A lot of followers of Warren Buffett will be a touch disappointed his annual letter to shareholders didn’t contain the usual headline grabbing comments on markets, hints about future areas of investment interest, remarks on current life in business and politics or his succession.
But there were a few gems buried in the letter for his fans to chuckle over, nod and agree with – such as a big thumbs down for bond investors (facing a “bleak future” according to Buffett) and whacked those who dismiss Berkshire as a “conglomerate”, saying history is replete with “conglomerates who earned their terrible reputation” but not his.
The letter and the company’s annual and quarterly reports did contain one major surprise – the first ever switch of venue for the annual meeting.
The letter also confirmed that Berkshire had again underperformed the S&P 500 – Berkshire’s per share value rose 2.4% in 2020, but the S&P 500 including dividends was up 18.4%.
It was the third year in a row that Berkshire shares have underperformed the S&P 500. But from 1964 to 2021, Berkshire has outperformed the market two to 1% – a gain of 20% for its shares a year against a 10.2% rise in the S&P 500.
The letter did not specifically mention the coronavirus pandemic, a prime factor behind last year’s loss of more than 31,000 jobs in Berkshire’s workforce (now around 360,000), or the recent social upheaval and divisive politics (climate change, Black Lives Matter) that more and more of the companies in and outside his huge investment portfolio are confronting and dealing with every day.
But he had one nostrum for his mostly American shareholder base – “Our unwavering conclusion: Never bet against America,” he said.
The letter broke a long silence for the 90-year-old Buffett, who has been virtually silent since Berkshire’s annual meeting in Omaha last May.
Berkshire’s results and Buffett’s letter contained what was perhaps the biggest surprise this year – Berkshire’s annual meeting will be held in Los Angeles rather than Omaha, allowing the 97-year-old Vice Chairman Charlie Munger, a Californian, to rejoin him when answering about 3-1/2 hours of shareholder questions.
It will be an online meeting, as the 2020 one was from Omaha. Yahoo will stream it worldwide.
Vice Chairmen Greg Abel, 58, and Ajit Jain, 69, who are widely considered frontrunners to succeed Buffett as chief executive, will also be available to answer questions.
The letter did not touch the perennial topic that the 90-year-old Mr. Buffett is asked about: who will succeed him as chief executive.
On America Buffett was typically bullish, sayings\ that“In its brief 232 years of existence … there has been no incubator for unleashing human potential like America,” than America.
“Despite some severe interruptions, our country’s economic progress has been breathtaking. Our unwavering conclusion: Never bet against America.”
Buffett shared a fact in the letter to illustrate Berkshire’s American credentials. He said the conglomerate owns the largest amount of US assets (property, plant and equipment) by value than any other company in the country.
“Berkshire’s depreciated cost of these domestic ‘fixed assets’ is $154 billion. Next in line on this list is AT&T, with property, plant and equipment of $127 billion,” he wrote.
In the letter he singled out two wholly owned American businesses — BNSF Railway and Berkshire Hathaway Energy (BHE) — which earned $US8.3 billion in 2020 despite a plunge in demand amid the Covid-19 pandemic.
“In 2011, Berkshire’s first full year of BNSF ownership, the two companies had combined earnings of $4.2 billion. In 2020, a tough year for many businesses, the pair earned $8.3 billion,“ Buffett pointed out.
“Your railroad carries about 15% of all non-local ton-miles (a ton of freight moved one mile) of goods that move in the United States, whether by rail, truck, pipeline, barge or aircraft,” Buffett said.
“The history of American railroads is fascinating. After 150 years or so of frenzied construction, skullduggery, overbuilding, bankruptcies, reorganizations and mergers, the railroad industry finally emerged a few decades ago as mature and rationalized.”
Buffett believes BHE will be a leader in delivering clean energy in the future. BHE began a $18 billion plan to rework and expand a substantial portion of the outdated grid that now transmits electricity throughout the West.
In the latter, Buffett noted “Unlike railroads, our country’s electric utilities need a massive makeover in which the ultimate costs will be staggering.”
“The effort will absorb all of BHE’s earnings for decades to come. We welcome the challenge and believe the added investment will be appropriately rewarded.”
And Buffett reminded investors that miracles do occur in middle America despite much of the attention on coastal areas. After all, the he started his conglomerate in Omaha, Nebraska and its home office remains based in the city (even though he bought an ailing New England textile company and almost destroyed it in the early days).
“Success stories abound throughout America,” the investor said. “Since our country’s birth, individuals with an idea, ambition and often just a pittance of capital have succeeded beyond their dreams by creating something new or by improving the customer’s experience with something old.”
He singled out two businesses in Omaha he bought, including one, National Indemity, the core of the world’s biggest insurance group (Berkshire) and two in Knoxville Tennessee.
For more on the Berkshire Hathaway AGM, check out these other stories by Glenn Dyer on ShareCafe:
Buffett Week: Put your money where your mouth is
Berkshire Hathaway’s buyback of around 5% of its issued capital this year is a big sign Buffett considers the company a better growth prospect than the rest of the US stockmarket.
Buffett Week: Bond(s), Warren Bond(s)
Fixed interest investors around the world have been given the gospel from St Warren of Omaha – what they are doing these days isn’t very smart.
