Buffett regrets the lack of quality investments even as Berkshire Records profits

Feb 26 (Reuters) – Warren Buffett hinted Saturday that he’ll stick with his knitting, bemoaning the lack of good investment opportunities for Berkshire Hathaway. (BRKa.N) Since he is sitting on a huge pile of cash even after buying back a huge amount of his shares.

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

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

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Noting the risks of changes in global politics, terrorism and cyber attacks, Berkshire remains cautious.

Liquidity ballooned to nearly $146.7 billion, even after Berkshire repurchased $51.7 billion of its stock in 2020 and 2021.

Buffett also said that “we find very little that excites us” in the stock market, and that major acquisitions are still elusive after six years with nothing.

“Today, internal opportunities provide much better returns than acquisitions,” he wrote.

Many of these opportunities appeared to be paying off in 2021.

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

Full-year net income doubled to a record $89.8 billion, boosted by gains from Buffett’s investment in Apple Inc. (AAPL.O)Bank of America Corp (BAC.N)American Express (AXP.N) and other stocks in Berkshire’s extensive portfolio.

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“It provides a story for a multifaceted growth engine,” said Tom Russo, partner at Gardner, Russo & Quinn in Lancaster, Pennsylvania, a longtime investor in Berkshire. “The key message is that Berkshire has found some great work, so let’s celebrate it.”

Apple’s stake alone totaled $161.2 billion as of December 31, more than five times what Berkshire paid for $31.1 billion. Buffett described Apple’s Tim Cook as a “brilliant” CEO.

Share buybacks totaled $27 billion in 2021 but slowed in 2022, totaling $1.2 billion so far. Berkshire’s stock price is down 2% from its all-time high.

Jim Shanahan, analyst at Edward Jones & Co

four giants

In his letter, Buffett promoted what he called the “Four Berkshire Giants” including massive insurance operations, BNSF, Berkshire Hathaway Energy and a stake in Apple.

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

He also said Berkshire favors an “old-fashioned kind of dividend,” including last year’s $6 billion in BNSF rail line, casting a shadow over companies that may manipulate their results to boost their stock prices.

Buffett wrote that earnings deceptive “adjustments”—to use a polite description—became more frequent and more fanciful as stocks went up.” “Speaking in a less polite way, I would say bull markets breed a bloated bull….”

Buffett said Berkshire’s huge cash share was “not a muddled expression of patriotism”, but rather a shield against losses in large insurance operations, including major catastrophe insurers.

Buffett said Uncle Sam is already benefiting from the scale of Berkshire, collecting $3.3 billion in income tax from the company in 2021 out of the total $402 billion in total corporate income tax revenue received by the U.S. Treasury.

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Buffett also pledged to keep more than $30 billion in cash on hand, having long said $20 billion was the bare minimum. That still leaves plenty available for proper acquisition.

“They’re having a tough time[making acquisitions]given the churn in the market and the difficulty of competing with private equity firms and SPACs,” CFRA Research analyst Kathy Seifert said, referring to the special purpose buyout firms.

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

Abel, 59, would become Berkshire’s CEO if Buffett could not continue. Portfolio managers Todd Combs and Ted Wechsler, 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’s ice cream, See’s candy, and several manufacturing businesses.

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

“Woodstock for capitalists,” as Buffett calls the weekend, attracts about 40,000 people for shopping, dining, 5km runs and other events.

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

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(Jonathan Stemple reports) in New York. Editing by Megan Davis, Diane Kraft and Cynthia Osterman

Our criteria: Thomson Reuters Trust Principles.

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