+0.39%<\/span>) <\/span>, all of which saw their values fall. Buffett also invested in Irish banks that almost collapsed during the crisis. <\/p>\n Though he didn’t put forward any proposals, Buffett suggested the need for greater oversight and, potentially, penalties for those in charge of the firms. <\/p>\n
“It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price — one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefited from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well,” he wrote. <\/p>\n
Rising value <\/h3>\n
Buffett’s letter was published as Berkshire reported its annual results. <\/p>\n
Net income rose 61% in 2009 on the back of the market rebound and economic stabilization. Net income attributable to Berkshire was $8.1 billion, or $5,193 per Class A share, compared to net income of $5 billion, or $3,224 per Class A share, in 2008. <\/p>\n
Berkshire’s net worth rose 19.8% in 2009, while the Standard & Poor’s 500 index returned 26.5%, including dividends. Change in net worth is the way Buffett prefers to measure the company’s performance. <\/p>\n
“Charlie [Munger, vice chairman of Berkshire Hathaway] and I believe that our book value — understated though it is — supplies the most useful tracking device for changes in intrinsic value,” wrote Buffett in his letter. “By this measurement … our book value since the start of fiscal 1965 has grown at a rate of 20.3% compounded annually.” <\/p>\n
Based on market prices, said Buffett, Berkshire’s gains since 1965 would be 22% compounded annually. <\/p>\n
Buffett sounded a note of warning, claiming that such returns may be a thing of the past. <\/p>\n
“Our performance advantage has shrunk dramatically as our size has grown, an unpleasant trend that is certain to continue,” he wrote. <\/p>\n
He foresees “better-than-average results over time,” said Buffett, before adding, “But huge sums forge their own anchor and our future advantage, if any, will be a small fraction of our historical edge.”<\/p>\n
Housing and rail <\/h3>\n
Buffett used discussion of Berkshire subsidiary Clayton Homes, the largest producer of modular and manufactured homes, to touch on the U.S. housing market. <\/p>\n<\/p>\n
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Warren Buffett sees a housing-market turnaround coming.<\/span><\/div>\n In addressing the oversupply in housing, Buffett said the economy reduced new housing starts to a number well below the rate of household formations. <\/p>\n
“[This] means that within a year or so residential housing problems should largely be behind us, the exceptions being only high-value houses and those in certain localities where overbuilding was particularly egregious,” he said. “Prices will remain far below “bubble” levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits.” <\/p>\n
“Indeed, many families that couldn’t afford to buy an appropriate home a few years ago now find it well within their means because the bubble burst,” Buffett wrote. <\/p>\n
Buffett also used the letter to justify Berkshire’s biggest-ever deal, its acquisition of railroad company Burlington Northern Santa Fe Corp. for $15.87 billion in cash and 21 million Berkshire shares. The deal required Berkshire to issue about 95,000 shares. <\/p>\n
“Charlie and I enjoy issuing Berkshire stock about as much as we relish prepping for a colonoscopy,” wrote Buffett. <\/p>\n
But he said the approach was worth it because of “the opportunity the acquisition gave us to deploy $22 billion of cash in a business we understood and liked for the long term.” <\/p>\n
“The final decision was a close one,” said Buffett. “If we had needed to use more stock to make the acquisition, it would in fact have made no sense. We would have then been giving up more than we were getting.”<\/span> <\/p>\n Sam Mamudi is a reporter for MarketWatch, based in New York.<\/span><\/p>\nShare Investor Links<\/span><\/a><\/a><\/p>\nShare Investor Blog<\/a> – Stockmarket & Business commentary
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