Highlights from Warren Buffett's annual letter: America, Apple and dissing bonds

Published Sat, Feb 27 20219:26 AM ESTUpdated Sat, Feb 27 20219:53 AM EST

Warren Buffett released the most widely anticipated shareholder letter of the year on Saturday. In his annual remarks, the 90-year-old Buffett detailed how his Berkshire Hathaway performed throughout 2020, a year roiled by a pandemic, a recession and the 2020 presidential elections. The top highlights of the 15-page letter are below: Published each year for decades, the chairman and CEO of Berkshire Hathaway urged stakeholders to invest in the United States as one of the best source of ingenuity on the planet and not to discount the powerful impact stock buybacks can have for long-term profit. He also advised anyone hoping for a competitive rate of return to steer clear of bonds. The "Oracle of Omaha," known for his folksy quips, also brushed off the appeal of Wall-Street types and institutional investors among Berkshire's investor pool. "Berkshire's unusual and valued family of individual shareholders may add to your understanding of our reluctance to court Wall Street analysts and institutional investors. We already have the investors we want and don't think that they, on balance, would be upgraded by replacements," Buffett wrote. "Of course, some turnover in 'partners' will occur. Charlie and I hope, however, that it will be minimal," he added. "Who, after all, seeks rapid turnover in friends, neighbors or marriage?" 'Never bet against America' "In its brief 232 years of existence ... there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country's economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming 'a more perfect union.' Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so. Our unwavering conclusion: Never bet against America." Buffett added that Berkshire owns the biggest amount of U.S. assets (property, plant and equipment) by value than any other company in the country. "Recently, I learned a fact about our company that I had never suspected: Berkshire owns American-based property, plant and equipment – the sort of assets that make up the "business infrastructure" of our country – with a GAAP valuation exceeding the amount owned by any other U.S. company. Berkshire's depreciated cost of these domestic 'fixed assets' is $154 billion. Next in line on this list is AT & T, with property, plant and equipment of $127 billion." Review of BNSF Railway "Your railroad carries about 15% of all non-local ton-miles (a ton of freight moved one mile) of goods that move in the United States, whether by rail, truck, pipeline, barge or aircraft. By a significant margin, BNSF's loads top those of any other carrier. The history of American railroads is fascinating. After 150 years or so of frenzied construction, skullduggery, overbuilding, bankruptcies, reorganizations and mergers, the railroad industry finally emerged a few decades ago as mature and rationalized." Berkshire annual meeting to be held in Los Angeles on May 1 "And now – drum roll, please – a surprise. This year our meeting will be held in Los Angeles . . . and Charlie will be on stage with me offering answers and observations throughout the 31⁄2-hour question period. I missed him last year and, more important, you clearly missed him. Our other invaluable vice-chairmen, Ajit Jain and Greg Abel, will be with us to answer questions relating to their domains." Stay away from bonds "Bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future." Conglomerate concerns? "Berkshire is often labeled a conglomerate, a negative term applied to holding companies that own a hodge-podge of unrelated businesses. And, yes, that describes Berkshire – but only in part. Over time, conglomerates have generally limited themselves to buying businesses in their entirety. That strategy, however, came with two major problems. One was unsolvable: Most of the truly great businesses had no interest in having anyone take them over. ... Beyond that, as conglomerateurs dipped into this universe of mediocre businesses, they often found themselves required to pay staggering 'control' premiums to snare their quarry. ... Eventually, of course, the party ends, and many business 'emperors' are found to have no clothes. Financial history is replete with the names of famous conglomerateurs who were initially lionized as business geniuses by journalists, analysts and investment bankers, but whose creations ended up as business junkyards." If a monkey threw a dart... "The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes. They will find CEOs and market gurus with enticing ideas. If they want price targets, managed earnings and 'stories,' they will not lack suitors. ... Many of those investors, I should add, will do quite well. After all, ownership of stocks is very much a 'positive-sum' game. Indeed, a patient and level-headed monkey, who constructs a portfolio by throwing 50 darts at a board listing all of the S & P 500, will – over time – enjoy dividends and capital gains, just as long as it never gets tempted to make changes in its original 'selections.'" Content with Berkshire's current investors "Berkshire's unusual and valued family of individual shareholders may add to your understanding of our reluctance to court Wall Street analysts and institutional investors. We already have the investors we want and don't think that they, on balance, would be upgraded by replacements. ... Of course, some turnover in 'partners' will occur. Charlie and I hope, however, that it will be minimal. Who, after all, seeks rapid turnover in friends, neighbors or marriage?" Championing middle America "Success stories abound throughout America. Since our country's birth, individuals with an idea, ambition and often just a pittance of capital have succeeded beyond their dreams by creating something new or by improving the customer's experience with something old. ... Today, with much of finance, media, government and tech located in coastal areas, it's easy to overlook the many miracles occurring in middle America." Buying back Berkshire "Last year we demonstrated our enthusiasm for Berkshire's spread of properties by repurchasing the equivalent of 80,998 "A" shares, spending $24.7 billion in the process. That action increased your ownership in all of Berkshire's businesses by 5.2% without requiring you to so much as touch your wallet. ... In no way do we think that Berkshire shares should be repurchased at simply any price. I emphasize that point because American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked." Apple stake continues to pay off "Berkshire's investment in Apple vividly illustrates the power of repurchases. We began buying Apple stock late in 2016 and by early July 2018, owned slightly more than one billion Apple shares (split-adjusted). ... When we finished our purchases in mid-2018, Berkshire's general account owned 5.2% of Apple. Our cost for that stake was $36 billion. Since then, we have both enjoyed regular dividends, averaging about $775 million annually, and have also – in 2020 – pocketed an additional $11 billion by selling a small portion of our position. Despite that sale – voila! – Berkshire now owns 5.4% of Apple. That increase was costless to us, coming about because Apple has continuously repurchased its shares." Jokes about Berkshire ownership and longevity One early individual investor in Berkshire was "Stan Truhlsen, a cheerful and generous Omaha ophthalmologist as well as personal friend, who turned 100 on November 13, 2020. In 1959, Stan, along with 10 other young Omaha doctors, formed a partnership with me. ... When our partnership distributed its Berkshire shares in 1969, all of the doctors kept the stock they received. They may not have known the ins and outs of investing or accounting, but they did know that at Berkshire they would be treated as partners. ... Two of Stan's comrades ... are now in their high-90s and continue to hold Berkshire shares. This group's startling durability – along with the fact that Charlie and I are 97 and 90, respectively – serves up an interesting question: Could it be that Berkshire ownership fosters longevity?"

Warren Buffett

David A. Grogan | CNBC

Warren Buffett released the most widely anticipated shareholder letter of the year on Saturday.

In his annual remarks, the 90-year-old Buffett detailed how his Berkshire Hathaway performed throughout 2020, a year roiled by a pandemic, a recession and the 2020 presidential elections.

The top highlights of the 15-page letter are below: