Belfast Telegraph

Tuesday 16 September 2014

The £28bn question: Does the Sage of Omaha still know his onions?

Warren Buffett, the world's top investor, has admitted mistakes

They call him the Sage of Omaha, but Warren Buffett doesn't always get things right. Just ask Warren Buffett.

In his annual letter to his shareholders, the world's most famous investor has offered a series of colourful mea culpae for a selection of market predictions which subsequently proved wide of the mark. Or, in his own words, went "dead wrong".

A decision to gamble $2bn (£1.26bn) on a Texan energy company turned out to be "in tennis parlance... a major unforced error". An investment in ConocoPhillips was "dumb" and, of an ill-fated foray into the textiles industry, he writes merely: "Aaaaaaagh!"

Mr Buffett's frank comments were published on Saturday in his firm Berkshire Hathaway's annual report. They come at a time when he faces widespread scrutiny for endorsing Barack Obama's proposals to raise taxes on the wealthiest Americans.

The letter also comes amid growing interest in Mr Buffett's legacy. At 81, and after almost half a century running the company, his investors have never been more acutely aware of the fact he cannot carry on for ever.

With this in mind, Mr Buffett revealed he had identified an (as yet secret) individual, apparently from within the business, to be his successor.

He also reiterated plans to devote his $44bn (£28bn) fortune to good causes, adding that despite his advancing age, he was in "excellent health" and not "going anywhere" if he could help it.

Berkshire Hathaway made $10.3bn (£6.4bn) in 2011, down from nearly $13bn (£8.2bn) in 2010. Much of the decline can be blamed on Mr Buffett's insistence a year ago that the US housing market was about to rebound. That prediction was "dead wrong", he admits. However he is adamant that basic laws of supply, demand, and human population growth must eventually lead to a recovery.

Elsewhere, Mr Buffett has become an object of heated public debate after he endorsed raising taxes on the so-called '1%' of wealthiest Americans.

He famously pointed out that his earnings were taxed at about 15%, while his secretary paid twice that.

As long as this endures, he believes the US will struggle to reduce its deficit. Opponents call that class warfare.

Chris Christie, the Republican Governor of New Jersey, said last week that if Mr Buffett thought he was under-taxed, he should "just write a cheque" to the US government "and shut up".

Buffett's Blunders

Housing

The blunder: Mr Buffett predicted in last year's letter that the US housing recovery would begin within the next year and help to fuel economic growth. The explanation: Mr Buffett doesn't mince words and says he was “dead wrong” about this one. But he says basic biology makes it unavoidable that the country will need more houses.

Energy

The blunder: Mr Buffett spent about $2bn buying bonds offered by Texas utility Energy Future Holdings. But those bonds are now worth about $878m, and he conceded on Saturday that even that could be wiped out.

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