Board-Ansicht
Mix-Ansicht- Buffett Warns of Financial 'Dream World' - YIHI, 29.04.2001, 19:12
Buffett Warns of Financial 'Dream World'
Buffett Warns of Financial 'Dream World'
OMAHA, Neb. (Reuters) - Warren Buffett told his followers to scale back unreal expectations of his firm Berkshire Hathaway Inc. (NYSE:BRKa - news), as the billionaire investor warned that corporate America's hopes for profit growth, and investors' assumptions of returns, were entering a ``dream world.''
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``The probability of us achieving 15 percent growth in earnings over an extended period of years is so close to zero it's not worth calculating,'' said Buffett, known as the ``Oracle of Omaha'' to the 5,000-or-so Berkshire shareholders packed into his home town's Civic Auditorium for the firm's annual meeting on Saturday.
``And nor do we think any large company in the United States is likely to (post such growth),'' said Buffett, reckoning that only two or three Fortune 500 firms might be able to hit 15 percent profit growth consistently over a long period.
Investors, pumped up by advisers after a decade-long bull market, and led on by grand promises from companies, now have unreal expectations of returns, warned the 70-year-old Buffett, who has built up his $100 billion Berkshire by slowly patching together old-line businesses and making canny stock investments.
``Fifteen percent (return on stock investments) is a dream world,'' warned Buffett.
``It's simply crazy to have such very high expectations,'' added Charlie Munger, Buffett's 77-year-old partner at Berkshire, and respected investment sage in his own right. ''Years ago 15 percent return was regarded as impossible, now they say 'so what'''
A return of 6 percent a year was more realistic, the pair warned, rather than the 9 percent or more that pension fund managers now promise.
For Buffett, that means a natural slowing in the phenomenal growth of his combined insurance firm, holding company and investment vehicle that has made thousands of shareholders millionaires and made him an investing legend.
Since 1965, when Buffett bought a small textile mill called Berkshire Hathaway to use as the base for his investments, the book value of its shares has increased about 24 percent per year -- twice the rate of growth of the S&P 500.
In that time, Berkshire's stock price has risen from $12 in 1965 to $67,005 a share at the close of the New York Stock Exchange on Friday, making Buffett one of the most revered, and emulated investors.
BIG DEAL ON THE HORIZON
The problem for Berkshire now, Buffett said, is finding enough firms to buy to keep growing.
``The bigger you are, the fewer opportunities there are,'' said Buffett, who is now looking for a major acquisition.
``What we'd really like is a $10 or $15 billion acquisition,'' he said, but warned that finding good deals that size was not easy.
Buffett's only purchase that large so far was U.S. reinsurer General Re, which he bought for about $22 billion in 1998.
The U.S. utility sector was now a likely target for their money, said both Buffett and Munger, assuming that current laws restricting ownership of publicly held utilities are removed, as is expected.
``The production of electricity is an enormous business -- its not going away,'' said Munger. ``Its not at all inconceivable that may do something in that field.''
Europe, too, was a promising place for deals, Buffett suggested, though he said that he had received no offers to buy businesses when he was in Europe last month.
``We don't have a masterplan,'' said Buffett. ``We'll do whatever comes down the pipe,'' adding that he expected Berkshire to make on average two deals a year as it looks to grow, envisaging as many as 40 deals over the next decade and a half. That could more than double the size of Berkshire, which at present owns about 30 businesses.
Buffett repeated his preference for buying whole companies rather than stocks, and took a sideswipe at the confused state of stock investing in the U.S. today.
``Anyone who says you should be in 'growth' or 'value' (stocks) doesn't understand investing,'' said Buffett. ``I cringe when I hear it; it just doesn't make any sense''.
Growth is a natural result of value, said Buffett, who plans to stick with his tried and tested method of buying companies with distinct advantages over competitors -- what he calls a ``moat'' to protect them -- and watching the value in the businesses convert itself into growth over time.
This ``get rich slowly'' method of investing, said Buffett, has few followers these days, as many lacked the patience, or the ability to value businesses in the right way.
ANTI-TECH TRIUMPH
One Berkshire shareholder thanked Buffett at the meeting for avoiding technology stocks, marking a reverse from last year's meeting, when some questioned Buffett's anti-tech stance, as Berkshire's returns fell way behind the soaring Nasdaq.
Since then, Berkshire's stock has climbed, while many high-flying technology stocks have lost more than 90 percent of their value.
Buffett defended his position by saying very few internet-based firms will generate any real wealth over the long term -- beyond the instant riches nabbed by promoters and Wall Street.
Many new tech firms simply ``monetized the hopes and dreams of millions of people,'' said Buffett, as they raised huge amounts of cash from the stock market. ``Lots of money was transferred from the gullible to the promoters,'' he said, as investors chased after ``easy money''.
Wall Street was the main benefactor of this ``huge trap'', said Buffett. ``Not by great performance, but by great promotion''.
Buffett attacked a conspiracy between companies, their consultants and Wall Street analysts in manufacturing earnings to suit unreal growth expectations, particularly in 'new economy' firms, charging that some current accounting practices were deceptive. ``A lot of companies don't want to account for expenses,'' he said.
THE SUCCESSION PLAN
Buffett told his shareholders not to worry about his health, and said even if he should die, the business was in safe hands.
Rumors that Buffett was seriously ill spooked investors last year, though he only had an operation to remove a benign colon polyp.
``I feel great,'' Buffett answered one shareholder, who quizzed him about his cholesterol level, given his steady diet of Dairy Queen ice cream, See's candies and Coke.
Even if he were to die, Buffett told shareholders that his succession plan -- revealed to a select few last year -- would ensure the future of the business.
Under that plan, his joint role of overseeing Berkshire's operating subsidiaries and looking after investments would be split into two jobs, thought the likely successors were not named.
``There's no point saying who those people would be,'' Buffett said. ``It might change.''
Berkshire watchers expect Lou Simpson, the 64-year-old controller of investments at GEICO, Berkshire's cut-price car insurer, to take over the all-important role of looking after Berkshire's $30 billion or so in stock investments.
Whatever happens, the majority of Berkshire's investments would do well, said Munger, who at 77, is not part of any succession plan. ``We have a lot of momentum that would go on very nicely with the present management gone.''
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