Tone Deaf Annual Letter Skirts Controversies by Warren Buffett

Controversies over Warren Buffett's `` Tone Deaf '' annual letter skirts

Warren Buffett’s annual letters are seen as a chance to offer investors some help in understanding his thinking.

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

Buffett also avoided politics, despite the contested presidential election and riots on the U.S. Capitol, and never addressed race or inequality, even after protests and unrest erupted in cities across the year. last. He has also avoided delving into the competitive pressures his conglomerate, Berkshire Hathaway Inc., faces, a topic regularly dissected in letters last year.

“Here you have a company with such a revered executive who is so respected – whose opinion matters, which has companies that have been directly affected by the pandemic, insurance companies that have been influenced by global warming and social inflation – and there hasn’t been a word about the pandemic, “said Cathy Seifert, analyst at CFRA Research, in a telephone interview.” It was striking to me. It was a low tone and it was disappointing. “

Buffett, 90, has been exceptionally calm since the annual meeting in May last year amid a host of issues Americans face. His annual letters are often seen as an opportunity to offer investors help understanding his thinking on big topics and market trends, in addition to details of how his conglomerate is doing.

But the Berkshire CEO weighs his words carefully and some topics, such as the pandemic, risk tipping into highly controversial political territory, Jim Shanahan, analyst at Edward D. Jones & Co., said in an interview.

“There has been a lot of commentary on the pandemic and its impact on business, but by not saying anything in the letter I think it’s just a way of trying to avoid saying something that might be perceived as a political statement, which he has been less willing to do in recent years, ”Shanahan said.

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

Buffett has also remained silent on key topics for his conglomerate, such as the market environment in the midst of a tumultuous year – and the work of senior investment assistants such as Todd Combs and Ted Weschler, according to Cole Smead, including Smead. Capital Management oversees investments in Berkshire.

“What is not in the letter finds more,” said Smead, president and portfolio manager of the company. “I think just many times in this letter were sins of omission.”

Here are some other takeaways from Buffett’s letter and Berkshire’s annual report:

1. Buffett relies on buyouts rather than offers

Berkshire bought back a record $ 24.7 billion of its own stock as Buffett struggled to find better ways to invest his huge pile of cash.

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

“This action increased your stake in all of the Berkshire companies by 5.2% without forcing you to touch your portfolio,” Buffett said in the letter, which noted that the company “had not made any significant acquisitions” in 2020. .

Berkshire made some progress in reducing the cash stack, which fell 5% in the fourth quarter to $ 138.3 billion. Buffett has struggled to keep pace with the flows in recent years as Berkshire threw away cash faster than it could find higher-yielding assets, leading to a surge in share buybacks.


2. Apple is as valuable to Berkshire as BNSF Railroad

Berkshire’s $ 120 billion investment in shares of Apple Inc. has become so valuable that Buffett puts it in the same category as the massive rail company he spent a decade building.

He started taking a stake in the iPhone maker in 2016 and spent just $ 31.1 billion to acquire it all. The surge in value since then places it among the top three assets of the company, alongside its insurers and BNSF, the buyout of the US railroad made 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 chairman of Henry H. Armstrong Associates. “It’s really a brand name, it’s global, it’s an absolutely addicting product.”

Buffett had always hesitated about investing in technology, saying he didn’t understand business well enough. But the rise of MPs, including Combs and Weschler, has brought Berkshire deep into the industry. In addition to Apple, the conglomerate has accumulated stakes in Inc., cloud computing company Snowflake Inc. and Verizon Communications Inc.

3. Buffett concedes mistake in $ 37.2 billion deal

Buffett admitted to making a mistake buying Precision Castparts Corp. five years ago for $ 37.2 billion.

“I have 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 PCC’s normalized profit potential.”

Berkshire took nearly $ 11 billion in depreciation last year that was largely tied to Precision Castparts, the Portland, Oregon-based aerospace and energy equipment maker.

The pandemic was the main culprit. Precision Castparts struggled as demand for flights fell, prompting airlines to park their jets and cut schedules. Fewer flights mean less demand for spare parts and new aircraft. Precision cut its workforce by around 40% last year, according to Berkshire’s annual report.

4. Profit gains from railways and manufacturers

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

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

5. Goodbye Omaha, Hello Los Angeles

The Berkshire Annual Reunion has for years drawn crowds of Buffett fans to Omaha, Nebraska, where the conglomerate is based. This year the show is moving to the West Coast.

While 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 assistants, Greg Abel and Ajit Jain, who will also answer questions.

Buffett and Abel, who live closer to the Berkshire headquarters, were faced last year with “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 plans to have an in-person meeting in 2022

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