SAT, FEB 25, 2023
WARREN BUFFETT WATCH
Special Shareholder Letter Edition
Buffett slips a swipe at Democrats into a shareholder letter that mostly sticks to favorite themes
Warren Buffett's annual letter to shareholders, released this morning, almost entirely covers familiar territory, including:
Appreciation for individual shareholders who often donate much of their wealth to charities: "Charlie [Munger] and I watch with pleasure the vast flow of Berkshire-generated funds to public needs and, alongside, the infrequency with which our shareholders opt for look-at-me assets and dynasty-building."
The outsize impact over time of a few well-chosen investments: "The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well."
And the benefits to Berkshire of what he calls the American Tailwind: "America would have done fine without Berkshire. The reverse is not true."
There is no commentary on rising interest rates or the possibility of a recession, with Buffett writing, in the context of pleading "ignorance" on the potential consequences of America's budget deficits, that he and Charlie Munger "firmly believe that near-term economic and market forecasts are worse than useless."
He does then go on to say, however, that Berkshire does offer some "modest protection against runaway inflation, but this attribute is far from perfect" and that "huge and entrenched fiscal deficits have consequences."
Defending buybacks, but only at the right price
Buffett has often written about the benefits of corporate stock buybacks, but only when the company is not overpaying for its shares, in which case the "continuing shareholders lose."
"At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases."
In today's letter, however, he goes on to sharply criticize the critics of buybacks who do not make the distinction.
He doesn't name any names, but Democratic Senators Chuck Schumer and Bernie Sanders call buybacks "corporate self-indulgence" that have "become an enormous problem for workers and for the long-term strength of the economy."
They are proposing legislation to "prohibit a corporation from buying back its own stock unless it invests in workers and communities first."
And in his State of the Union address this month, President Biden proposed to increase the existing 1% buyback tax to 4%.
Even at least one Republican, Florida Senator Mario Rubio, prefers corporate reinvestment over buybacks.
Buffett uses some strong language:
"When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive)."
Buffett reports there was a "very minor" gain in Berkshire's per-share intrinsic value last year due to its own buybacks, and those at Apple and American Express, two of the larger positions in its stock portfolio.
In its annual report, also released today, Berkshire reveals it paid $2.6 billion to purchase shares of its stock during the fourth quarter, bringing the year's total to around $7.9 billion.
As usual, Buffett reveals no clues about when there may be a new CEO at Berkshire, but he does make clear that "our future CEOs will have a significant part of their net worth in Berkshire shares, bought with their own money."
In October, Greg Abel, the Berkshire vice-chairman who has been designated to eventually become Berkshire Hathaway's CEO, disclosed that he had purchased Class A shares then worth $68 million.
Buffett also indicates that he expects Berkshire will continue to not pay dividends, a sore point for some shareholders, even when he is not in charge.
"And yes, our shareholders will continue to save and prosper by retaining earnings. At Berkshire, there will be no finish line."
"Berkshire had a good year in 2022"
"Nothing beats having a great partner"
And after a bulleted list of 15 Charlie Mungerisms, Buffett has this advice: "Find a very smart high-grade partner– preferably slightly older than you– and then listen very carefully to what he says."
BUFFETT AROUND THE INTERNET
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Please send any questions or comments about the newsletter to me at firstname.lastname@example.org. (Sorry, but we don't forward questions or comments to Buffett himself.)
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Also, Buffett's annual letters to shareholders are highly-recommended reading. There are collected here on Berkshire's website.
-- Alex Crippen, Editor, Warren Buffett Watch