Warren Buffett’s annual letters are seen as an opportunity to offer investors help in understanding their thinking.
On Saturday, Warren Buffett’s 15-page annual letter to shareholders mentioned the pandemic that hit the planet in 2020 exactly once: one of its furniture companies had to close for a while because of the virus, he noted. the billionaire on the new page.
Buffett also distanced himself from politics, despite contested presidential elections and riots at the U.S. Capitol, and never touched race or inequality, even after the protests and riots that erupted that year. past in cities across the country. He also avoided going into the competitive pressures facing his conglomerate, Berkshire Hathaway Inc., an issue that was usually dissected in last year’s letters.
“Here’s a company with such a revered leader that it has such high regard – whose opinion matters, that it has businesses that were directly affected by the pandemic, insurance companies influenced by global warming and social inflation – and there was not a word about the pandemic, “CFRA Research analyst Cathy Seifert said in a telephone interview. “That caught my eye. He was deaf and he was disappointing.”
Buffett, 90, has been unusually quiet since the annual meeting in May last year, amid a plethora of problems facing Americans. Their annual charts are often seen as an opportunity to offer investors help understand their thinking on broad topics and market trends, as well as details on how their conglomerate is doing.
But the Berkshire chief executive carefully weighs his words and some issues, such as the pandemic, run the risk of deviating into highly controversial political territory, said Jim Shanahan, an analyst at Edward D. Jones & Co. , in an interview.
“There’s been a lot of comment about the pandemic and the impact on businesses, but by not saying anything to the letter, I think it’s just a way of trying to avoid saying something that could be perceived as a political statement, which has been less willing to do so in recent years, ”Shanahan said.
A Buffett representative did not immediately respond to a request for comment made outside normal business hours.
Buffett also remained silent on key issues for his conglomerate, such as the market environment amid a tumultuous year, and the work of key deputy investors such as Todd Combs and Ted Weschler, according to Cole Smead, Smead Capital Management of which he oversees investments in Berkshire.
“There are more things that don’t appear in the letter,” said Smead, the firm’s president and portfolio manager. “I think over and over again in this letter they were sins of omission.”
Other key details from Buffett’s letter and Berkshire’s annual report are as follows:
1. Buffett relies on rewards instead of offers
Berkshire repurchased a record $ 24.7 billion of its own, while Buffett struggled to find better ways to invest his huge stack of cash.
And there’s more to where it comes from: the conglomerate has continued to buy shares of its own since late last year and is likely to stay in it, Buffett said Saturday in his annual letter.
“This stock increased your ownership in all Berkshire businesses by 5.2% without forcing you to touch the portfolio,” Buffett said in the letter, noting that the company “did not make any significant acquisitions.” in 2020.
Berkshire made little progress in comparing the cash stack, which fell 5% in the fourth quarter to $ 138.3 billion. Buffett has struggled to keep pace with the flow in recent years as Berkshire tossed cash faster than it could find assets with higher yields to obtain, leading to an increase in share repurchases.
2. Apple is as valuable to Berkshire as BNSF Railroad
Berkshire’s $ 120 billion investment in shares of Apple Inc. it has become so valuable that Buffett places it in the same category as the extensive railroad business it took a decade to build.
It started building a stake in the iPhone maker in 2016 and spent just $ 31.1 billion on acquiring it all. The increase in value since then places it among the three main assets of the company, along with its insurers and BNSF, the purchase of the American railroad completed in 2010, according to the annual letter.
“In some ways, it’s their kind of business,” said James Armstrong, who manages assets including Berkshire shares as chairman of Henry H. Armstrong Associates. “It’s very popular, it’s global, it’s an absolutely addictive product.”
Buffett had always opposed technology investments, saying he did not understand companies well enough. But the rise in MPs, including Combs and Weschler, has pushed Berkshire into the sector. In addition to Apple, the conglomerate has accumulated stakes in Amazon.com Inc., the cloud computing company Snowflake Inc. and Verizon Communications Inc.
3. Buffett grants an error in a $ 37.2 billion deal
Buffett admitted he made a mistake when he bought Precision Castparts Corp. five years ago for $ 37.2 billion.
“I paid too much for the company,” the billionaire investor said Saturday in his annual letter. “No one fooled me in any way; I was just too optimistic about the normalized profit potential of PCC.”
Berkshire earned a payout of nearly $ 11 billion last year, which was largely tied to Precision Castparts, the Portland, Oregon-based equipment manufacturer for the aerospace and energy industries.
The pandemic was the main culprit. Precision Castparts struggled as demand for flights plummeted, causing airlines to park their planes and reduce their schedules. Less flight means less demand for spare parts and new aircraft. Accuracy reduced its workforce by about 40% last year, according to Berkshire’s annual report.
4. Profit gains from railroad manufacturers
Although the effects of the pandemic continued to affect Berkshire’s business collection, the conglomerate posted a 14% gain in operating profits in the fourth quarter compared to the same period last year.
This was helped by a record quarter for the BNSF railway since the 2010 purchase and one of the best quarters for manufacturing operations since mid-2019.
5. Goodbye Omaha, Hello Los Angeles
The annual Berkshire meet for years has attracted crowds of Buffett fans to Omaha, Nebraska, where the conglomerate is located. This year, the show moves to the west coast.
While still virtual due to the pandemic, the annual meeting will be filmed in Los Angeles, the company said Saturday.
This will bring the event closer to the home of Buffett’s longtime business partner Charlie Munger. Buffett and Munger will join two key MPs, Greg Abel and Ajit Jain, who will also ask questions.
Buffett and Abel, who live closest to Berkshire headquarters, last year faced “dark sand, 18,000 empty seats and a camera” at the annual meeting, 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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