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Morningstar Names Warren Buffett of Berkshire Hathaway Its 2008 CEO of the Year

Investment research firm Morningstar Inc. named Warren Buffett of Berkshire Hathaway Inc. as its 2008 CEO of the Year, citing key investments in energy companies such as General Electric and Constellation Energy as reasons that cemented the award.

Morningstar’s annual award recognizes a chief executive who exhibits exemplary corporate stewardship, demonstrates independent thinking, creates lasting value for shareholders, and has put his or her stamp on an industry.

“The legend of Warren Buffett is well-known to many investors, but in 2008 he demonstrated ample support for his selection as our CEO of the Year,” said Paul Larson, equities strategist and editor of Morningstar StockInvestor. “Buffett’s 2003 warning about the dangers of misusing derivatives proved true in 2008. He was also able to use some of the substantial cash on Berkshire’s balance sheet, acquiring stakes in several companies under very favorable, once-in-a-lifetime terms.”

Berkshire Hathaway is a holding company that owns more than 70 businesses. The insurance and reinsurance operations are the heart of the firm and include reinsurers General Re and Berkshire Hathaway Reinsurance, along with general insurer National Indemnity and auto insurer Geico. Berkshire also owns large equity stakes in Coca-Cola, Wells Fargo, Proctor and Gamble, Burlington Northern, and American Express.

Among the reasons the firm chose Buffet were

  • Berkshire’s book value per share has grown from $19 to just over $77,500, as of Sept. 30, 2008, a 20.7% annualized increase in book value since 1965, versus a 9.6% annualized return in the S&P 500 (including dividends) over the same time period.
  • The company made $8 billion worth of perpetual preferred stock investments in General Electric and Goldman Sachs, with a 10% dividend for both. In addition, Berkshire received warrants to take additional equity stakes in the firms.
  • Berkshire helped Constellation Energy survive the credit crisis by offering to buy the firm for $4.7 billion, followed by an investment of $1 billion. While Constellation ultimately passed on a merger with Berkshire, within three months Berkshire’s initial investment turned into a $1 billion note paying 14%, a $175 million termination fee, and a 10% equity stake in Constellation currently worth about $450 million.

“When Berkshire determines that an opportunity is worth seizing, whether in its underwriting businesses or in its investments, it makes a substantial but disciplined commitment,” Larson said. “The company entered 2008 with $44 billion in cash and cash equivalents after years of patiently searching for the best investment opportunities. In the coming years, the capital Berkshire deployed in 2008 should continue to generate shareholder value.”

Morningstar considers Berkshire Hathaway to have a wide moat—a term popularized by Buffett himself, meaning a durable competitive advantage—due to the way the firm’s insurance and reinsurance businesses meld financial strength, underwriting ability, and investment success.

The firm said Berkshire earned an “A” for stewardship despite several factors that would normally result in a penalty, such as Buffett’s status as both chairman and CEO. “What earns Berkshire’s ‘A’ is the firm’s culture of leadership, as well as management’s treatment of shareholders as partners, both in principle and practice,” it said.

Source: Morningstar Inc.

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