Even Warren Buffett's having a tough time investing these days

Warren Buffett's Berkshire Hathaway brk.a reported its worst-ever year, posting a 62% decline in net income, showing how the global financial crisis is pressuring even the world's most experienced investors.

Hurt by big losses in Berkshire's stock portfolio as well as bets on derivatives, the company's net earnings for the year fell to $5 billion, which eroded the company's book value.

Book value, the difference between assets and liabilities and the way Buffett prefers to track the company's performance, dropped 9.6%. Not only was that Berkshire's largest book value drop in history, it was also only the second time in the company's history going back to 1965 that it fell.

Buffett, commonly known as the Oracle of Omaha, leads Berkshire, a diversified company that sells everything from insurance to candy.

Berkshire's annual letter to shareholders reflected a difficult year caused by a slowing economy and falling investment prices. The Dow Jones industrial average last month fell to its lowest level since 1997 and lost 11.7% in February, its worst February since 1933.

Berkshire shares have not escaped, falling 31.8% in 2008 and losing another 18.6% of their value in 2009 this year to close Friday at $78,600 a share.

"It was a sober report, but it has to be in times like these," says Andy Kilpatrick, author of Of Permanent Value: The Story of Warren Buffett.

A few of the letter's key points:

•Expectation for the U.S. economy to remain weak in 2009. Buffett says the economy is likely to "be in shambles throughout 2009." That doesn't indicate whether the stock market will rise or fall, he writes.

•Coming strain on local governments. "Mind-boggling requests" from cities and states for federal assistance are coming, he says. Such actions may have "unwelcome aftereffects," including the possibility of an onslaught of inflation.

•Clarity of the company's derivative contracts. Buffett explained why Berkshire Hathaway owns derivative contracts, despite his warnings of the dangers. The explanation shows Buffett is managing the risk, says Robert Hagstrom of Legg Mason.

•Admission of mistakes. Buffett purchased a large amount of ConocoPhillips stock when oil prices were peaking last year. The move cost Berkshire investors billions. "So far I have been dead wrong," Buffett says.

There were bright spots and optimism: Berkshire's insurance and utility businesses performed well. "America's best days lie ahead," Buffett writes.