Warren Buffett’s annual letter to the deaf of tone avoids controversy


Warren Buffett's annual 'Tone Deaf' letter avoids controversy

Warren Buffett’s annual letters are seen as an opportunity to offer investors help in understanding his thinking.

Warren Buffett’s 15-page annual letter to shareholders on Saturday mentioned the pandemic that hit the world in 2020 exactly once: One of his furniture companies had to shut down for a time due to the virus, the billionaire noted on page nine. .

Buffett also stayed away from politics, despite controversial presidential elections and riots on the United States Capitol, and never addressed race or inequality, even after protests and riots broke out in cities across the world. country last year. He also avoided delving into the competitive pressures to make deals faced by his conglomerate, Berkshire Hathaway Inc., a topic that was routinely discussed in last year’s letters.

“Here you have a company with such a revered leader who is held in such high esteem, whose opinion matters, that has businesses that were directly affected by the pandemic, insurance companies that were influenced by global warming and social inflation, and there was not a word about the pandemic, “said Cathy Seifert, an analyst at CFRA Research, in a telephone interview. “That to me was surprising. It was deaf and it was disappointing.”

The 90-year-old Buffett has been unusually calm since last year’s annual meeting in May amid a multitude of problems Americans are facing. Your annual letters are often seen as an opportunity to offer investors help in understanding your thinking on general issues and market trends, as well as details on how your conglomerate is doing.

But Berkshire’s chief executive officer weighs his words carefully, and some issues, like the pandemic, risk drifting into highly controversial political territory, Jim Shanahan, an analyst at Edward D. Jones & Co., said in an interview.

“There have been a lot of comments about the pandemic and the impact on companies, but by not saying anything in the letter, I think it is just a way of trying to avoid saying something that could be perceived as a political statement, which has been less willing. to do in the last few years, “Shanahan said.

A representative for Buffett did not immediately respond to a request for comment made outside of routine business hours.

Buffett also kept quiet on issues that are key to his conglomerate, such as the market environment amid a tumultuous year, and the work of key investment brokers such as Todd Combs and Ted Weschler, according to Cole Smead, whose Smead Capital Management oversees. investments in Berkshire.

“There are more findings for what is not 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.”

Here are other key takeaways 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 of its own stock as Buffett struggled to find better ways to invest his massive amount of cash.

And there’s more where that came from: The conglomerate has continued to buy its own shares since late last year, and is likely to continue to do so, Buffett said Saturday in his annual letter.

“That action increased his ownership in all of Berkshire’s businesses by 5.2% without needing him to touch his wallet,” Buffett said in the letter, noting that the company “made no major acquisitions” in 2020.

Berkshire made little progress in shrinking the cash pile, 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 dumped cash faster than it could find higher-yielding assets to recover, prompting a spike in share buybacks.

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2. Apple is as valuable to Berkshire as BNSF Railroad

Berkshire’s $ 120 billion investment in Apple Inc. stock has become so valuable that Buffett places it in the same category as the burgeoning railroad business it spent a decade building.

It started building a stake in the iPhone maker in 2016 and spent just $ 31.1 billion to acquire it all. The increase in value since then places it among the company’s top three assets, along with its insurers and BNSF, the US rail purchase 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 stocks, as president of Henry H. Armstrong Associates. “It is a brand name, it is global, it is an absolutely addictive product.”

Buffett had always been reluctant to invest in technology, saying he did not understand companies well enough. But the surge in MPs, including Combs and Weschler, has taken Berkshire deep into the sector. In addition to Apple, the conglomerate has accumulated stakes in Amazon.com Inc., cloud computing company Snowflake Inc., and Verizon Communications Inc.

3. Buffett admits to mistake 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 misled me in any way, I was just too optimistic about PCC’s normalized earnings potential.”

Berkshire took a nearly $ 11 billion write-off last year that was tied largely to Precision Castparts, the Portland, Oregon-based manufacturer of equipment for the aerospace and energy industries.

The pandemic was the main culprit. Precision Castparts struggled when demand for flights plummeted, prompting airlines to park their planes and cut their hours. Fewer flights means less demand for parts and new planes. Precision cut its workforce by about 40% last year, according to Berkshire’s annual report.

4. Profit gains thanks to rail, manufacturers

Although the effects of the pandemic continue to affect Berkshire’s collection of businesses, the conglomerate posted a gain of about 14% in operating profit in the fourth quarter compared to the same period last year.

That was helped by a record quarter for the BNSF railroad since its 2010 purchase and one of the best quarters for manufacturing operations since mid-2019.

5. Goodbye Omaha, hello Los Angeles

Berkshire’s annual gathering has for years drawn crowds of Buffett fans to Omaha, Nebraska, where the conglomerate is based. This year, the show moves to the West Coast.

While it remains virtual due to the pandemic, the annual meeting will be filmed in Los Angeles, the company said Saturday.

That 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 answer questions.

Buffett and Abel, who live closer to the Berkshire headquarters, faced “dark sand, 18,000 empty seats and a camera” last year at the annual meeting, Buffett said in his letter. The 90-year-old billionaire said he hopes to meet in person in 2022

(Except for the headline, this story has not been edited by NDTV staff and is posted from a syndicated feed.)

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