But the famed investor remained optimistic about America's resilience.
"Though the path has not been smooth, our economic system has worked extraordinarily well over time," he said. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."
America has faced bigger economic challenges in the past, Buffett said, including two World Wars and the Great Depression.
Buffett detailed his worst year leading Berkshire, insurance and investment company, in the shareholder letter issued Saturday.
Net worth shrinks
Berkshire barely broke even in the fourth quarter because of losses on derivatives contracts tied to the stock market.
Profit fell 96 percent, the fifth straight quarterly decline, and Berkshire's net worth tumbled $10.9 billion in the year's final three months.
Net worth per share fell 9.6 percent for the whole of 2008, only the second decline since Buffett began running Berkshire in 1965. It fell 6.2 percent in 2001.
Berkshire generates about half its results from insurance, including auto insurer Geico Corp, but operates more than 70 businesses that offer such things as carpeting, ice cream, paint, real estate services and underwear.
Buffett said he made at least one major investing mistake last year by buying a large amount of ConocoPhillips stock when oil and gas prices were near their peak.
Berkshire increased its stake in ConocoPhillips from 17.5 million shares in 2007 to 84.9 million shares at the end of 2008.
Buffett said he did not anticipate last year's dramatic fall in energy prices, so his decision cost Berkshire shareholders several billion dollars.
He said he also spent $244 million on stock in two Irish banks that appeared cheap. But since then, he wrote down the value of those purchases to $27 million.
Berkshire's results were battered by $4.61 billion of pretax losses on about 251 derivative contracts largely tied to the longer-term performance of four stock market indexes and the credit quality of higher-risk "junk" bonds.
A deteriorating economy and tight credit led to steep declines in stock prices and an increase in junk bond defaults, resulting in losses for Berkshire.
While the losses exist on paper, accounting rules require Berkshire to report them with earnings.
Buffett revealed for the first time which stock indexes he has been using: the Standard & Poor's 500, Britain's FTSE 100, Europe's Euro Stoxx 50, and the Nikkei 225 in Japan.
In his letter, Buffett said he believed each contract that Berkshire owns was "mispriced" at the outset, and that the ups and downs "neither cheer nor bother" him.
He said, though, that Berkshire got $8.1 billion of upfront payments from parties on the other side of the contracts, which the company can invest as it wishes. This, he has said, makes the contracts different from the "financial weapons of mass destruction" that he has called other derivatives.
For all of 2008, profit at Berkshire fell 62 percent to a six-year low of $4.99 billion, or $3,224 per share, from $13.21 billion, or $8,548. Revenue fell 9 percent to $107.8 billion. Buffett called full-year results "unsatisfactory."
Berkshire Class A shares closed Friday at $78,600 on the New York Stock Exchange. They have fallen 44 percent since the end of February 2008, while the Standard & Poor's 500 has dropped 45 percent.
- "Berkshire barely broke even" - sounds like a winner to me.
But buying Conoco Phillips at peak oil prices? (Not that 'Peak Oil', the other peak oil) Could it be the "The Oracle of Omaha" is mortal after all?
Although, if you can afford $78,000+ for Berkshire Hathaway Class A, you can probably weather a 44% drop in value.
I got out of my Brk.B several years ago. Warren is old school value investor, can't think outside the box to consider whether the system itself is broken, especially with Triple E variables.
Remember the first time I thought
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