Warren Buffett

Highlights of Warren Buffett’s Annual Letter to Shareholders

(BRK.A), (BRK.B)

On February 27, 2021, Berkshire Hathaway released Warren Buffett’s annual Letter to the Shareholders of Berkshire Hathaway. The 13 page letter detailed the current state of the company with a particular emphasis on its growing stake in Apple.

Here a few of the letters highlights:

Berkshire’s Performance in 2020

Despite operating earnings dropping 9%, Berkshire’s per-share intrinsic value increased by both retaining earnings and repurchasing about 5% of outstanding shares.

Portfolio of Marketable Securities

Berkshire’s holdings of marketable stocks at yearend was worth $281 billion.

A Huge Swing and a Miss

Berkshire took a $11 billion write-down on its 2016 purchase of Precision Castparts, which Buffett blamed on his being “simply too optimistic about PCC’s normalized profit potential.”

On Bonds

“…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 yearend – 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.”

Last Year’s Share Buybacks

In 2020, Berkshire repurchased the equivalent of 80,998 “A” shares, spending $24.7 billion.

The Buybacks Have Continued

“Berkshire has repurchased more shares since yearend and is likely to further reduce its share count in the future.”

Berkshire’s Stake in Apple

At the beginning of 2020, Berkshire owned 5.2% of Apple stock at a cost basis of $36 billion. Regular dividends have averaged about $775 million annually, and in 2020 the company pocketed an additional $11 billion by selling a small portion of its position.

Buffett wrote that thanks to Apple’s own share buybacks that “Despite that sale – voila! – Berkshire now owns 5.4% of Apple.”

Buffett notes that the increased ownership stake was costless to Berkshire. He also notes that Berkshire shareholders increased their Apple stake even more. “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.”

“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.'”

Fixed Assets

“Berkshire owns American-based property, plant and equipment – the sort of assets that make up the ‘business infrastructure’ of our country – with a GAAP valuation exceeding the amount owned by any other U.S. company. 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.”

BNSF Railway

Since its acquisition in 2010, Berkshire has earned $41.8 billion in total dividends from BNSF.

Berkshire Hathaway Energy

BHE’s “$18 billion commitment to rework and expand a substantial portion of the outdated grid that now transmits electricity throughout the West. BHE began this project in 2006 and expects it to be completed by 2030…”

On the Prospects for the United States

“…there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming ‘a more perfect union.’ Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so. Our unwavering conclusion: Never bet against America.”

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell a stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.