Buffett laments lack of good investments even as Berkshire profit sets record

Warren Buffett on Saturday signaled he will stick to his knitting, bemoaning the lack of good investment opportunities for Berkshire Hathaway Inc as it sits on a massive pile of cash even after repurchasing a huge amount of its own stock.

In his widely read annual letter to Berkshire shareholders, the 91-year-old billionaire expressed strong confidence in Berkshire, saying its emphasis on investing in strong businesses and stocks benefits investors with a similar long-term focus.

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“People who are comfortable with their investments will, on average, achieve better results than those who are motivated by ever-changing headlines, chatter and promises,” Buffett wrote.

Noting generally the risks of changes in world politics, terrorism and cyberattacks, Berkshire remains wary.

Berkshire Hathaway CEO Warren Buffett (FBN)

Cash swelled to a near-record $146.7 billion, even after Berkshire repurchased $51.7 billion of its own stock in 2020 and 2021.

Buffett also said, “We find little that excites us” in the stock market, and that major acquisitions remain hard to come by after six years without any.

“Today, internal opportunities deliver far better returns than acquisitions,” he wrote.

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Many of those opportunities appeared to pay off in 2021.

Operating profit rose 25% to a record $27.46 billion, with more than one-third from the BNSF railroad and Berkshire Hathaway Energy despite COVID-19 supply chain disruptions. In the fourth quarter, operating profit swelled 45%.

Full-year net income more than doubled to a record $89.8 billion, bolstered by gains from Buffett’s investments in Apple Inc, Bank of America Corp, American Express Co and other stocks in Berkshire’s vast portfolio.

LIVINGSTON, MT – AUGUST 23: A BNSF freight train with 76 container cars and FedEx freight trailers travels from Seattle to points east on August 23, 2021 in Livingston, Montana. (Photo by William Campbell/Getty Images) ( (Photo by William Campbell/Getty Images) / Getty Images)

“He is offering a story of a multifaceted growth engine,” said Tom Russo, a partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, a longtime Berkshire investor. “The primary message is that Berkshire has found some magnificent businesses, so let’s celebrate them.”

The Apple stake alone totaled $161.2 billion as of Dec. 31, more than five times the $31.1 billion Berkshire paid for it. Buffett called Apple’s Tim Cook a “brilliant” chief executive.

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Stock buybacks totaled $27 billion in 2021 but have slowed in 2022, totaling $1.2 billion so far. Berkshire’s stock price is 2% below its record high.

“Buffett’s patience and discipline enabled him to make what is in essence the largest acquisition in Berkshire’s history, its own stock, at a substantial discount to its current market price,” said Jim Shanahan, an analyst at Edward Jones & Co.

‘FOUR GIANTS’

In his letter, Buffett touted what he called Berkshire’s “four giants” including its massive insurance operations, BNSF, Berkshire Hathaway Energy and the Apple stake.

Apple

Warren Buffett says Apple is one of Berskshire’s “four giant” holdings. REUTERS/Mike Segar/File Photo (REUTERS/Mike Segar/File Photo / Reuters Photos)

“Our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO,” Buffett wrote.

He said also Berkshire favors an “old-fashioned sort of earnings,” including $6 billion last year at its BNSF railroad, throwing shade on companies that may manipulate their results to boost their stock prices.

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“Deceptive ‘adjustments’ to earnings — to use a polite description — have become both more frequent and more fanciful as stocks have risen,” Buffett wrote. “Speaking less politely, I would say that bull markets breed bloviated bull….”

Buffett said Berkshire’s huge cash stake was “not some deranged expression of patriotism,” but rather a shield against losses in its vast insurance operations, including a business insuring against major catastrophes.

Berkshire Hathaway shareholders walk by a video screen at the company’s annual meeting in Omaha. REUTERS/Rick Wilking/File Photo (REUTERS/Rick Wilking/File Photo / Reuters Photos)

Uncle Sam does benefit from Berkshire’s size, Buffett said, collecting $3.3 billion of income tax from the company in 2021 out of the $402 billion in total corporate income tax receipts received by the U.S. Treasury.

Buffett also pledged to keep more than $30 billion of cash on hand, after long saying $20 billion was the minimum. That still leaves plenty available for the right acquisition.

“They are having a tough time (making acquisitions), given frothiness in the market and difficulty competing with private equity firms and SPACs,” said CFRA Research analyst Cathy Seifert, referring to special purpose acquisition companies.

Berkshire’s annual report, also released Saturday, included a letter from Vice Chairman Greg Abel describing the company’s commitment to sustainability and protecting the environment.

Ticker Security Last Change Change %
BRK.A BERKSHIRE HATHAWAY INC. 479,345.00 +17,235.00 +3.73%

Abel, 59, would become Berkshire’s chief executive if Buffett were unable to continue. Portfolio managers Todd Combs and Ted Weschler, who invest $34 billion, are in line to oversee Berkshire’s stock investments.

The company’s more than 90 operating units also include Dairy Queen ice cream, See’s candies and several industrial companies.

Berkshire also said on Saturday it plans for the first time since 2019 to hold its usual shareholder weekend in Omaha, including the April 30 annual meeting.

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“Woodstock for Capitalists,” as Buffett calls the weekend, typically draws about 40,000 people for shopping, dining, a 5-kilometer run and other events.

Proof of COVID-19 vaccination will be required to attend the annual meeting and obtain some shopping discounts.

(Reporting by Jonathan Stempel in New York; editing by Megan Davies, Diane Craft and Cynthia Osterman)