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Berkshire Hathaway's Lackluster 2011

By Matt Koppenheffer - Updated Apr 6, 2017 at 3:48PM

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Berkshire's stock didn't shine in 2011. What went wrong?

The year is coming to a close, so it's a great time to take a look back at the companies you own and how they fared in 2011.

For shareholders of Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), it wasn't a year to cheer about, as the stock trailed the performance of the S&P 500. The graph below says it all:

Source: Yahoo! Finance.

But the performance of a company's stock doesn't always tell the full story when it comes to how the company fared. So let's dig in and take a closer look at the key developments for Berkshire in 2011.

A quick look at Berkshire Hathaway

Market Capitalization $189 billion
Total Year-to-Date Stock Return (5%)
1-Year Book Value Growth 6%
Book Value Multiple 1.18
CAPS Rating (out of 5) *****

Sources: S&P Capital IQ and Motley Fool CAPS.

What went down in 2011
Berkshire Hathaway is a lot of things. It's the investment vehicle of Warren Buffett. It's the proud owner of railroad operator Burlington Northern Santa Fe. It's the parent of dairy-delight slinger Dairy Queen. But in a very big way, it's an insurer.

Through a collection of insurance businesses, Berkshire covers a variety of risks including standard auto (GEICO), general reinsurance (the aptly named General Re), and catastrophe reinsurance (Berkshire Hathaway Reinsurance). Insurance in general is a cyclical business that goes through tougher times when there's a lot of capital chasing the risks to be insured. We're in that tougher part of the cycle now and it's putting pressure on the profits for insurance companies.

At the same time, insurance companies that cover catastrophes can be hit hard when there are unusually large disasters that take place. For 2011, the massive earthquake and tsunami in Japan was just that type of disaster.

Add that all up and what you've got is a big drag on what makes up a lot of Berkshire's business. Obviously these aren't just Berkshire's issues -- they're affecting the entire industry from Allstate and Progressive (NYSE: PGR) to ACE Limited and Travelers (NYSE: TRV).

At the same time, though, Berkshire isn't getting any help from a sluggish economy. With many of its non-insurance businesses -- like Burlington Northern, manufacturer Marmon, and retailer RC Willey -- dependent on a healthy economy for growth, this slowly creeping recovery is an additional drag on the overall results.

All of this, however, may have been overshadowed in 2011 by a major announcement by Buffett and Berkshire. Back in September, Berkshire's board authorized the company to start buying back Berkshire stock. While stock buybacks may be somewhat of a yawn for many companies -- particularly since many companies don't do a great job buying back stock -- this is a huge announcement for Berkshire. Widely considered one of the best investors of our time, Buffett doesn't take buying a stock lightly. In other words, if he's ready to buy back Berkshire's stock, it means that the stock is cheap. And not just cheap, really cheap.

Of course, that wasn't the only surprise from Buffett this year. Stepping out of his oft-repeated refrain of (I'm paraphrasing here) "I don't get tech, so I'm not going to invest in it," Buffett announced a significant investment in tech heavyweight IBM (NYSE: IBM). I still don't think we should expect to see tech making significant inroads in the Berkshire portfolio, but it certainly punches a big hole in the skepticism over old dogs and new tricks.

Boy, does he love dividends
Berkshire Hathaway is one of the few stocks that I own that doesn't pay a dividend. I'm OK with that because I believe that Warren Buffett does a darn good job reinvesting the company's cash. Interestingly, though, basically all of Berkshire's major investments -- including Coca-Cola (NYSE: KO), IBM, and Wells Fargo (NYSE: WFC) -- are dividend payers. For investors who want to stack their own portfolio with dividend payers, The Motley Fool's special report -- "Secure Your Future With 11 Rock-Solid Dividend Stocks" -- is a great place to start. Grab a free copy of that report by clicking here.

The Motley Fool owns shares of Berkshire Hathaway, Wells Fargo, Coca-Cola, and International Business Machines. The Fool owns shares of and has created a covered strangle position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway and Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Berkshire Hathaway, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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Stocks Mentioned

Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.A
$440,057.75 (0.20%) $890.74
Berkshire Hathaway Inc. Stock Quote
Berkshire Hathaway Inc.
BRK.B
$292.77 (0.15%) $0.43
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$129.47 (-1.14%) $-1.49
The Coca-Cola Company Stock Quote
The Coca-Cola Company
KO
$63.05 (0.13%) $0.08
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$43.40 (0.49%) $0.21
The Travelers Companies, Inc. Stock Quote
The Travelers Companies, Inc.
TRV
$162.92 (1.84%) $2.94
The Progressive Corporation Stock Quote
The Progressive Corporation
PGR
$119.66 (0.99%) $1.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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