote, Americans have been enamored of “a nerdy-sounding priesthood, using esoteric terms such as beta, gamma, sigma and the like.” Some skepticism about these models is overdue, he added.

“Our advice: Beware of geeks bearing formulas.”

I love it!

So how bad did They do?

  In a TERRIBLE year on Wall Street, BRK had a down year, a profit decline of 9.6% - only the second year ever!!

That brings Berkshire Hathaway's long term average earnings per year down to +20.3%!!  Beating the market by over 11% per year!

Yes - they BEAT the Standard & Poors 500 index by a WHOPPING 37% in 2008!!  Not a loss but a gain - just not so large of a gain as usual!!

SHAREHOLDERS were delighted because they made a profit and the drop in profits wasn't as large as they expected!

A final quote of his "folksy" humour in the letter:

 

 

 

 

 

 

 

 

 

 

 

 

He also bought shares of two Irish banks for $244 million, which subsequently have decreased more than 89 percent. “The tennis crowd,” he wrote, “would call my mistakes ’unforced errors.’ ”