Buffett: Don't bank on big returns

He chides investors who expect their portfolios to see double-digit growth, and says Berkshire's success has been so great that it is unlikely to see "outsized gains" in the future.

Berkshire Hathaway had another excellent year in 2007, posting an 11% gain in net worth, CEO Warren Buffett said in Friday's annual report to shareholders. Berkshire has grown its per-share book value by a remarkable 21% annually since Buffett took the reins 44 years ago.

But as always, Buffett was quick to emphasize that past performance is no guarantee of future results. He predicts the Omaha-based company's insurance operations will be hit in coming years by narrowing profit margins and warned that gains at Berkshire - which operates businesses ranging from chocolatier See's Candy to private-plane timeshare company NetJets - will be constrained by the company's history of success.

"Berkshire's past record can't be duplicated or even approached," Buffett writes in the report, published Friday on the company's Web site at berkshirehathaway.com. "Our base of assets and earnings is now far too large for us to make outsized gains in the future."

The comments come even as many of Berkshire's component companies turned in an impressive year. The company's insurance business turned in a $3 billion-plus underwriting profit for the second year in a row, thanks to another benign hurricane season.

"Our insurance business - the cornerstone of Berkshire - had an excellent year," Buffett writes in Berkshire's annual report. True, underwriting profits dropped to $3.37 billion last year from $3.84 billion in 2006 -- but then, that was a year in which Buffett said his insurance executives had "simply shot the lights out."

But, he adds, Berkshire investors shouldn't expect to see such robust insurance results in coming years. "The party is over," he says. "It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008. Prices are down, and exposures inexorably rise." He warns that even if Berkshire avoids any major catastrophe claims, industry-wide profit margins could shrink by 4 percentage points. Obviously, he adds, results could be far worse if there's a big hurricane, earthquake or other major disaster.