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Buffett admits being 'dead wrong' about recovery of housing market

Billionaire investor Warren Buffett said Saturday that he was "dead wrong" with a prediction that the U.S. housing market would begin to recover by now, but he remains optimistic about the nation's economy.

In his annual letter to Berkshire Hathaway shareholders, Buffett said he is sure housing will recover eventually and help bring down the nation's unemployment rate. But he did not predict when that will happen.

Investors eagerly await the letter from Buffett, 81, the so-called Oracle of Omaha, who built a roughly $44 billion fortune by following a steadfast, no-nonsense investing strategy.

Buffett said housing "remains in a depression of its own," but he predicted that the housing market will come back because some human factors can't be denied forever.

"People may postpone hitching up during uncertain times, but eventually hormones take over," he wrote. "And while 'doubling-up' may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure."

The housing prediction proved painful for Berkshire Hathaway. It owns more than 80 subsidiaries, and five of them rely heavily on construction activity.

Those businesses, which include Acme Brick, Clayton Homes and Shaw carpet, generated pre-tax profits of $513 million last year. That's well off the $1.8 billion those companies added to Berkshire in 2006.

Berkshire's insurance companies took $1.7 billion in catastrophe losses last year, including from the earthquake and tsunami in Japan. Berkshire reported only $154 million in underwriting profit, down from $1.3 billion the previous year.

But several of Berkshire's larger non-insurance businesses -- Burlington Northern Santa Fe railroad, MidAmerican Energy, Marmon Group, Lubrizol and Iscar -- all generated record earnings in 2011.

That helped Berkshire as a whole to generate $10.3 billion in net income, or $6,215 per Class A share, last year, down from nearly $13 billion, or $7,928 per share, in 2010.

Berkshire owns The Buffalo News; Buffett is its chairman.

Buffett reassured shareholders that Berkshire has someone in mind to replace him eventually, but he did not name the successor. He emphasized that he has no plans to leave.

He said the board is enthusiastic about the executive it has picked and said there are two good back-up candidates. "When a transfer of responsibility is required, it will be seamless, and Berkshire's prospects will remain bright," he said.

Even though the successor wasn't named, stockbroker and author Andy Kilpatrick said the way Buffett described the person makes him more confident that the leading candidate is Ajit Jain, who runs Berkshire's reinsurance division. "The more I think about it, the more I think we have a successor," said Kilpatrick, who wrote "Of Permanent Value: The Story of Warren Buffett."

The other Berkshire managers believed to be possible successors are Greg Abel, president and CEO of MidAmerican; Tony Nicely, chief executive of GEICO; and Burlington Northern Santa Fe CEO Matt Rose.

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