Warren Buffett uses his annual letter to warn about Wall

Warren Buffett uses his annual letter to warn about Wall Street and report on Berkshire's successes

OMAHA, Neb. (AP) — Warren Buffett credited his longtime partner — the late Charlie Munger — as the architect of the Berkshire Hathaway conglomerate he was honored for leading, and warned shareholders in his annual letter Saturday not to Wall Street hears experts or financial advisors urging them to trade frequently.

Buffett said he always wrote his letter with smart, long-term investors like his sister Bertie in mind and tried to tell them what he thought they would know about Berkshire.

“She is sensible – very sensible – and knows instinctively that experts should always be ignored,” Buffett wrote of Bertie. “Because if it could reliably predict tomorrow’s winners, would it freely share its valuable insights and thereby increase purchasing competition? It would be like finding gold and then giving your neighbors a map showing its location.”

Buffett told investors that Berkshire was a safe place to put their money as long as they didn't expect its past “stunning performance” because there were no attractively priced takeover targets big enough to make a meaningful difference in the industry to effect results of the Omaha, Nebraska-based company. But he said Berkshire would be ready to step in with its $167.6 billion whenever the casino-like stock market collapses.

Investor Cole Smead of Smead Capital Management said Buffett was reassuring investors that “we will be ready to buy things when things finally become sensible,” while warning about the dangers of Wall Street, which is “like a thief and will sell you what they can sell you.

Munger, Buffett's longtime investing partner, died in November at age 99 — taking away one of the key sounding boards that Buffett had relied on over the decades as Berkshire acquired companies like See's Candy, Geico Insurance, BNSF Railroad and others, to revamp the failing textile mill they had founded, in the 1960s they took over the huge, diverse conglomerate that Berkshire is today.

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Last year, Buffett devoted part of his annual letter to Berkshire shareholders to a tribute to Munger, but this year's version began with even more praise for the revered miser's contributions to Berkshire over the years. Buffett said, “Charlie was the 'architect' of today's Berkshire,” recognizing early on that it was better to buy wonderful companies at fair prices.

“Charlie never attempted to take credit for his role as creator, but instead let me do the bows and accept the awards,” Buffett wrote. “In a way, his relationship with me was part older brother, part loving father. Even when he knew he was right, he gave me the reins, and when I made a mistake, he never – ever – reminded me of my mistake.”

Munger's death was another reminder that Berkshire will one day have to move forward without the 93-year-old Buffett at the helm.

Berkshire has laid out a succession plan, saying vice chairman Greg Abel will one day replace Buffett as CEO, while the company's other two investment managers will take over the stock portfolio. Abel has already overseen all of Berkshire's many non-insurance businesses since 2018, and managers at those companies say investors shouldn't worry about Abel's ability to run the company. Berkshire lets its companies run most of their day-to-day operations themselves, while its headquarters decides where all the money generated is invested.

Buffett told investors in his letter that Abel “is fully prepared to become CEO of Berkshire tomorrow.”

Jim Shanahan, an analyst at Edward Jones, found this comment about Abel comforting, but the question is whether he will be willing to take advantage of a big opportunity if there is a financial panic because Abel might fear that his first big investment will be a could be a dud.

“I have no doubt. Given his operational background, he can step in and run Berkshire today, but I don't know if he's willing to commit a large amount of capital,” Shanahan said.

Cathy Seifert, an analyst at CFRA Research, said Berkshire has “really strong, stable second- and third-tier managers” who don't get much attention, but investors understandably want more from Abel and his vice chairman Ajit Jain, who runs the insurer , hear companies. Maybe that will happen at this year's shareholders meeting in May.

Buffett also recounted how Berkshire's insurance businesses thrived last year, but major utilities and the BNSF railroad disappointed. He also told shareholders that he never plans to sell his stakes in nearly 30% of Occidental Petroleum and 9% of five major Japanese trading houses, but reiterated that he has no plans to buy the oil producer outright.

Berkshire's diverse business mix and the strong performance of its investments led to a fourth-quarter profit of $37.57 billion, or $26,043 per Class A share. That's more than double the profit of $18.08 billion, or $12,355 per Class A share, that Berkshire reported a year earlier.

But Buffett warned that investors should largely ignore these numbers because they are so heavily influenced by the paper value of their investments. Instead, he has long urged investors to pay attention to Berkshire's operating results, which preclude investments.

By that metric, Berkshire reported a 28% increase in operating income to $8.48 billion, or $5,878.21 per Class A share. That's an increase of $6.63 billion, or $4,527.06 per Class A share.

The three analysts surveyed by FactSet Research forecast Berkshire would report quarterly operating profit of $5,717.17 per Class A share.

Berkshire's stock set a series of records in recent weeks, most recently hitting a high of $632,820 per Class A share on Friday morning, as investors eagerly awaited Buffett's letter. Buffett is revered for his remarkably successful track record and the sage advice he has given over the decades. His annual letter is always one of the most widely read reports in the business world.

Berkshire also spent $2.2 billion buying back its own shares in the fourth quarter, bringing its full-year total to $9.2 billion.

But Berkshire's cash continues to pile up at record levels because Buffett can't find large investments at reasonable prices.

One of the biggest acquisitions Berkshire has made recently was buying the final 20% of the Pilot truck stop business that it had not yet acquired in a 2017 deal. But that deal with the Haslam family descended into chaos last year when both Berkshire and the Haslams accused each other of trying to manipulate Pilot's earnings to influence the price Berkshire had to pay.

The contentious litigation over that deal made headlines with allegations of bribery and other alleged wrongdoing before being settled in January. Berkshire last month completed its purchase of the country's largest truck stop operator for just $2.6 billion.

Buffett didn't comment directly on the deal, but perhaps hinted at it when he repeated the classic 1863 advice that urged all banks “never to do business with a scoundrel,” whose wisdom he said he imbued with had learned over the years.

“People aren’t that easy to read,” Buffett said. “Sincerity and empathy can easily be faked.” This is as true today as it was in 1863.”


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