New York: Warren Buffett recorded his worst performance against the stock market in a decade last year after committing $26 billion (Rs1.2 trillion) to a railroad takeover and lowering his expectations for investment returns.

Berkshire Hathaway Inc., the company Buffett has led as chairman for at least four decades, advanced 2.7% on the New York Stock Exchange in 2009, less than the 23% return in the Standard and Poor’s 500 index. It was Berkshire’s worst showing since falling 20% in 1999, compared with a 20% gain in the index. Berkshire beat the index in 15 of the last 22 years.

Bad timing: Berkshire, the company Buffett has led as chairman for at least four decades, has beaten the index in 15 of the last 22 years. Andrew Harrer/Bloomberg

The deal adds another business, along with luxury flights and manufactured housing, that suffers when the economy falters.

“This isn’t your father’s Berkshire," said Jeff Matthews, author of Pilgrimage to Warren Buffett’s Omaha and founder of hedge fund Ram Partners Lp. “It’s a protector of wealth and hopefully steady growth, but very dependent on the economy in ways that it hasn’t been in the past."

Buffett, 79, won global renown as the Oracle of Omaha for stock picks, including Capital Cities/ABC Inc. in the 1980s and PetroChina Inc. in 2003, that produced multi-billion-dollar gains.

Berkshire doesn’t pay dividends or buy back stock, and Buffett’s main occupation as the company’s chief executive officer is deciding where to invest earnings from a portfolio of operating companies and securities.

The Burlington Northern deal, which Buffett calls an all- in wager on the US economy, brings Berkshire 37,000 workers and a share of a regulated industry.

Berkshire expects to own the railroad for the next century and get a decent return, Buffett said in a November interview with Charlie Rose on PBS.

“Reasonable return is good enough," Buffett said in the interview. “You know, 50 years ago I was looking for spectacular returns, but I can’t get ?’em."

Berkshire’s performance against the S&P 500 has slipped even according to Buffett’s favourite metric, book value per share. The measure of assets minus liabilities, which Buffett says most closely indicates a firm’s value, trailed the index three times in the 10 years through 2008 after lagging just three times in the previous 34. In the first nine months of 2009, Berkshire’s book value per share gain trailed the S&P 500 again, 15- 17%.

Berkshire’s annual profits may return to growth this year, according to an estimate by Meyer Shields, an analyst at Stifel Nicolaus and Co. Profit, which more than halved in 2008, may rise 51% to $7.55 billion, according to Shields. Berkshire reported a record profit of $13.2 billion in 2007.

Buffett, the second richest American, positioned Berkshire to weather the contraction in the US economy by stockpiling $44 billion in cash. Starting in 2008, when corporate borrowing costs surged, he drew on that hoard to finance Goldman Sachs, General Electric Co., Swiss Reinsurance Co. and the Mars Inc. takeover of chewing gum maker Wm Wrigley Jr Co.

Those transactions are paying coupons that helped boost investment income in the first nine months of the year. Still, losses at Berkshire’s NetJets subsidiary and earnings declines at Clayton Homes contributed to a pre-tax profit plunge of more than half to $1.57 billion at Berkshire’s manufacturing, service and retailing businesses.

“Many of Berkshire’s businesses were perhaps hit worse than companies in the S&P 500," said Guy Spier, a principal at hedge fund Aquamarine Funds Llc, which owns Berkshire shares. “They have a huge exposure to the housing market; NetJets has been impacted."