Berkshire's Long Term Equity Capital Gains Are Gone

I just came across a shocking post from Jeff Mathews on Berkshire Hathaway’s (BRK.A) equity portfolio: “This Just In: Berkshire Equity Portfolio Back To Its Cost Basis”, from Saturday February 28.

In that post, Mathews says that Berkshire’s equity portfolio, which had a cost basis of $37.1 billion and year end 2008 value of $49.1 billion had surrendered all of those capital gains as of the close Friday. The argument is rock solid and so I decided to run the numbers myself.

I entered all of the holdings listed on p. 15 of Berkshire’s 2008 Annual Report into a spreadsheet including: stock ticker, shares, cost basis, 2008 year end market value and current market value (at the close Monday 3/2/09).

Because Berkshire now owns more than 20% of Moody’s and Burlington Northern and therefore accounts for the holdings in a different way, I went back to the 2007 annual report and listed the data for year end 2007. This is completely accurate for Moody’s as Buffett wrote in this year’s annual report that no shares have been added.

He bought shares of Burlington Northern in 2008 and I am not able to track the capital gains/losses on those purchases. With Burlington Northern shares down compared to 2008, Buffett has capital losses on his 2008 buys as well.

I also can’t account for the “Other” stock holdings which consist of stock holdings with a year end 2008 value less than $500 million. Buffett almost certainly has losses on these holdings thus far in 2009 as well.

The cost basis for all of Berkshire’s equity holdings, including Moody’s and Burlington Northern and excluding “Others”, is $36.3 billion. The year end 2008 value was $49.8 billion - for unrealized capital gains of $13.5 billion. As of the close Tuesday, the value of these holdings was $33.7 billion - for unrealized capital losses of $2.6 billion.

All of Berkshire Hathaway’s capital gains on its long term equity portfolio have been wiped out as of Tuesday!

To give you an idea of the magnitude of these losses, Berkshire had unrealized capital gains $35.8 billion as of year end 2007. So we are talking about losses here of $38.4 billion or 51.2% of the $75 billion value as of the end of 2007.

Comments

[Nikola:]

Wow what a coincidence that this is exactly the Dow loss since it's high....

Mar 04 05:21 AM

[Omaidna:]

Ther were so many things Greg "could not account for" or didn't know...why did he bother writing the piece in the first place?

Mar 04 10:44 AM

[henarl:]

Warren Buffett and Charlie Munger have had a hell of a run but both are now in their eighties. Maybe it's time for them to retire. They could sure afford to.

Mar 04 12:13 PM

[Swiss Investor:]

I would be happy if I were just breaking even.. :-)

Mar 04 12:46 PM

[Dave Shafer:]

And about those dividends Berkhsire received?

Mar 04 01:45 PM

[Dave Shafer:]

Oh and those 60+ companies they now own?

Mar 04 01:45 PM

[Dave Shafer:]

Oh yea and despite all those mark to market accounting losses book value is way down, all the way down to the 2007 mark!

Mar 04 01:48 PM

[Amitabha Mu...:]

If Buffet was that smart then why on earth he could not properly analyze the economic tsunami that inflicted so severe damage. Sometimes people get too much overconfident about their performance and sleep when the gigantic storm strikes.

Mar 04 02:49 PM

[Dave Shafer:]

Well he did. If you read his previous couple of years letters then you see that. No he is not perfect, no investor is. Since 2000 his book value is up 127%, that is with two down years, the only one's of his career. Compare that 127% after tax with the S & P 500 -28.3% pre-tax!

And remember 3 of those years were heavy insurance loss years [hurricanes and 9/11]. You gotta ask yourself how he did so well given the environment since 2000????

Compare his results with anyone else and tell me how they come out!

Mar 04 03:01 PM

[User 369371:]

I compare his equity INVESTMENT results with the SP500, knowing that he started investing in the early to mid60s. Dividends would be also provided by SP500. Buffet's capital gains are ZERO in 40 years, whereas SP500 is still up 7-fold. If the greatest investor cannot produce any capital gains over 40 years, there is something horrible wrong with his approach. Perhaps it is not a coincidence that his guru Graham got ruined at least once in the stock market. If dividends only are the goal, one could have done much better with minimal risk buying treasuries whose interest has been above the SP500 dividends for the whole Buffet era.

Mar 04 05:53 PM

[U338129:]

This is the most idiotic statement and posting I have ever seen. You fail to factor in the dividends that Berkshire has gained, continues to gain, and has reinvested over the holding period. The true value of those holdings is a simple concept called "compounding." Regardless of what the ticker does in the short-term, Berkshire is still making, and has made, a tremendous amount of money on those holdings. In addition, the earnings from those holdings have helped pay for companies like Geico, MidAmerican Energy Company, Dairy Queen, Fruit of the Loom, etc. Note to the author, Berkshire still owns those companies!

Again, absolutely ridiculous post.

Apr 28 01:12 PM

[U338129:]

I'll throw one more aspect out there to. Let's focus solely on KO. Berkshire really only ever purchased about 25,000,000 shares of KO. It was three stock splits in the 90s that brought Berkshire's KO holdings to where they are now: 200,000,000

In addition, in the late 80s when Berkshire bought 23+ million, the price was in the low 40s...right where it is now. In addition, Berkshire only paid a little over $1 billion for its ownership rights in KO. The earnings on that money even at today's reduced price of KO stock is $8.6 billion.

Not exactly a loss now is it.

Apr 30 04:00 PM

[U338129:]

Correction, the "current market price" of the present ownership rights...not the "earnings."

Apr 30 04:04 PM