Buffett bullish on US and Berkshire, buying back shares even as pandemic strikes

(Reuters) – Warren Buffett’s enthusiasm for the future of America and his Berkshire Hathaway Inc company has not been diminished by the coronavirus pandemic.

Buffett used his annual letter to investors to ensure that he and his successors would be careful stewards of their money in Berkshire, where “the passage of time” and “an inner peace” would serve them well.

Despite the disappearance of more than 31,000 jobs from Berkshire’s workforce last year, Buffett maintained his trademark optimism by buying back a record $ 24.7 billion in 2020, a sign he deems it undervalued.

He also praised the economy’s ability to withstand “serious disruptions” and enjoy “breathtaking” progress.

“Our unwavering conclusion: never gamble against America,” he said. ((here))

Tom Russo, a partner at Gardner, Russo & Gardner in Lancaster, Pennsylvania and a long-time investor in Berkshire, said, “He believes deeply in his company and the country.”

The letter breaks an unusual silence for 90-year-old Buffett, who has been almost completely invisible to the public since the Berkshire annual meeting last May.

But while he touched on familiar themes, including Wall Street bankers’ avarice for transaction fees that benefit them more than the companies they represent, Buffett didn’t dwell on the pandemic, a major factor behind Berkshire’s job losses.

Nor did he address recent social upheavals or the divisive political environment that some companies are now responding more directly to.

“The letter highlighted the innovation and values ​​that have become the backbone of America, and that is perfectly acceptable,” said Cathy Seifert, an analyst at CFRA Research with a “hold” rating for Berkshire.

“Given the respect investors have for him, the letter was striking for what was left out,” she added. “A new generation of investors requires a degree of social awareness, and that companies like Berkshire set out their beliefs, norms and goals.”

Buffett also signaled a long-term commitment with Apple Inc, where Berkshire ended 2020 with $ 120.4 billion in shares, despite the recent sale of several billion dollars more.

He called Apple and the BNSF railroad Berkshire’s most valuable assets – “it’s actually a fling” – beyond its insurance business, and ahead of Berkshire Hathaway Energy. “The family jewels,” he called those four investments.

PROFIT INCREASES EVEN IF JOBS ARE LOST

Berkshire also reported net earnings of $ 35.84 billion in the fourth quarter and $ 42.52 billion for the year on Saturday, both reflecting large gains from its stock.

Operating income, which Buffett considers a more accurate measure of performance, was down 9% for the year to $ 21.92 billion.

Share buybacks continued in 2021, with Berkshire buying back more than $ 4 billion in its own shares. It ended 2020 with $ 138.3 billion in cash.

Buffett, however, complained about fixed income as an investment, saying that “bonds are not the right place these days.” Income from a 10-year US Treasury bond fell 94% from a yield of 15.8% in September 1981 to 0.93% at the end of 2020. Government bond yields have risen since then, but are still low by historical standards.

“Investors in fixed income around the world – be it pension funds, insurance companies or retirees – face a bleak future,” the letter said.

Based in Omaha, Nebraska, Berkshire has more than 90 operating units, including the BNSF railroad, Geico’s auto insurance company, Dairy Queen ice cream, and See’s candies.

The workforce decreased by 8% from a year earlier to approximately 360,000 employees. Larger declines were reported at BNSF, which lost 5,600 jobs, and See’s, where employment fell 16%.

The pandemic hit no company in Berkshire harder than Precision Castparts Corp, which lost 13,473 or 40% of its jobs.

Berkshire bought the aircraft and industrial parts manufacturer in 2016 for $ 32.1 billion, Buffett’s largest acquisition, taking a write-off of $ 9.8 billion as the pandemic decimated travel and punished Precision’s aerospace customers.

“I paid too much for the company,” Buffett wrote. “I was just too optimistic about PCC’s normalized earnings potential.

“PCC is far from my first mistake of that kind,” he said. “But it’s a big one.”

Berkshire said some companies are starting to recover from the pandemic.

“2021 will certainly be a much stronger year, depending on the speed of vaccinations and the opening of the US economy,” said Jim Shanahan, an analyst at Edward Jones & Co with a “buy” rating for Berkshire.

Buffett also said Berkshire’s annual meeting will be held in Los Angeles rather than Omaha, allowing 97-year-old Vice Chairman Charlie Munger, a Californian, to rejoin him and spend about 3-1 / 2 hours of shareholder inquiries. can answer.

Vice Chairs Greg Abel, 58, and Ajit Jain, 69, widely regarded as the front runners to succeed Buffett as CEO, will also be available to answer questions.

Buffett said he hopes Berkshire will resume its annual shareholder weekend in Omaha in 2022, which normally attracts about 40,000 people – a “true-to-God annual gathering, Berkshire-style,” he wrote.