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Saturday, May 25, 2024

Buffett Releases Annual Letter, Repurchases Record $25bn In Stock

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Warren Buffett, published his annual letter to Berkshire Hathaway shareholders on Saturday. The billionaire has been updating his shareholders in the same format for more than six decades.

The “Oracle of Omaha” as Buffet is known praised the ingenuity of the American economy :

“Today, many people forge similar miracles throughout the world, creating a spread of prosperity that benefits all of humanity. In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America,” Buffett wrote.

“Despite some severe interruptions, our country’s economic progress has been breathtaking.”

“Our unwavering conclusion: Never bet against America,” he said.

Here are some of the key points outlined in the letter to shareholders:

On the bond market:

“Bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at year-end – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.”

On Junk bonds:

“Some insurers, as well as other bond investors, may try to juice the pathetic returns now available by shifting their purchases to obligations backed by shaky borrowers. Risky loans, however, are not the answer to inadequate interest rates. Three decades ago, the once-mighty savings and loan industry destroyed itself, partly by ignoring that maxim.”

On the economy:

“Despite some severe interruptions, our country’s economic progress has been breathtaking.”

On his overpriced mistakes:

Buffett conceded that the $11 billion write-down Berkshire took last year was due to what was a “mistake” in 2016, when he paid too much for Precision Castparts. Precision is a fine company, Buffett said, but he admitted he made a big error.

“The final component in our GAAP figure – that ugly $11 billion write-down – is almost entirely the quantification of a mistake I made in 2016. That year, Berkshire purchased Precision Castparts (“PCC”), and I paid too much for the company.

No one misled me in any way – I was simply too optimistic about PCC’s normalized profit potential. Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC’s most important source of customers.”

On buying (and recently selling) Apple stock:

“Berkshire’s investment in Apple vividly illustrates the power of repurchases. We began buying Apple stock late in 2016 and by early July 2018, owned slightly more than one billion Apple shares (split-adjusted). Saying that, I’m referencing the investment held in Berkshire’s general account and am excluding a very small and separately-managed holding of Apple shares that was subsequently sold. When we finished our purchases in mid-2018, Berkshire’s general account owned 5.2% of Apple. Our cost for that stake was $36 billion. Since then, we have both enjoyed regular dividends, averaging about $775 million annually, and have also – in 2020 – pocketed an additional $11 billion by selling a small portion of our position.

Despite that sale – voila! – Berkshire now owns 5.4% of Apple. That increase was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding. But that’s far from all of the good news. Because we also repurchased Berkshire shares during the 2 1⁄2 years, you now indirectly own a full 10% more of Apple’s assets and future earnings than you did in July 2018.”

On buying (back) Buffett stock:

“After buying back a record $9 billion of its own shares in Q3, Berkshire was unable to find attractively priced investments, and continued the buyback spree repurchasing a similar amount in Q4, bringing its annual buyback for 2020 to a record $24.7 billion. “Berkshire made no sizable acquisitions and operating earnings fell 9% We did, though, increase Berkshire’s per-share intrinsic value by both retaining earnings and repurchasing about 5% of our shares…. The math of repurchases grinds away slowly, but can be powerful over time. The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses. And as a sultry Mae West assured us: “Too much of a good thing can be . . . wonderful.”

Buffett only briefly touched on one of the largest questions looming over Berkshire – how long he might stay at the helm.

He once again referenced a favorite CEO, Mrs. Blumkin, who founded Nebraska Furniture Mart. She worked until she was 103 – “a ridiculously premature retirement age as judged by Charlie and me,” Buffett wrote, referring to Charlie Munger.

Read the entire letter below: 

496249187-Annual-Letter-to-Berkshire-Hathaway-Shareholders

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