Buffett bullish on US and Berkshire, buyback even as pandemic hits bottom line


(Reuters) – Warren Buffett’s enthusiasm for the future of America and his company Berkshire Hathaway Inc has not been dampened 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 calm” would help serve them well.

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

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

“Our unshakable conclusion: never bet against the United States,” he said. ((here))

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

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

But while he touches on familiar issues, including Wall Street bankers’ greed for trading fees that benefit them more than the companies they represent, Buffett didn’t stop at the pandemic, a major factor behind Berkshire’s job losses. .

It also failed to address the recent social upheavals or divisive political environment that some companies now address more directly.

FILE PHOTO: Berkshire Hathaway Chairman Warren Buffett walks through the showroom as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc.’s annual shareholders meeting in Omaha, Nebraska, USA, May 4, 2019. REUTERS / Scott Morgan / File Photo

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

“Given the reverence investors have for him, the letter was surprising for what it left out,” he added. “A new generation of investors is demanding a degree of social awareness and that companies like Berkshire set their beliefs, standards and goals.”

Buffett also noted a long-term commitment to Apple Inc, where Berkshire ended 2020 with $ 120.4 billion in stock despite recently selling several billion dollars more.

He called Apple and the BNSF railroad Berkshire’s most valuable assets – “it’s pretty much a pull up” – aside from its insurance operations, and ahead of Berkshire Hathaway Energy. “The jewels of the family,” he called those four investments.

PROFITS INCREASE EVEN WHEN JOBS ARE LOST

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

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

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

However, Buffett lamented fixed income as an investment, saying “bonds are not the place to be these days.” Revenues on 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. Benchmark Treasury yields have risen since then but they are still low by historical measurements.

“Fixed income investors around the world, whether they are pension funds, insurance companies or retirees, face a bleak future,” the letter said.

Berkshire, headquartered in Omaha, Nebraska, has more than 90 operating units including the BNSF railroad, Geico auto insurer, Dairy Queen ice cream and See’s candy.

Its workforce decreased 8% from the prior year to approximately 360,000 employees. Larger drops were reported at BNSF, which cut 5,600 jobs, and at See’s, where employment fell 16%.

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

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

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

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

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

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

Buffett also said the Berkshire annual meeting will be held in Los Angeles instead of Omaha, allowing 97-year-old Vice President Charlie Munger, a Californian, to meet with him and answer about three and a half hours of questions from the shareholders.

Vice Presidents Greg Abel, 58, and Ajit Jain, 69, who are widely considered pioneers to succeed Buffett as CEO, will also be available to answer questions.

Buffett said he expects Berkshire to resume its annual Omaha shareholder weekend, which normally draws about 40,000 people, in 2022, an “honest annual meeting with God, Berkshire-style,” he wrote.

Reporting by Jonathan Stempel in New York; editing by Megan Davies, Alden Bentley, Marguerita Choy and Cynthia Osterman

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