Warren Buffett’s annual letters are seen as an opportunity to help investors understand his thinking.
Warren Buffett’s 15-page annual letter to shareholders on Saturday mentioned the pandemic that hit the world just once in 2020: One of its furniture companies had to close for a while due to the virus, the billionaire noted on page nine.
Likewise, Buffett kept out of the way of politics, despite the disputed presidential election and riots in the Capitol, never speaking of race or inequality, even after protests and unrest erupted in cities across the country last year. He also avoided delving into the competitive pressures facing his conglomerate, Berkshire Hathaway Inc., a subject routinely dissected in last year’s letters.
“Here you have a company with such a respected leader who is so highly regarded – whose opinion matters, who has companies directly affected by the pandemic, insurance companies affected by global warming and social inflation – and there was no word about the pandemic, “Cathy Seifert, an analyst at CFRA Research, said in a telephone interview.” That was striking to me. It was tone deaf and it was disappointing. “
Buffett, 90, has been unusually quiet since last year’s annual meeting in May amid a myriad of problems facing Americans. His annual letters are often seen as an opportunity to help investors understand his thinking on broad topics and market trends, as well as details about how his conglomerate is doing.
But the Berkshire CEO is weighing his words carefully, and some topics, such as the pandemic, are at risk of entering highly controversial political territory, Jim Shanahan, an analyst at Edward D. Jones & Co., said in an interview.
“There are a lot of comments about the pandemic and its impact on the companies, but by not saying anything in the letter, I think it’s just a way of trying to avoid saying anything that could be construed as a political statement, which He’s been less willing to do so in recent years, ‘said Shanahan.
A Buffett representative did not immediately respond to a request for comment posted outside normal business hours.
Buffett also remained silent on topics critical to his conglomerate, such as the market environment in a tumultuous year – and the work of key investment representatives such as Todd Combs and Ted Weschler, according to Cole Smead, whose Smead Capital Management oversees investments in Berkshire.
“More has been found because of what is not in the letter,” said Smead, the company’s president and portfolio manager. “I think time and again in this letter were sins of negligence.”
Here are other key points from Buffett’s letter and Berkshire’s annual report:
1. Buffett relies on buybacks rather than deals
Berkshire bought back a record $ 24.7 billion worth of its own stock as Buffett struggled to find better ways to invest his massive pile of money.
And there’s more where that came from: The conglomerate has continued to buy its own stock since late last year and will likely continue to do so, Buffett said Saturday in his annual letter.
“The move increased your ownership by 5.2% across all Berkshire businesses without even having to touch your wallet,” Buffett said in the letter, pointing out that in 2020 the company “will not make major acquisitions. did “.
Berkshire made small progress in dividing the cash stack, which fell 5% in the fourth quarter to $ 138.3 billion. Buffett has struggled to keep up with the flow in recent years as Berkshire was throwing money away faster than he could find higher-yielding assets to pick up, leading to the surge in stock buybacks.
2. Apple is as valuable to Berkshire as BNSF Railroad
Berkshire’s $ 120 billion investment in shares of Apple Inc. has become so valuable that Buffett puts it in the same category as the sprawling railroad business he built for a decade.
He started to build a stake in the iPhone maker in 2016, spending just $ 31.1 billion to acquire everything. The increase in value since then places it in the company’s top three assets, alongside its insurers and BNSF, the U.S. railroad purchase that was completed in 2010, according to the annual letter.
“In some ways it’s his kind of company,” said James Armstrong, who manages assets including Berkshire stock as president of Henry H. Armstrong Associates. “It’s a brand name, it’s global, it’s an absolutely addictive product.”
Buffett had always objected to technology investment, saying he didn’t understand the companies well enough. But the turnout of delegates, including Combs and Weschler, has pushed Berkshire deep into the industry. In addition to Apple, the conglomerate has built stakes in Amazon.com Inc., cloud computing company Snowflake Inc. and Verizon Communications Inc.
3. Buffett admits he made a mistake in the $ 37.2 billion deal
Buffett admitted he made a mistake when he started Precision Castparts Corp. five years ago. bought for $ 37.2 billion.
“I paid too much for the company,” the billionaire investor said in his annual letter on Saturday. “Nobody misled me in any way – I was just too optimistic about PCC’s normalized earnings potential.”
Berkshire received a write-off of nearly $ 11 billion last year that was largely due to Precision Castparts, the manufacturer of equipment for the aerospace and energy industries in Portland, Oregon.
The pandemic was the main culprit. Precision Castparts struggled as flight demand plummeted, prompting airlines to park their planes and cut their schedules. Flying less means a lower demand for replacement parts and new aircraft. According to Berkshire’s annual report, Precision reduced its workforce by about 40% last year.
4. Profit increases thanks to railways, manufacturers
Despite the impact of the pandemic that continued to hit Berkshire’s roster of businesses, the conglomerate posted a nearly 14% increase in corporate earnings in the fourth quarter compared to the same period a year earlier.
That was helped by a record quarter for railroad BNSF since its acquisition in 2010 and one of the best quarters for manufacturing operations since mid-2019.
5. Goodbye Omaha, hello Los Angeles
Berkshire’s annual gathering has drawn crowds of Buffett fans to Omaha, Nebraska, where the conglomerate is based for years. This year the show moves to the west coast.
While it is still virtual due to the pandemic, the annual meeting will be filmed in Los Angeles, the company said Saturday.
That brings the event closer to the home of Buffett’s longtime business partner, Charlie Munger. Buffett and Munger will be joined by two key figures, Greg Abel and Ajit Jain, who will also answer questions.
Buffett and Abel, who live closer to Berkshire headquarters, were confronted at last year’s annual meeting with “a dark arena, 18,000 empty seats and a camera,” Buffett said in his letter. The 90-year-old billionaire said he expects to hold a face-to-face meeting in 2022
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