Buffett letter: 'Little action,' but 'reasonable progress' increasing intrinsic value

In his annual letter to Berkshire Hathaway shareholders, Warren Buffett says he still doesn't see many good ways to use the company's enormous cash pile, other than buying back Berkshire's own shares.

VIEW IN BROWSER | SUBSCRIBE SAT, FEB 26, 2022 WARREN BUFFETT WATCH Shareholder Letter Special Edition 'Little action,' but 'reasonable progress' increasing intrinsic value Near the top of his annual letter to Berkshire Hathaway shareholders out this morning, Warren Buffett writes that when it comes to what is "new or interesting" at Berkshire, "Alas, there was little action of that sort in 2021."   With low interest rates driving up the prices of "productive" investments, he and Charlie Munger "find little that excites us" in the equity markets.   But, he says, "Fortunately we have had a mildly attractive alternative for deploying capital" that has helped them "make reasonable progress in increasing the intrinsic value of your shares," which has been his "primary duty for 57 years."   That alternative is repurchasing Berkshire shares.    "When the price/value equation is right, this path is the easiest and most certain way for us to increase your wealth."     He reports Berkshire spent $51.7 billion in 2020 and 2021 to buy back 9% of the shares that were outstanding at the end of 2019. "That expenditure left our continuing shareholders owning about 10% more of all Berkshire businesses," both subsidiaries and holdings in the stock portfolio.   It has also bought back $1.2 billion of its stock so far this year.   Buffett stresses, however, "Our appetite remains large but will always remain price-dependent."   In the fourth quarter of last year, Berkshire repurchased $6.9 billion of its stock, a decrease from the $7.6 billion it spent in the third quarter, but enough to bring its 2021 total to a record $27 billion.    That spending contributed to a modest decrease in Berkshire's cash to $146.7 billion as of December 31, down from a record high $149.2 billion as of September 30.   Buffett writes that while Berkshire's $120 billion in U.S. Treasury bills is financing about one half of one percent of the publicly-held national debt, it is "not some deranged expression of patriotism."   He says he and Munger still have an "overwhelming preference for business ownership," although Berkshire will "always" have more than $30 billion in cash to keep the company "financially impregnable." (In the past, Buffett has talked about keeping a $20 billion cash cushion on hand.)   "Charlie and I have endured similar cash-heavy positions from time to time in the past. These periods are never pleasant; they are also never permanent."   Even though he can't find something new to buy, Berkshire's current businesses have been big moneymakers. Fourth quarter operating profits increased 45% to $7.3 billion. For the year, they were up 25% to $27.5 billion.  Also in the letter ... Buffett writes that while many people see Berkshire as a "large and somewhat strange collection of financial assets," it actually owns and operates more U.S.-based "infrastructure" assets than any other American corporation. "That supremacy has never been our goal. It has, however, become a fact." Berkshire paid $3.3 billion in federal income tax last year, about 0.8% of the $402 billion in corporate income-tax receipts reported by the U.S. Treasury. "'I gave at the office' is an unassailable assertion when made by Berkshire shareholders." "Our shareholders should acknowledge - indeed trumpet - the fact that Berkshire's prosperity has been fostered mightily because the company has operated in America... When you see the flag, say thanks."     Buffett lists "Our Four Giants" that "account for a very large chunk of Berkshire's value." They are the insurance subsidiaries, Apple, the freight railroad BNSF, and Berkshire Hathaway Energy (BHE).  "The insurance business is made to order for Berkshire. The product will never be obsolete, and sales volume will generally increase along with both economic growth and inflation." Float, premiums collected but not yet paid out, increased by $9 billion in 2021, "to my surprise." Apple's buybacks have increased Berkshire's ownership to 5.55% from 5.39% the previous year. "Tim Cook, Apple's brilliant CEO, quite properly regards users of Apple products as his first love, but all of his other constituencies benefit from Tim's managerial touch as well." BNSF had record earnings of $6 billion in 2021. BHE's earnings totaled $4 billion, also a record. Buffett pointed readers to the subsidiary's website to learn more about its investments in renewable energy sources. It "is not in any way one of those currently-fashionable 'green-washing' stories." Portfolio managers Todd Combs and Ted Weschler had "total authority" over $34 billion in investments as of the end of the year.

Buffett paid tribute to Paul Andrews, the founder and CEO of Berkshire subsidiary TTI, who died last year, calling him a "class act." He described how Andrews, when he was 63 and worrying about securing the electronics distributor's future, ruled out selling to a competitor or a buyout firm because they would probably cut jobs. In 2006, Buffett bought it for Berkshire instead ("One meeting; one lunch; one deal") and its workforce has more than tripled since then.

Annual meeting gets a new streamer

In its annual report, Berkshire reveals that CNBC will be webcasting the Q&A session with Buffett, Munger, and vice chairs Greg Abel and Ajit Jain at its shareholders meeting on Saturday, April 30. (Yahoo Finance has been streaming it in recent years.)

 

Questions will come from shareholders at the meeting and from a selection of those submitted to "Squawk Box" co-anchor Becky Quick at berkshirequestions@cnbc.com.

 

The company says proof of COVID-19 vaccination will be required to attend the meeting. It has partnered with CLEAR Health Pass to facilitate the process, although using the free service is not required.

 

Specifics are in a document posted on Berkshire's site.

 

Additional general information is in this post on the site.

 

And ever the salesman, Buffett ended his letter with word that "Cousin" Jimmy Buffett will introduce a new pontoon "party" boat the musician designed at the meeting's "Berkshire Bazaar of Bargains." It's being manufactured by Berkshire subsidiary Forest River. Shareholders will be offered a 10% discount "for two days only."

 

BUFFETT AROUND THE INTERNET

Some links may require a subscription

• CNBC.com: Berkshire's operating earnings surge as Buffett repurchases record $27 billion in stock during 2021

• CNBC.com: Warren Buffett in annual letter calls Apple one of 'Four Giants' driving Berkshire Hathaway's value

• Bloomberg on Yahoo Finance: Buffett Takes 'Mildly' Attractive Path With Record Buybacks

• TheStreet on MSN: Warren Buffett Comes to the Rescue of Tim Cook

• Wall Street Journal: Berkshire Hathaway Net Earnings Rose 11% in Fourth Quarter

• AP: Buffett still wants deals but can't find any attractive ones

• Omaha World-Herald: In annual letter, Buffett touts revenue growth in Berkshire Hathaway's 'four giants'

• CNN: Warren Buffett's Berkshire Hathaway posts nearly $40 billion profit

• Reuters on Yahoo Finance: Want to attend Warren Buffett's 'Woodstock for Capitalists'? Get vaccinated

• Barron's (subscription): Warren Buffett: Berkshire Hathaway Finds 'Little That Excites Us' in the Stock Market

• Business Insider on MSN: Warren Buffett's Berkshire Hathaway was a net seller of stocks last quarter — and slowed its share buybacks

• Bloomberg Opinion (subscription): At 91, Warren Buffett Still Isn't in Any Hurry

• Financial Times (subscription): Berkshire Hathaway profits soar but Warren Buffett bemoans lack of good deals

• Reuters: Buffett's Berkshire posts record annual profit, extends but slows buybacks

• New York Times: Berkshire Hathaway Rebounds From the Pandemic

QUESTIONS OR COMMENTS

Please send any questions or comments about the newsletter to me at alex.crippen@nbcuni.com. (Sorry, but we don't forward questions or comments to Buffett himself.)

 

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-- Alex Crippen, Editor, Warren Buffett Watch

 

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