New York Berkshire Hathaway ended corona year with a strong quarter. Star investor Warren Buffett’s conglomerate reported net income of $ 35.8 billion. Much of this is due to price gains in its stock portfolio. But Berkshire’s companies have also recovered from the corona crisis. The operating profit rose by almost 14 percent, as Berkshire announced on Saturday.
Buffett bought back shares in his company on a large scale again, valued at $ 9 billion – a new record. For the year, the buybacks totaled $ 24.7 billion. “That has increased your stake in all Berkshire companies by 5.2 percent without even touching your wallet,” wrote Buffett in his widely acclaimed letter to shareholders, which was also published on Saturday. Further buybacks are planned.
The buybacks caused Berkshire’s cash reserves to drop five percent to $ 138.3 billion. Buffett emphasized that his strategy clearly distinguishes himself from other company bosses. “I don’t think Berkshire stock should be bought back at any price. I want to underline this because many American CEOs have an embarrassing track record of spending corporate money on stocks when prices go up instead of doing so when prices go down, ”Buffett clarified. He is taking the opposite approach.
The Berkshire boss likes to compare the performance of his stock with the broad S&P 500. For a long time Berkshire has outperformed the benchmark index, but not in the past five or ten years. In 2020, the Berkshire stock gained 2.4 percent, while the S&P gained a good 16 percent. This year, however, Berkshire starts in pole position. Class A shares were priced at $ 364,580 on Friday, six percent more than at the beginning of the year. The S&P, on the other hand, was only able to gain three percent in the same period.
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Buffett has been looking for good takeover opportunities for years. But in view of the high prices, which have also been driven up by private equity firms, Buffett is holding back.
Buffett didn’t comment on political issues or the pandemic. As so often, he was optimistic about America’s future. The country is on the way to “becoming a more perfect unit”. This progress is not always steady, or things have not come to a standstill. “It is our unshakable belief that you should never bet against America.”
Last year was one of the more difficult for the group, which in addition to the $ 281 billion equity portfolio also includes an energy and insurance division, as well as a good 80 medium-sized companies. For the year, net income fell 48 percent to $ 42.5 billion. Operating profit fell nine percent to just under $ 22 billion.
These are the highlights from his letter to investors:
Buffett and his two investment managers Ted Weschler and Todd Combs used the past year to rebuild their stock portfolio. For example, Berkshire sold airline shares and built positions in pharmaceutical companies such as Abbvie and Bristol Myers Squibb up. For the first time, Buffett also sold a small portion of his AppleParticipation. However, he assured that he was still very convinced of the iPhone manufacturer. It is by far the largest position in his portfolio, which was worth $ 281.2 billion at the end of 2020.
Berkshire joined Apple in 2016. The stake is now worth $ 120 billion, while Buffett had “only” spent $ 31.1 billion on it. The Berkshire boss has not only benefited from Apple’s rising share prices, but also from the company’s buyback program from Palo Alto, California.
Buffett described the stake as one of his most valuable assets, on par with the railroad operator BNSF, which he took over ten years ago and continued to expand.
Buffett regrets too expensive takeover:
Buffett also admitted an expensive mistake to his shareholders. In 2016 he had too much for the industrial supplier Precision Castparts paid, which resulted in a write-off of nearly $ 11 billion last year. Precision Castparts is an important supplier for the aircraft manufacturer Boeing and was therefore hit hard by the aviation crisis last year. “I misjudged what future profits would be in the future, so I was wrong in my calculations about the right price,” admitted Buffett.
Bad news for bond investors:
Buffett is worried about the situation on the bond markets, which is affecting him himself in view of his high cash reserves. “Bond investors around the world, whether pension funds, insurers or retirees, face a bleak future,” warned Buffett. US government bond prices have fallen significantly over the past week, fueled by bullish investors expecting a faster economic recovery and rising inflation. Yields rose significantly faster than expected, which has put the stock markets under pressure in the past few days.
The 90-year-old warned insurers and other bond investors not to buy riskier paper in order to “improve the pathetic returns”. Risky loans “are not the answer to low interest rates,” he said.
Buffett arranged his successor years ago. But he is far from thinking about quitting, as he emphasized in his letter to shareholders. Buffett referred to his favorite manager, Rose Blumkin, from whom he once bought the Nebraska Furniture Mart – a furniture store that has been part of Buffett’s empire for decades. Blumkin worked until she was 103 years old, “a ridiculously young age to retire if Charlie and I have my way,” wrote Buffett.
The star investor has been running Berkshire for 50 years and will turn 91 this summer. Charlie Munger, his longtime business partner and vice chairman of the board of directors, is 97 years old.
The two want to answer questions from shareholders at the annual general meeting in May. For this, Buffett will hold the popular event for the first time in Los Angeles, where Munger lives. Last year, due to the pandemic, the shareholders’ meeting was only held online for the first time. Munger couldn’t be there because he couldn’t travel. “I missed Charlie and, more importantly, shareholders missed him too,” wrote Buffett. So now he comes to Munger.
His designated successors, Greg Abel and Ajit Jain, will also be there. Abel heads the energy division, Jain, a cousin of the former Deutsche Bank boss Anshu Jain, is responsible for the insurance business.
More: This is how Warren Buffett rebuilt his portfolio during the crisis