Bloomberg
Buffett’s annual “Tone Deaf” letter outlines major controversies
(Bloomberg) – Warren Buffett’s 15-page annual letter to shareholders on Saturday mentioned the pandemic that plagued the globe in 2020 exactly once: One of his furniture companies had to shut down for a while because of the virus, the billionaire noted on page nine. Buffett also avoided politics, despite the contested presidential election and riots at the United States Capitol, and never touched race or inequality, even after protests and unrest broke out in cities across the country last year. He also avoided diving into the competitive bargaining pressures his conglomerate, Berkshire Hathaway Inc., faced, a topic routinely dissected in last year’s letters. “Here you have a company with a leader so revered that he is held in such high regard – whose opinion matters, who 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 was impressive to me. It was deaf and disappointing. “Buffett, 90, has been strangely quiet since last year’s annual meeting in May in amid a plethora of issues that Americans face, their annual letters are often seen as a chance to offer investors help in understanding their thinking on general topics and market trends, as well as details on how their conglomerate is doing. But the Berkshire CEO carefully ponders his words and some topics, like the pandemic, the risk of straying into highly controversial political territory , said Jim Shanahan, an analyst at Edward D. Jones & Co., in an interview. “There were a lot of comments about the pandemic and the impact on business, but by not saying something in the letter, I think it’s just a way of trying to avoid saying something that could be perceived as a political statement, which he has been less willing to do in recent years, ”said Shanahan. A Buffett representative did not say. respond immediately to a request for comment made outside of routine business hours. Buffett was also quiet about topics that are essential to his conglomerate, such as the market environment in the midst of a tumultuous year – and the important work of investment representatives like Todd Combs and Ted Weschler, according to Cole Smead, whose Smead Capital Management oversees investments in Berkshire. “There are more discoveries in what is not in the letter,” said Smead, the company’s president and portfolio manager. “I think that repeatedly in this letter there were sins of omission.” Here are other important conclusions from Buffett’s letter and Berkshire’s annual report: 1. Buffett relies on repurchases instead of business Berkshire repurchased a record $ 24.7 billion of his own shares while Buffett struggled to find better ways to invest his huge pile of money. And there’s more to where it came from: the conglomerate has continued to buy its own shares since the end of last year, and it is likely to remain that way, Buffett said on Saturday in his annual letter. “This move increased your stake in all Berkshire businesses by 5.2% without requiring you to even touch your portfolio,” said Buffett in the letter, which pointed out that the company “did not make significant acquisitions” in 2020. Berkshire did small progress in reducing 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 released money faster than he could find higher-yielding assets to snap up, leading to increased share repurchases. Apple is just as valuable to Berkshire as BNSF RailroadBerkshire’s $ 120 billion investment in Apple Inc. shares has become so valuable that Buffett puts it in the same category as the booming rail business he spent a decade building. He started building a stake in the iPhone maker in 2016, and spent just $ 31.1 billion acquiring everything. The increase in value has since placed it among the company’s top three assets, alongside its insurers and BNSF, the purchase of the railroad in the United States completed in 2010. “In some ways, it’s his type of business,” he said. James Armstrong, who manages assets, including Berkshire stock, as president of Henry H. Armstrong Associates. “It’s a very brand name, it’s global, it’s an absolutely addictive product.” Buffett has always refused to make investments in technology, saying he did not understand companies well enough. But the rise of deputies, including Combs and Weschler, brought Berkshire into the industry. In addition to Apple, the conglomerate has accumulated stakes in Amazon.com Inc., cloud computing company Snowflake Inc. and Verizon Communications Inc.3. Buffett acknowledges $ 37.2 billion error DealBuffett admitted he made a mistake when he bought Precision Castparts Corp. five years ago for $ 37.2 billion. “I paid a lot for the company,” said the billionaire investor on Saturday in his annual letter. “Nobody fooled me in any way – I was just too optimistic about the CCP’s normalized profit potential.” Berkshire had a write-off of almost $ 11 billion last year, largely linked to Precision Castparts, a Portland, Oregon-based manufacturer of equipment for the aerospace and energy industries. The pandemic was the main culprit. Precision Castparts struggled with falling demand for flights, which prompted airlines to park their jets and shorten their hours. Fewer flights mean less demand for spare parts and new aircraft. Precision reduced its workforce by about 40% last year, according to Berkshire’s annual report.4. Profit gains thanks to the railroad and manufacturers Although the effects of the pandemic continue to affect Berkshire’s business mix, the conglomerate recorded an almost 14% gain in operating earnings in the fourth quarter compared to the same period last year. This was helped by a record quarter for the BNSF railroad since its purchase in 2010 and one of the best neighborhoods for manufacturing operations since mid-2019.5. Goodbye, Omaha, Hello Los Angeles The annual Berkshire gathering has drawn crowds of Buffett fans for years to Omaha, Nebraska, where the conglomerate is based. This year, the show is moving to the West Coast. Although still virtual because of 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 business partner, Charlie Munger. Buffett and Munger will be joined by two top deputies, Greg Abel and Ajit Jain, who will also answer questions. Buffett and Abel, who live near the Berkshire headquarters, last year faced “a dark arena, 18,000 empty seats and a camera” at the annual meeting, Buffett said in his letter. The 90-year-old billionaire said he hopes to hold a personal meeting in 2022. For more articles like this, visit us at bloomberg.comSubscribe now to stay on top of the most trusted source of business news. © 2021 Bloomberg LP