(Omaha) Those who criticize stock buybacks are “either economic illiterates or talkative demagogues,” or both, says billionaire Warren Buffett. All investors benefit as long as they are made at the right price, he adds.
Mr. Buffett used part of his annual letter to Berkshire Hathaway shareholders on Saturday to tout the benefits of buyouts that Wall Street slingers like Senators Elizabeth Warren and Bernie Sanders and many other Democrats like to criticize. The federal government even added a 1% tax on redemptions this year after they hit around $1 trillion in 2022.
“When you are told that all takeovers are harmful to shareholders or the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a fast-talking demagogue (characters who are not mutually exclusive),” Ms. Buffett, who himself is a longtime Democrat.
Investor Cole Smead stressed that Washington should take note of Mr. Buffett’s views on buyouts.
“Any politician, regardless of their stripe, should stand up and pay attention to a statement like that,” said Smead, who works for Seattle-based Smead Capital Management.
Mr. Buffett used his typical self-deprecating style to say that Berkshire’s remarkable record of doubling returns in the S&P 500 over the past 58 years with him at the helm is the result of only “about a dozen good decisions — it would be about one every five years”.
He recounted some of them in his letter, but kept his message — which has long been one of the most widely read documents in the business world — remarkably brief this year at just over eight pages. And he devoted an entire page to a tribute to his partner of 99 years, Charlie Munger.
“I think investors are looking to him for more and I think they might want more,” observed Cathy Seifert, an analyst at CFRA Research.
Mr Buffett pointed out how Berkshire benefits from the dividends it receives from its huge portfolio investments like Coca-Cola and American Express, even as it refuses to pay a dividend to the Omaha, Nebraska-based conglomerate that he leads because he believes he can generate a greater return for shareholders by investing that money. Coke paid Berkshire 704 million in dividends last year and American Express added 302 million. These payments helped bring the value of these stakes to $25 billion for Coke and $22 billion for American Express. Berkshire paid $1.3 billion for each of these investments in the 1990s.
Mr. Buffett clarified that the key lesson for investors is that “it only takes a few winners to do wonders. And, yes, it helps to start early and live to be 90 as well.”
Berkshire said its fourth-quarter profit fell sharply to $18.2 billion from $39.6 billion a year earlier as the value of its investments fell.
These numbers were therefore further skewed by the value of Berkshire’s large equity portfolio. That’s why Buffett argues that operating profits are a better measure of Berkshire’s performance because they exclude derivatives and investments. But by that metric, Berkshire’s operating profit also fell to $6.7 billion, or $4,584.46 per Class A share, from $7.3 billion a year earlier, or $4,904.23 per share. category A.
This is well below what Wall Street predicted. The three analysts polled by FactSet predicted that Berkshire would report operating earnings per Class A share of $5,305.83 on average.
Analysts noted that overall results were still strong, but rising claims costs continued to hurt Geico’s results as rail traffic slowed at BNSF and rising interest rates hurt several Berkshire businesses linked to the housing market, such as its nationwide network of estate agents and Clayton Homes manufactured homes.
Berkshire’s performance tends to track whatever the U.S. economy is doing, as many of its dozens of manufacturing, utility and retail companies are hot on the heels of those trends. In many ways, the conglomerate is a barometer of the economy.
Whenever Mr. Buffett sees opportunities, Berkshire continues to invest in companies and stocks. It was particularly aggressive last year when it made a net investment of around $53 billion according to calculations by Edward Jones analyst Jim Shanahan. Much of that money went into the reserves of oil producers Occidental Petroleum and Chevron and last fall’s $11.6 billion acquisition of Alleghany Insurance Corp.
But even with all that spending, Berkshire’s cash on hand grew to $128.6 billion at the end of the year, from $109 billion at the end of the third quarter. Berkshire companies are generating so much money that it is accumulating faster than Mr Buffett can invest it.
Earlier this year, Berkshire increased its stake in the Pilot Flying J network of 750 truck stops to 80%, from 38.6% acquired in 2017, which will help this year’s earnings.