His annual letters to Berkshire Hathaway shareholders are often seen as an opportunity to help investors and financial investment advisors understand his views on American issues and market trends, alongside details of his Berkshire Hathaway Corporation’s development and financial investment plans.
However, this year, he didn’t talk about topics that were important to his corporation during a turbulent year. He also avoided diving into the business pressures of Berkshire Hathaway, a topic that was heavily talked about in a report a year earlier.
Here are some noteworthy points in Warren Buffet’s annual letter:
Buffett has never once mentioned “hot” topics in America in recent times such as politics, pandemic, or ethnic equality, despite the controversial US presidential election and the historic riot on Capitol Hill. Nor did he mention race or inequalities even as America was engulfed in ethnic protests and riots last year.
He shared that he was very supportive of the “American dream”. He said investors should never bet against the United States because the economy is recovering dramatically and nowhere can fulfill its human potential like America.
Previously, according to Yahoo Finance, it was thought that if asked: President Biden or President Trump? Warren Buffett might say: “Who cares?”. The chairman of Berkshire Hathaway said the US economy will prosper no matter who sits in the Oval Office.
During his 2018 annual meeting, Warren Buffett told shareholders: “I’ve seen so many times that America seems more divided than ever. Every election has people who think the world is. is coming to an end and wondering, ‘How has it been possible that this has been done?’
Warren Buffett is 90 years old, has lived under 15 presidents, and experienced many important events in the United States. But he says America is now six times richer than the day he was born, he says.
“Through it all, America always moves forward”.
Warren Buffett shared a fact in the letter to illustrate the reliability of betting on America. Berkshire owns a large number of assets in the US with greater value than any other business there, he said. “Berkshire’s depreciation expense for ‘fixed assets’ in the country is $ 154 billion. Second on the list is AT&T, with real estate, factories, and equipment worth $ 127 billion,” he wrote.
Buffett only mentioned the Covid-19 epidemic once on page 9, when one of his furniture companies was shut down for a long time due to an epidemic. Covid-19 has killed hundreds of thousands of Americans and severely damaged the world’s No. 1 economy, forcing them to launch huge economic stimulus packages and mobilize the financial investment funds.
“A pandemic is a very hot issue that has far-reaching implications for businesses. However, not saying something about a pandemic on the report is probably a way to avoid what could create a crash. political touch, “said Jim Shanahan, an analyst at Edward D. Jones & Co.
Before that, in March 2020. In an interview with Yahoo Finance, Warren Buffet said that the market decline due to the outbreak of the COVID-19 epidemic and the drop in oil prices was not as scary as the 2008 financial crisis.
However, when the COVID-19 pandemic broke out around the world, Warren Buffet once gave some advice to help investors protect their assets, especially for those starting a business during the pandemic. 6 tips included
- Take advantage of low-interest rates: If you’re a home buyer or homeowner and have a solid credit score, embrace one of today’s ultra-low mortgage interest rates when you can.
- Stay alert: You can also be ready for anything to come – by purchasing life insurance, to financially protect your loved ones. Sales of family breadwinner policies have skyrocketed amid COVID deaths.
- Do not carry credit card balances: When credit card debt becomes overwhelmed, a first step to eliminate it is to convert it into a debt consolidation loan. You will simplify bills and cut interest expenses, making repayments faster.
- Careful stock selection: The carefully prepared investors picked fruit during a pandemic when the stock market advanced to a new high. Lots of highly-rated investment apps can help you make smart choices when starting a business.
- Stick to your long-term plan: Financial investment planning services are more affordable and convenient than you think, and can help you focus on your investments.
- Ask for help if you need it: If you are getting troubles in financial investment, or wondering while starting a business, seek out relief resources or financial investment advisors.
Stock repurchases instead of new deals
Berkshire made a record $ 24.7 billion acquisition of his own stock as Buffett struggled to find a better way to invest his cash. The group has continued to buy its own shares since the end of last year and will hold them for a long time.
The move came in the context of the Covid-19 epidemic putting pressure on operating profits and stock prices of Berkshire Hathaway – a multi-disciplinary conglomerate that includes railroads, electricity, and insurance.
“This job increased your ownership in all of Berkshire’s businesses by 5.2% without you having to touch your wallet,” Buffett said in the report, also emphasizing that the company did not make a significant takeover in 2020.
Berkshire made small strides in handling its huge cash pile. Buffett has struggled in recent years as he sells more money than he used to buy high-yielding assets. This leads to an increase in stock repurchases.
Buffett mentioned that when he and Charlie Munger, the vice president of Berkshire Hathaway, decided to buy back stocks was when Berkshire Hathaway shares were underpriced or Berkshire had a cash balance. After the stock buybacks, the “cash pile” of Berkshire Hathaway is $ 145.7 billion by the end of the third quarter.
The amount of cash and short-term US government bonds of Berkshire Hathaway stood at $ 138.3 billion at the end of quarter 4/2020. Investors wanted to see if Mr. Buffett had made a big deal amid the turmoil caused by the Covid-19 pandemic.
Instead, Berkshire only bought back treasury shares. In 2020, the Group spent $ 24.7 billion to buy its own shares.
