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Buffett upbeat on US, Berkshire; buys back stock even as Covid hits results

Buffett also signaled a long-term commitment to Apple Inc

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Warren Buffet | Berkshire Hathaway | US economy

Jonathan Stempel | Reuters 

Warren Buffett
Warren Buffett, CEO of Berkshire Hathaway

Not even the coronavirus pandemic could dampen Warren Buffett's enthusiasm for the future of America and his company Inc.

Buffett used his annual letter to investors to assure he and his successors would be careful stewards of their money, where "the passage of time, an inner calm, ample diversification and a minimization of transactions and fees" would serve them well.

He also retained his trademark optimism for Berkshire, buying back a record $24.7 billion of its stock in 2020 in a sign he considers it undervalued, and the economy's capacity to endure "severe interruptions" and enjoy "breathtaking" progress.

"Our unwavering conclusion: Never bet against America," he said. ((https://www.berkshirehathaway.com/letters/2020ltr.pdf))

The letter breaks an uncharacteristic silence for the 90-year-old Buffett, who has been almost completely invisible to the public since Berkshire's annual meeting last May.

"He's a deep believer in his company and the country," said Tom Russo, a partner at Gardner, Russo & Gardner in Lancaster, Pennsylvania and longtime Berkshire investor.

But Buffett's letter also 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, or the recent social upheaval and divisive politics that some now address more directly.

"The letter highlighted the innovation and values that have become the backbone of America, and that's perfectly acceptable," said Cathy Seifert, an analyst at CFRA Research with a "hold" rating on Berkshire.

"Given the reverence that investors have for him, the letter was striking for what it omitted," she added. "A new generation of investors demands a degree of social awareness, and that like Berkshire set out their beliefs, standards and goals."

Buffett also signaled a long-term commitment to Apple Inc, calling Berkshire's $120.4 billion stake and its ownership of the BNSF railroad its most valuable assets - "it's pretty much a toss-up" - after its insurance operations.

PROFIT RISES EVEN AS JOBS ARE LOST

Berkshire on Saturday also reported net income of $35.84 billion in the fourth quarter, and $42.52 billion for the year, both reflecting large gains in its stock holdings.

Operating income, which Buffett considers a more accurate measure of performance, fell 9% for the year to $21.92 billion.

The stock buybacks have continued in 2021, with Berkshire repurchasing more than $4 billion of its own stock. It ended 2020 with $138.3 billion of cash.

Berkshire has more than 90 operating units including the BNSF railroad, Geico car insurer, Dairy Queen ice cream, See's candies, and namesake energy and real estate brokerage businesses.

Its workforce declined 8% from a year earlier to about 360,000 employees. Bigger drops were reported at BNSF, which shed 5,600 jobs, and See's, where employment fell 16%.

The pandemic hit no Berkshire business harder than Precision Castparts Corp, which shed 13,473, or 40%, of its jobs.

Berkshire bought the aircraft and industrial parts maker in 2016 for $32.1 billion, Buffett's largest acquisition, and took a $9.8 billion writedown as the pandemic decimated travel and punished Precision's aerospace customers.

"I paid too much for the company," Buffett wrote. "I was simply too optimistic about PCC's normalized profit potential.

"PCC is far from my first error of that sort," he said. "But it's a big one."

Berkshire said some businesses are beginning to recover form the pandemic.

"Certainly 2021 is going to be a much stronger year, dependent upon the speed of vaccinations and the opening of the U.S. economy," said Jim Shanahan, an analyst at Edward Jones & Co with a "buy" rating on Berkshire.

Buffett also said Berkshire's annual meeting will be held in Los Angeles rather than Omaha, allowing 97-year-old Vice Chairman Charlie Munger, a Californian, to rejoin him when answering about 3-1/2 hours of shareholder questions.

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.

 

(Reporting by Jonathan Stempel in New York; editing by Megan Davies and Marguerita Choy)

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First Published: Sat, February 27 2021. 23:17 IST
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