Billionaire investor Warren Buffett says 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 would happen.
Investors eagerly await the letter from Buffett, 81, called the Oracle of Omaha, who built a $44 billion fortune by following a steadfast, no-nonsense investing strategy.
Buffett said housing “remains in a depression of its own,” but he predicted, in typical plainspoken style, that the housing market will come back because some human factors can’t be denied. “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.”
Berkshire Hathaway owns more than 80 subsidiaries, including the Geico insurance company and See’s Candy, and five of them rely heavily on construction activity. Those businesses, which include Acme Brick, Clayton Homes and Shaw carpet, generated pretax profit of $513 million last year. That’s well off their $1.8 billion contribution 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 its larger non-insurance businesses – Burlington Northern Santa Fe railroad, MidAmerican Energy, Marmon Group, Lubrizol and Iscar – generated record earnings in 2011.
That helped Berkshire generate $10.3 billion in net income, or $6,215 a class A share, last year, down from nearly $13 billion, or $7,928, in 2010.
Buffett reassured Berkshire shareholders that the company has someone in mind to replace him but did not name the successor. He emphasized that he has no plans to leave.
Glenn Tongue, a managing partner at T2 Partners investment firm, said he was struck by the fact that Buffett chose to deal with the succession topic as one of the first items in his letter. “I think this was a forceful and stronger attempt to put this issue to bed,” Tongue said.
Buffett said the Berkshire 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,” Buffett said
