In his annual letter, Warren Buffett vehemently defended stock buybacks. Berkshire Hathaway Shareholders on Saturday said the purchase of shares by Berkshire and the dozens of publicly traded companies it owns is a boon for investors.
A 92-year-old investor commented, shortest annual letter He’s been out for decades and released results showing Berkshire lost $22.8 billion last year due to declining stock portfolio values.
Buffett’s Defense Is New Tax on share buybacks enforced in the United States. The tax was one of the few revenue-raising measures that gained unanimous support among Senate Democrats when President Joe Biden passed the Reducing Inflation Act, a comprehensive climate change tax law. .
Proponents of the tax argue that stock buybacks do little to strengthen the underlying economy and can be spent on capital spending or returned to workers in the form of better wages. argue that share buybacks can provide a smart way to deploy capital.
“If you are told that all buybacks are harmful to shareholders and the country, or beneficial to the CEO in particular, you either have no knowledge of economics or you are a talkative demagogue (non-mutually exclusive characters). You are listening to the story of buffett I have written.
Berkshire’s CEO, citing the company’s investments in American Express and Coca-Cola in the 1990s, said that if the buyback was “at a value-enhancing price,” all shareholders would said it would benefit
Berkshire has stopped buying new shares in these businesses, but the buybacks completed by American Express and Coca-Cola increased the sprawling conglomerate’s ownership of both companies, making Berkshire the largest investor.
Berkshire has increased its share buybacks in recent years, especially at a time when Buffett has found few attractive investment options. The company spent his $7.9 billion in 2022 to buy back its own stock.
This year’s buybacks will be taxed for the first time, and officials estimate stock buybacks could bring in $74 billion to the U.S. Treasury over the next decade. This number could rise further if US policymakers raise his 1% tax rate.
Buffett told shareholders on Saturday, calculating that Berkshire has paid $32 billion in taxes over the past decade, and expects Berkshire to pay far more in taxes over the next few years as the sprawling conglomerate grows. He said that he was
“We owe our country. American dynamism has contributed tremendously to the success Berkshire has achieved, a contribution Berkshire will always need,” he wrote. “We’re counting on the American tailwind. It’s calmed down at times, but that momentum has always returned.”
Buffett has provided some nuggets of wisdom in an annual letter usually poured out by the public for his thoughts on investing and the world.
The letter was short at ten pages, about half the length of his letters since 2000, and contained almost a page of quotes from longtime partner Charlie Munger. As he grew older, his letters became shorter. But the fact that he’s written hundreds of pages to shareholders since his 1970s means that investors can find his take with just a quick glance through his archives.
Buffett said that “efficient markets only exist in textbooks,” the importance of “the power of compound interest,” and “avoiding behaviors that may result in an uncomfortable need for cash at an inconvenient time.” struck an upbeat tone when it released some of the biggest hits from . .
“Lesson for investors: Weeds die as they bloom. Over time, it takes just a few winners to make miracles happen. And yes, start early and live into your 90s.” also helps,” he wrote.
Berkshire reported a profit of $18.2 billion in the fourth quarter of 2022, down more than 50% year-on-year. For the full year, it turned from her $89.8 billion profit in 2021 to a net loss of $22.8 billion.
But those numbers were dramatically impacted by the decline in the price of Berkshire’s $309 billion equity portfolio. This fell at the same time as a widespread sell-off in financial markets. Accounting regulations require Berkshire to report unrealized gains and losses on a quarterly basis.
Buffett says the metric is “100% misleading, whether you look at it quarterly or yearly.”
The company’s underlying business, which includes the BNSF railroad and the Dairy Queen ice cream provider, generated $6.7 billion in profit in the last three months of the year, down 8% year-on-year.
Buffett said operating profit for the full year of $30.8 billion was a record for Berkshire.
The company’s cash pile ballooned from $109 billion in September to $128.6 billion at the end of the year.Berkshire in the final quarter Sold over $16 billion He has sold off stakes in chip maker Taiwan Semiconductor Manufacturing Co., regional bank US Bancorp and Bank of New York Mellon.
Buffett was looking elsewhere for Berkshire’s cash, even though he didn’t add any new stocks to his portfolio in the final quarter. Earlier this year, he bought oil giant Occidental’s stake in Petroleum and Chevron for tens of billions of dollars, and in the fourth quarter Berkshire bought a rival insurance company. Allegany It was completed.
The company said on Saturday it bought a 41.4% stake in truck stop chain Pilot Flying J for $8.2 billion in January, giving it a majority stake in the business.Berkshire first bought interest He joined the company in 2017, but did not disclose the financial details of the transaction until this weekend.
Its annual report also shows that Berkshire has increased capital spending in both the energy and rail sectors.
But given Berkshire’s enormous business empire with more than 380,000 employees, the report gives further indications of the heterogeneity of the US economy.
The company said its apparel business, which includes its Fruit of the Loom brand, is shrinking as retailers struggle with rising inventories and slowing sales. “The fourth quarter saw a slowdown in new orders across almost all regions,” said TTI, which sells electronic components.
Rising interest rates have hit Berkshire’s buildings and construction sector hard. Clayton Homes, a maker of modular homes, said it expects new home sales to continue to struggle as its backlog of orders has fallen sharply.
And one of Berkshire’s crown jewels, Geico Motor Insurance, suffered its sixth consecutive quarter of underwriting losses. Berkshire has said it has received support from some US states to raise the premiums it charges its customers.
“As a result, we now expect Geico to generate an underwriting profit in 2023,” Berkshire said.
