\n<\/p>\n
<\/h3>\n
Hundreds of thousands of fresh Berkshire Hathaway Inc. shareholders got an update Saturday on how their investment performed in 2009.<\/p>\n
The news was mixed. While Berkshire’s underlying returns rebounded strongly, helped by its vast stock holdings, pockets of weakness in several economically sensitive operating units crimped results. <\/p>\n
In its annual shareholder letter, the conglomerate, which sells everything from ice cream to machine tools to house paint, reported that its book value gained 19.8% to $84,487 per share in 2009 from the prior year, based on a metric the company uses to track performance. In dollar terms, book value shot up $21.8 billion last year, a record. <\/p>\n
Berkshire posted net income of $8.1 billion in 2009, up from $5 billion a year ago but down sharply from the $13.2 billion it earned in 2007. Revenue was $112 billion in 2009 from $108 billion in 2008. <\/p>\n
Long a closely held company mostly for the wealthy, Berkshire in the past month vastly increased its shareholder base after it was included in the Standard & Poor’s 500-stock index, held by millions of investors in index and mutual funds that closely track it. <\/p>\n
Last year’s gain\u2013Berkshire’s best since 2003\u2013marks a strong rebound from 2008, when book value per share slid 9.6%, the biggest decline since Warren Buffett, the chairman, took over the company in 1965 when it was a family-run textile manufacturer on the East Coast. <\/p>\n
The gain was less than the S&P 500’s return of 26.5% in 2009, marking only the seventh time Berkshire has trailed the index under Mr. Buffett. But long-term investors aren’t likely to be disappointed. Berkshire outperformed the index over the lion’s share of the credit crisis, since losses in 2008 were far lower than the broader market’s. <\/p>\n
![\"[0226buffet2]\"](\"http:\/\/si.wsj.net\/public\/resources\/images\/OB-HR639_0226bu_D_20100226135743.jpg\")
\n
Getty Images<\/cite> <\/p>\n
Warren Buffett<\/p>\n<\/p><\/div>\n<\/div>\n<\/div>\n
“Our defense has been better than our offense, and that’s likely to continue,” Mr. Buffett wrote. <\/p>\n
Berkshire’s inclusion in the index against which he measures his own performance came after the company agreed to split its Class B shares as part of its acquisition of Burlington Northern Santa Fe, the railroad giant. According to S&P, about $1 trillion in assets is held by funds that directly track the S&P 500. <\/p>\n
In the letter, Mr. Buffett seemed to address his new shareholders directly. In sections titled “How We Measure Ourselves” and “What We Don’t Do,” he provided guidelines for how to gauge the performance of his firm, how Mr. Buffett and his long-time partner, Charlie Munger, size up companies and how the various pieces of Berkshire work together at a whole. <\/p>\n
“We will never become dependent on the kindness of strangers,” Mr. Buffett wrote. “Too-big-to-fail is not a fallback position at Berkshire,” a reference to large financial institutions bailed out by the government after suffering billions in losses. <\/p>\n
The investor boasted how Berkshire, fueled by its vast cash stockpile and protected by its aversion to overly risky bets, was able to pump cash into the financial system during the heat of the crisis. Berkshire “was a supplier of liquidity and capital to the system, not a supplicant,” he wrote. <\/p>\n
A Transforming Berkshire<\/h6>\n
Of interest to new and old shareholders alike, Mr. Buffett discussed how he has been transforming Berkshire in recent years into a capital-intensive industrial conglomerate with big holdings in railroads and utilities and less exposure to cash-generating financial operations such as insurance. He said that while he used to shun capital intensive businesses, his perspective has changed. Berkshire will continue to spit out large amounts of cash, he wrote, and cash-hungry firms like utilities and railroads are among the best outlets for those dollars. <\/p>\n
Those companies will deliver solid earnings, “albeit at the cost of our investing many tens \u2014yes, tens\u2014of billions of dollars of incremental equity capital,” he wrote. <\/p>\n
The result, he said is that Berkshire’s “ever-growing collection of good to great businesses should produce above-average, though certainly not spectacular, returns in the decades ahead.”<\/p>\n
Swings with the Market<\/h6>\n
Berkshire is distinct from some other big corporations in that it holds a substantial investment portfolio at the parent level whose success has a high influence on the company’s performance.<\/p>\n
Last year, a rising stock market helped results. Berkshire’s huge stock portfolio, which includes blue-chip companies such as American Express Co., Johnson & Johnson and Wal-Mart Stores Inc., posted a strong gain last year, marking a sharp reversal from 2008 when stocks plunged. <\/p>\n
A big boost came from Berkshire’s investment in Chinese battery and car maker BYD Co. Its $232 million investment in the company in 2008\u2014a deal advocated by Mr. Munger\u2014surged to nearly $2 billion by the end of last year. <\/p>\n