The Complete Financial History of Berkshire Hathaway: A Chronological Analysis of Warren Buffett and Charlie Munger's Conglomerate Masterpiece by Adam J. Mead

Author:Adam J. Mead [Mead, Adam J.]
Language: eng
Format: epub
ISBN: 9780857199126
Google: BM4nEAAAQBAJ
Amazon: 0857199129
Published: 2021-04-13T00:00:00+00:00

1999

The underperformance that Buffett had long predicted finally came true in 1999. Berkshire’s gain in book value per share (Buffett’s preferred, if only rough proxy) increased just 0.5% compared to an increase of 21% for the S&P 500. Buffett told shareholders the 20.5% underperformance was the worst of his career and that he deserved a D for capital allocation. Still, Berkshire did have some bright spots during the year, including the completion of an acquisition and the arrangement of two more.

The poor performance stemmed from a couple of different spots. The first was a lackluster performance by the marketable securities portfolio. Poor operating performance at the underlying companies caused their stock prices to decline, in turn impacting Berkshire’s book value. 347 The price declines were also likely exacerbated by the internet fever still gripping the country. The Nasdaq Composite rose fivefold between 1995 and 2000, but only for companies investing in technology stock. Berkshire had made no such investments. Additionally, mistakes at General Re, Berkshire’s new reinsurance subsidiary, led to a large underwriting loss that caused a corresponding pre-tax operating loss (excluding investment income).

Insurance

Berkshire reported its first loss from insurance underwriting since 1992. General Re contributed most of the $1.4 billion pre-tax loss, but weakness in other areas played a part. Berkshire’s 5.8% cost of float approximated long-term US government bond rates at the time.

Table 6.18: Berkshire Hathaway—Insurance Underwriting

($ millions)

1999

1998

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