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Feb. 27, 2021, 4:10 p.m. EST

Warren Buffett again encourages investors to bet on America, defends stock buyback

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By Associated Press

Billionaire Warren Buffett encouraged investors to maintain their faith in America’s economy and the businesses his Berkshire Hathaway conglomerate owns in a reassuring letter to his shareholders Saturday.

Buffett was speaking after Berkshire Hathaway Inc /zigman2/quotes/208872451/composite BRK.A +1.10% /zigman2/quotes/200060694/composite BRK.B +1.10% reported fourth-quarter profits rose on the back of a soaring stock market. Berkshire’s net earnings rose to $35.8 billion, or $23,015 a Class A share equivalent, up almost 23% from the year before’s profit of $29.2 billion, or $17,909 a share.

Buffett hardly even addressed the coronavirus pandemic that ravaged many businesses last year, instead focusing on the long-term prospects for the railroad, utility and insurance businesses and stocks that Berkshire Hathaway owns.

See: Warren Buffett admits ‘mistake’ cost Berkshire Hathaway $11 billion

But he said U.S. business will thrive over time in spite of the pandemic.“In its brief 232 years of existence, however, there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking,” Buffett wrote.

The long-time Democrat also expressed faith in the political future of the country shortly after Democrat Joe Biden took over as president.

“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.”

The letter Buffett issues each year is always well read in the business world because of his remarkably successful track record and his knack for explaining complicated subjects in simple terms.

Along with offering business lessons, the 90-year-old Buffett reassured his stockholders that he has no plans to retire by joking about one of Berkshire’s longest-serving managers retiring at the “ridiculously premature retirement age” of 103.

Berkshire runs a large insurance operation as well as railroad holdings, utilities, industrial manufacturers, retailers and even auto dealerships. It also holds large investments, especially in the stock market.

An accounting-rule change in recent years has meant that Berkshire’s earnings often reflect the larger performance of the stock market.

Operating earnings, which exclude some investment results, rose to $5 billion from $4.4 billion the year prior. Buffett has said operating earnings better reflect Berkshire’s performance than net earnings that incorporate unrealized investment gains or losses.

While Berkshire has made some smaller investments over the last year—most recently  investing $8.6 billion  in Verizon Communications Inc. and $4.1 billion in Chevron Corp.—the investments haven’t made a large dent in the conglomerate’s available cash. And Berkshire hasn’t bought a majority stake in a major business.

Berkshire’s available cash and short-term Treasury bonds were $138.3 billion in the fourth quarter. Investors have been watching for over a year to see if Buffett would buy a significant stake in a large company as he has in other turbulent times in the U.S. economy.

One area Berkshire has been active with its large cash pile is in buying back shares of the company. For the year, Berkshire bought back nearly $25 billion in shares, according to the company’s earnings report. Before the last few years, Mr. Buffett had refused to buy back any Berkshire stock.

In Mr. Buffett’s annual letter to shareholders, he defended the larger-than-usual buybacks, saying they enhance the intrinsic value for shareholders but still leave Berkshire ample funds for any opportunities. 

Despite the rising profit, Berkshire’s stock performance fell short of the broader market for a second year running. The S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.36% increased by 16.3% for the year ended Dec. 31 while Berkshire’s stock increased 2.4%. Berkshire’s stock also lagged behind the index in 2019.

See also: Charlie Munger says it’s ‘really stupid to have a culture which encourages [so] much gambling in stocks’

Berkshire’s annual meeting in May won’t be held as normal in Omaha. Instead, it will be held in Los Angeles, where investors will be able to ask questions of him, as well as Vice Chairmen Charlie Munger, Ajit Jain and Greg Abel. Last year, thanks to the pandemic, Buffett’s 97-year-old business partner, Mr. Munger, wasn’t able to attend.

The Wall Street Journal also contributed to this story.

$ 409,250
+4,461 +1.10%
Volume: 3,017
April 16, 2021 4:02p
P/E Ratio
Dividend Yield
Market Cap
$618.28 billion
Rev. per Employee
$ 272.11
+2.97 +1.10%
Volume: 4.71M
April 16, 2021 4:02p
P/E Ratio
Dividend Yield
Market Cap
$618.28 billion
Rev. per Employee
+15.05 +0.36%
Volume: 2.21B
April 16, 2021 5:15p

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