Warren Buffett’s annual letters are seen as a chance to help investors understand his thinking.
The 15-page annual letter to shareholders by Warren Buffett on Saturday mentioned the pandemic that devastated the globe in 2020 exactly once: one of its furniture companies had to close for a while because of the virus, the billionaire noted on the new page.
Buffett has distanced himself from politics, despite contested presidential elections and US Chapter riots, and has never achieved race or inequality, even after protests and unrest erupted in cities across the country last year. It has also avoided delving into the competitive pressures facing its conglomerate, Berkshire Hathaway Inc., a topic commonly dissected in last year’s letters.
“Here you have a company with such a revered leader, who has such high respect – whose opinion matters, which has businesses that have been directly affected by the pandemic, insurance companies that have been influenced by global warming and social inflation – and there was no word on the pandemic, “Cathy Seifert, an analyst at CFRA Research, said in a telephone interview.” That was striking to me. It was a deafening tone and it was disappointing. “
Buffett, 90, has been unusually quiet since last year’s annual meeting in May amid a plethora of problems facing Americans. His annual letters are often seen as a chance to help investors understand his thinking on broad topics and market trends, in addition to details on the evolution of his conglomerate.
But the Berkshire chief executive weighs his words carefully, and some topics, such as the pandemic, risk heading into highly controversial political territory, said Jim Shanahan, an analyst at Edward D. Jones & Co., in an interview.
“There have been a lot of comments about the pandemic and the impact on business, but not saying anything in the letter, I think it’s just a way to try and avoid saying something that could be perceived as a political statement, which is less willing to do so in recent years, “Shanahan said.
A representative for Buffett did not immediately respond to a request for comment placed outside normal business hours.
Buffett also remained quiet on key issues for his conglomerate, such as the market environment amid a tumultuous year – and the work of key investing MPs such as Todd Combs and Ted Weschler, according to Cole Smead, whose capital management Smead oversees investment in Berkshire.
“There’s more of what’s not written in the letter,” said Smead, the company’s president and portfolio manager. “I think that only repeatedly in this letter were sins of omission.”
Here are other key elements from Buffett’s letter and Berkshire’s annual report:
1. Buffett relies on redemptions instead of offers
Berkshire repurchased a record $ 24.7 billion in equity, while Buffett struggled to find better ways to invest his huge amount of money.
And there are several where this came from: the conglomerate has continued to buy its own shares since the end of last year and is likely to hold them, Buffett said in his annual letter on Saturday.
“This action has increased your ownership of all Berkshire businesses by 5.2%, without the need to touch your wallet,” Buffett said in a letter, noting that the company “has not made significant acquisitions” in 2020. .
Berkshire made little progress in dividing the cash pile, which fell 5% in the fourth quarter to $ 138.3 billion. Buffett struggled to keep up with the flow of recent years, while Berkshire threw away cash faster than it could have found higher-yielding assets, leading to increased share buybacks.
2. Apple is as valuable to Berkshire as BNSF Railroad
Berkshire’s $ 120 billion investment in Apple Inc. shares it has become so valuable that Buffett places it in the same category as the extensive railroad business he spent building a decade.
He started building a stake in the iPhone maker in 2016 and spent only $ 31.1 billion buying everything. The increase in value since then places it among the top three assets of the company, along with its insurers and the NBSF, the US rail acquisition completed in 2010, according to the annual letter.
“In some ways, it’s his kind of business,” said James Armstrong, who manages assets, including Berkshire shares, as president of Henry H. Armstrong Associates. “It’s a lot of brand name, it’s global, it’s an absolutely addictive product.”
Buffett had always opposed investing in technology, saying he did not understand companies well enough. But the rise of MPs, including Combs and Weschler, has brought Berkshire deep 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 acknowledges an error of $ 37.2 billion
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 in his annual letter on Saturday. “No one misled me – I was just too optimistic about the CCP’s normal profit potential.”
Berkshire took a nearly $ 11 billion drop last year, which was largely tied to Precision Castparts, a Portland, Oregon-based aerospace equipment manufacturer.
The pandemic was the main culprit. Precision Castparts struggled as demand for flights dropped, prompting airlines to park their planes and reduce their schedules. Less flying means less demand for new spare parts and aircraft. Accuracy reduced its workforce by about 40% last year, according to Berkshire’s annual report.
4. Profit gains due to railway producers
Despite the effects of the pandemic, which continued to affect the Berkshire business collection, the conglomerate saw an increase of almost 14% in operating income in the fourth quarter compared to the same period last year.
This was helped by a record quarter for the BNSF railway since its acquisition in 2010 and one of the best quarters for manufacturing operations in mid-2019.
5. Goodbye Omaha, Hello Los Angeles
The annual Berkshire meeting has attracted many Buffett fans to Omaha, Nebraska, where the conglomerate is located. This year, the show is moving to the West Coast.
Although still virtual due to the pandemic, the annual meeting will be filmed in Los Angeles, the company said on Saturday.
This will bring the event closer to the home of Buffett’s longtime business partner, Charlie Munger. Buffett and Munger will be joined by two key MPs, Greg Abel and Ajit Jain, who will also ask questions.
Buffett and Abel, who live closer to Berkshire’s headquarters, faced “a dark arena, 18,000 empty seats and a room” last year at the annual meeting, Buffett said in his letter. The 90-year-old billionaire said he expects to have a personal meeting in 2022
(Except for the title, this story was not edited by NDTV staff and is published in a syndicated stream.)