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Bricks and boots buoy Buffett
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March 10, 2001: 2:33 p.m. ET
Berkshire Hathaway's focus on old industries pays off
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NEW YORK (CNNfn) - For Berkshire Hathaway, the corporate vehicle of billionaire Warren Buffet, investing in the old time businesses while everyone else crowed about new frontiers in networking, fiber optics and database applications paid off. The company's profit rose 114 percent last year.
"... We have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement," Buffett dryly told shareholders in his annual letter, issued Saturday.
But however quaint those investments may seem, they more than made up for underwriting losses in Berkshire Hathaway's main insurance businesses. Berkshire Hathaway (BRK: Research, Estimates) reported net profit for 2000 of $3.328 billion, or $2,185 per share, up from $1.557 billion, or $1,025 per share, in 1999.
The leap in profit marks a comeback for Buffett from last year -- which he called the worst ever for the firm -- when underwriting losses and poor returns on investments took a chunk out of profits.
"Overall, we had a decent year," said 70-year-old Buffett, in his annual letter to shareholders, posted on Saturday on the firm's Web site.
The Omaha, Nebraska-based holding company -- whose main business is insurance but also has subsidiaries in a range of old-economy sectors, from furniture to jewelry to plane leasing -- made its profits from cashing in some investments.
The 2000 figure was largely made up of realized investment gains -- which the firm notches up when its sells stocks or bonds -- of $2.392 billion. The year before, Berkshire reported similar realized gains of only $886 million.
During last year, Berkshire sold nearly all its shares in the U.S. mortgage finance company Freddie Mac (FRE: Research, Estimates), which were worth about $2.8 billion at the end of 1999. Berkshire now owns only 0.3 percent of Freddie Mac, down from 8.6 percent at the end of 1999.
Berkshire also sold most of its shares in the U.S.'s other major mortgage firm, Fannie Mae (FNM: Research, Estimates), Buffett said. Berkshire's other major stock holdings remained largely unchanged during 2000. The firm still owns 11 percent of credit card giant American Express (AXP: Research, Estimates), 8 percent of soft-drink maker Coca-Cola Co. (KO: Research, Estimates), 9 percent of consumer goods firm Gillette Co. (G: Research, Estimates) and 18 percent of newspaper publisher The Washington Post Co. (WPO: Research, Estimates).
These and other stock holdings were worth $37.6 billion in value at the end of 2000, the company said. That is only slightly higher than $37.0 billion at the end of 1999, reflecting the nosedive in U.S. stocks last year.
"There are no 'bargains' among our current holdings," said Buffett in his shareholders' letter. "We're content with what we own but far from excited by it."
He said the rush of acquisition activity was fed in part by several businesses realizing they were about to hit a slowdown.
"We purchased several companies whose earnings will almost certainly decline this year from peaks they reached in 1999 or 2000," he warned in his letter. "The declines make no difference to us, given that we expect all of our businesses to now and then have ups and downs. (Only in the sales presentations of investment banks do earnings move forever upward.) We don't care about the bumps; what matters are the overall results. But the decisions of other people are sometimes affected by the near-term outlook, which can both spur sellers and temper the enthusiasm of purchasers who might otherwise compete with us."
Shaw Industries, Johns Manville Corp., Benjamin Moore Paint, and boot maker Justin Industries were among Berkshire Hathaway's 2000 purchases.
The firm also bought high-yield bonds of a few issuers, such as troubled loan firm FINOVA Group Inc. (FNV: Research, Estimates) -- which it is planning to take over in conjunction with another finance firm -- and upped its holdings of high-grade, mortgage-backed securities.
Berkshire said after-tax profits excluding the realized gains from investments were $936 million for 2000. That compares with $671 million in 1999.
Profits were hit by a pre-tax underwriting loss of $1.4 billion at its General Re unit, which sells reinsurance, due to a large one-off loss and the continuing effects of too-low premiums. General Re lost $1.4 billion on underwriting the year before.
GEICO, Berkshire's cut-price car insurer, lost $224 million on underwriting before tax, as the unit struggled to win new accounts despite expensive advertising. Last year GEICO made $24 million underwriting profit.
Berkshire's stock, which has never been split in Buffett's 36 years in charge, closed at $71,100 on Friday on the New York Stock Exchange. The stock has risen 74 percent in the past year, from its 52 week low of $40,800 a year ago today.
The stock's surge has inversely mirrored the year-long plunge in the technology-heavy Nasdaq, as investors flocked to 70-year-old Buffett who has stood by his refusal to invest in high-tech stocks.
-- from staff and wire reports 
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