“They have turned to treasury stocks as a way to create value,” said Darren Pollock, fund manager at Cheviot Value Management, said. Mr. Pollock said that Warren Buffett kept buying treasury shares when Berkshire Hathaway shares were undervalued.
In a letter to shareholders, Mr. Buffett defended the purchase of treasury shares on a larger scale than usual. He explained that buying treasury shares will increase intrinsic value for shareholders, but still leave a huge portion of funds for future opportunities. Warren Buffett also criticized the way other CEOs bought treasury shares.
“American CEOs have an embarrassing history of spending company capital to buy treasury shares when the stock prices are on the rise rather than falling. We often do the opposite, ”he said.
Buffett also mentioned Berkshire Hathaway’s ripple in 2020, specifically recording an $ 11 billion drop in his investment at Precision Castparts.
“I pay too high a price for this company. Nobody fooled me, I was just too optimistic about Precision Castparts’ profit potential. In 2020, my mistake is revealed by unfavorable developments in the entire aerospace industry – which is Precision Castparts’ most important source of customers,” Buffett said in the letter.
Apple has become a historic investment deal
Berkshire’s $ 120 billion investment in Apple stock has become so valuable that Buffett ranks it in the same category as BNSF Railroad, the brilliant railway business he spent a decade building.
Buffett started dropping money on iPhone shares in 2016 with $ 31.1 billion. The sharp rise in stocks made it the third-largest asset in Berkshire’s portfolio.
This financial investment takes place when, up to now, Buffett has faltered when investing in technology. He said he was not clear about these companies. However, the rise of other members of the board has put Berkshire deeper into this area. In addition to Apple, they also invest in Amazon.com, the cloud computing company Snowflake, and Verizon Communications Inc.
According to Business Insider, Warren Buffett’s Berkshire Hathaway may have made a $ 50 billion return on investment in Apple stock in 2020, bringing the total return on the company’s books from this token to $ 90 billion in less than 5 years.
Between 2016 and 2018, Berkshire invested about $ 35 billion in Apple stock and holds about 5.5% of the iPhone maker share. In early 2020, Apple’s stock price nearly doubled, bringing the value of this investment to about $ 72 billion. By the end of September 2020, that figure increased by $ 109 billion, although Berkshire had sold about 4% of its stake in Apple in the third quarter.
Apple stock was a highlight for Berkshire last year when other major shares in the company’s portfolio such as American Express, Bank of America, and Coca-Cola disappoint.
However, billionaire Buffett’s company is increasingly dependent on this tech giant. By the end of September 2020, Apple shares accounted for nearly 48% of Berkshire’s $ 229 billion stock portfolio and more than 20% of the company’s market capitalization.
Billionaire Buffett does not seem to be worried about this. “I don’t see Apple as a stock, but as our third business,” he said on a CNBC show in February. Berkshire’s first two businesses were railroads and insurance. This billionaire also once commented that Apple “is the best business in the world I know.”
Apple is currently the largest stock in Berkshire’s portfolio, although the investment group slightly decreased its stake in the “missing apple” in the third quarter. However, Buffett has a relatively slow tradition in buying technology stocks, and when he buys, he often poured money into old companies like Apple, instead of the recent tech IPOs “fever”. It was not until the first quarter of 2019 that Berkshire bought Amazon shares, 22 years after the online retail giant went public on Wall Street.
Buffett pleaded guilty to the $ 37.2 billion deal
Billionaire Warren Buffett recently admitted he made a mistake in one of the biggest investment deals he recently made: spending $ 37.2 billion on the acquisition of Precision Castparts in 2016.
“I paid too much for this company,” Buffett wrote in his newly published annual shareholder letter. “Nobody cheated on me – I was simply too optimistic about the potential profitability of PCC.”
Berkshire Hathaway recorded an $ 11 billion drop last year, mostly related to Precision Castparts, a manufacturer of aerospace and energy equipment based in Portland, Oregon.
The PCC encountered many difficulties when the Covid-19 pandemic caused the demand for flights to plummet, airlines were forced to stop flying. That means the demand for spare parts and buying aircraft is also plummeting. Last year, PCC had to cut about 40% of its workforce.
And this decline is also expected to last, leading to pressure on the supply chain. According to IATA forecasts, the number of passengers flying maybe only 30% of the pre-pandemic level.
Buffett also decided to divest from three major airlines last year – a decision he was criticized for being wrong because airline stocks subsequently rebounded.
“My mistake last year was exposed to developments in the airline industry, PCC’s most important source of customers.”
Huge profits from railway production
Despite the effects of the pandemic, the group posted a 14% increase in fourth-quarter operations over the same period a year earlier. This number is backed by a record quarter of BNSF since they bought it in 2010. Manufacturing activity also has the best quarter since mid-2019.
Retiring at the age of 90 is too early?
The billionaire briefly mentioned one of the questions Berkshire receives the most: How long he will be in the leadership position. He mentioned a CEO that he is very confident in, is Ms. Blumkin – the founder of Furniture Mart.
Buffett wrote: “She worked here until she was 103 years old. So retiring too early is ridiculous in my opinion and by Charlie Munger.”
Goodbye Omaha, welcome to Los Angeles
Berkshire’s annual meeting often attracts crowds of Buffett fans to Omaha, Nebraska, where the group’s headquarters are located. This year, the program will move to the West Bank, specifically Los Angeles.