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 cautious stewards of their money in Berkshire, where “the passage of time” and “calmness” would help them serve them well.
Despite the disappearance of more than 31,000 Berkshire workforce jobs last year, Buffett maintained his brand optimism and bought back a record $ 24.7 billion inventory in 2020, which he believes is undervalued.
He also applauded the ability of the economy to endure “severe disruptions” and make “breathtaking” strides.
“Our unshakable conclusion: never bet against America,” he said.
Tom Russo, a partner at Gardner, Russo & Gardner in Lancaster, Pennsylvania and a long-time investor in Berkshire, said, “He is a firm believer in his company and the country.”
The letter breaks an unusual silence for the 90-year-old Buffett, who has been almost invisible to the public since Berkshire’s annual meeting last May.
However, Buffett drew on familiar topics, including Wall Street bankers’ greed for dealmaking fees that benefit them more than the companies they represent. However, he did not address the pandemic, which was a major cause of job losses in Berkshire.
Nor did he address the recent social upheaval or the divisive political environment that some companies are now addressing more directly.
“The letter highlighted the innovations and values that have become the backbone of America, and that is perfectly acceptable,” said Cathy Seifert, an analyst at CFRA Research with a “Hold” rating for Berkshire.
“Given the awe the investors had for him, the letter caught the eye of what he left out,” she added. “A new generation of investors requires a certain level of social awareness and that companies like Berkshire state their beliefs, standards and goals.”
Buffett also signaled a long-term commitment to Apple Inc, where Berkshire ended 2020 with shares valued at $ 120.4 billion, despite having sold several billion dollars more recently.
He named Apple and the BNSF Railroad Berkshire’s most valuable asset – “it’s pretty much a mistake” – aside from its insurance businesses and before Berkshire Hathaway Energy. “The jewels of the family,” he called these four investments.
Profit increases even if jobs are lost
Berkshire also reported net earnings of $ 35.84 billion for the fourth quarter and $ 42.52 billion for the year on Saturday, both of which were due to large gains on its stocks.
Operating income, which Buffett considers a more accurate measure of performance, declined 9% to $ 21.92 billion over the year.
Share buybacks continued into 2021, and Berkshire bought back 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 that “bonds are not the place these days”. Earnings on a 10-year US Treasury bond declined 94% from 15.8% in September 1981 to 0.93% at the end of 2020. Government bond benchmark yields have risen since then but are still low by historical standards.
“Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – are facing a bleak future,” says the letter.
Berkshire, based in Omaha, Nebraska, has more than 90 operating units, including the BNSF Railroad, Geico Auto Insurer, Dairy Queen Ice Cream, and See Sweets.
Compared to the previous year, the workforce fell by 8% to around 360,000 employees. Larger declines were reported at the BNSF, which cut 5,600 jobs, and at See’s, where employment fell by 16%.
The pandemic has hit no Berkshire company harder than Precision Castparts Corp., which cut 13,473, or 40% of its jobs.
Berkshire bought the aircraft and industrial parts maker for $ 32.1 billion, Buffett’s largest acquisition, in 2016, and took a $ 9.8 billion write-down as the pandemic decimated travel and air and traffic Precision aerospace customers fined.
“I paid too much for the company,” wrote Buffett. “I was just too optimistic about PCC’s normalized profit potential.
“PCC is a far cry from my first mistake of its kind,” he said. “But it’s a big one.”
Berkshire said some companies are starting to recover from the pandemic.
“Certainly 2021 will be a much stronger year depending on the speed of vaccinations and the opening up of the US economy,” said Jim Shanahan, an Edward Jones & Co analyst with a “Buy” rating for Berkshire.
Buffett also said that Berkshire’s annual meeting will be in Los Angeles rather than Omaha so that 97-year-old vice chairman Charlie Munger, a Californian, can return to him and answer questions from shareholders for about three and a half hours.
Vice Chairs Greg Abel, 58, and Ajit Jain, 69, who are widely recognized as trailblazers for Buffett’s successor as CEO, are also available to answer questions.
Buffett hopes Berkshire will resume its annual shareholders’ weekend in Omaha in 2022, which typically has around 40,000 people attending – a “Berkshire-style annual get-together,” he wrote.
