Buffett laments lack of good investments even as Berkshire profit sets record

By Jonathan Stempel

(Reuters) – Warren Buffett said on Saturday he would stick to his knitting, lamenting the lack of good investment opportunities for Berkshire Hathaway Inc as he sits on a huge pile of cash even after buying out a huge amount of his own shares.

In his widely read annual letter to Berkshire shareholders, the 91-year-old billionaire expressed great confidence in Berkshire, saying the focus on investing in strong companies and stocks benefits investors with a long-term view. similar.

“People who are comfortable with their investments will, on average, perform better than those who are driven by headlines, chatter, and ever-changing promises,” Buffett wrote.

Generally noting the risks of shifts in global politics, terrorism and cyberattacks, Berkshire remains wary.

Cash hit a near record high of $146.7 billion, even after Berkshire repurchased $51.7 billion of its own shares in 2020 and 2021.

Buffett also said, “We find few things to excite us” in the stock market, and that major acquisitions remain hard to come by after six years of none.

“Today, internal opportunities offer much better returns than acquisitions,” he writes.

Many of these opportunities seemed to pay off in 2021.

Operating profit rose 25% to a record $27.46 billion, more than a third of which came from BNSF Railroad and Berkshire Hathaway Energy despite supply chain disruptions related to the COVID-19. In the fourth quarter, operating profit jumped 45%.

Annual net profit more than doubled to a record $89.8 billion, buoyed by gains from Buffett’s investments in Apple Inc, Bank of America Corp, American Express Co and other stocks in Berkshire’s broad portfolio .

“It offers the story of a multi-faceted engine of growth,” said Tom Russo, partner at Gardner, Russo & Quinn in Lancaster, Pa., a longtime Berkshire investor. “The main message is that Berkshire has found some great businesses, so let’s celebrate them.”

Apple’s stake alone was $161.2 billion as of December 31, more than five times the $31.1 billion paid by Berkshire. Buffett called Apple’s Tim Cook a “brilliant” chief executive.

Share buybacks totaled $27 billion in 2021 but slowed in 2022, totaling $1.2 billion so far. Berkshire’s stock price is 2% below its all-time high.

“Buffett’s patience and discipline allowed him to complete what is essentially the largest acquisition in Berkshire’s history, his own stock, at a substantial discount from his current market price,” Jim said. Shanahan, analyst at Edward Jones & Co.

“FOUR GIANTS”

In his letter, Buffett touted what he called Berkshire’s “giant four,” including its massive insurance operations, BNSF, Berkshire Hathaway Energy and Apple’s stake.

“Our goal is to have meaningful investments in companies with both sustainable economic benefits and a top-notch CEO,” Buffett wrote.

He also said Berkshire favored a ‘kind of old-fashioned revenue’, including $6 billion last year on its BNSF railroad, casting a shadow over companies that could manipulate their results to boost the their share price.

“Misleading earnings ‘adjustments’ – to use a polite description – have become both more frequent and more fanciful as stocks have risen,” Buffett wrote. “Speaking less politely, I would say that bull markets breed puffy bulls…”

Buffett said Berkshire’s huge cash stake was “not a deranged expression of patriotism” but rather a shield against losses in its vast insurance operations, including a business insuring against major catastrophes.

Uncle Sam benefits from the size of Berkshire, Buffett said, collecting $3.3 billion in income taxes from the company in 2021 of the $402 billion in total income tax revenue companies received by the US Treasury.

Buffett also pledged to keep more than $30 billion in cash, after long saying $20 billion was the minimum. This still leaves plenty of room for the right acquisition.

“They’re going through a tough time (making acquisitions), given the turmoil in the market and the difficulty in competing with private equity firms and SPACs,” said CFRA Research analyst Cathy Seifert, referring to the special purpose acquisition companies.

Berkshire’s annual report, also released on Saturday, included a letter from Vice Chairman Greg Abel outlining the company’s commitment to sustainability and environmental protection.

Abel, 59, would become Berkshire’s chief executive if Buffett was unable to continue. Portfolio managers Todd Combs and Ted Westchler, who are investing $34 billion, are in line to oversee Berkshire’s equity investments.

The company’s more than 90 operating units also include Dairy Queen ice cream, See’s candy and several industrial businesses.

Berkshire also said on Saturday that it plans for the first time since 2019 to hold its usual shareholder weekend in Omaha, including the April 30 annual meeting.

“Woodstock for Capitalists,” as Buffett calls the weekend, typically draws around 40,000 people for shopping, dining, 3-mile runs and other events.

Proof of vaccination against COVID-19 will be required to attend the annual meeting and obtain discounts on purchases.

(Reporting by Jonathan Stempel in New York; editing by Megan Davies, Diane Craft and Cynthia Osterman)

Comments are closed.