Berkshire Hathaway CEO Warren Buffett, currently one of the 10 richest men in the world, discussed the mistakes he’s made during six decades in charge of his company and his outlook on the economy in the coming years as part of his annual letter to shareholders.
Why It Matters
Buffett, who is 94 years old and has a net worth of just over $150 billion, took control of Berkshire Hathaway in 1965 when the company primarily focused on textiles and was a sinking ship of an investment. The now-famous “Wizard of Omaha” spent years reversing those fortunes and turned the company into one of the best performers.
A single share of Class A Berkshire Hathaway stock costs $718,750 as of close of business on Friday, still ranking as the most expensive stock in the world—several times more expensive than its nearest competitor, Lindt & Sprüngli AG, which lists at $106,000 per share. A Class B share of Berkshire Hathaway costs $478,74.
Buffett has invested in a range of companies, such as Sirius XM, American Express, Kraft Heinz, Mitsubishi, Coca Cola, Visa, T-Mobile, Domino’s and more.
What To Know
Not too much changed from last year’s letter, including two major points that Buffett ruminates on: First, that the company largely has its insurance holdings to thank for a growing profile despite 53 percent of the 189 operating businesses in the company’s portfolio declining in earnings; and second, the company maintains an “extraordinary” cash position.
Berkshire holds around $325 billion in cash, a position that rose sharply after the COVID-19 pandemic. In 2020, Berkshire Hathaway peaked at around $146 billion in cash on hand, but as inflation ramped up, Buffett and his advisers expanded that holding.
However, Buffett stressed that “the great majority of your [investor] money remains in equities.”
“Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities – mostly American equities although many of these will have international operations of significance,” Buffett wrote. “Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.”
“Paper money can see its value evaporate if fiscal folly prevails. In some countries, this reckless practice has become habitual, and, in our country’s short history, the U.S. has come close to the edge,” he continued. “Fixed-coupon bonds provide no protection against runaway currency.”
“Businesses, as well as individuals with desired talents, however, will usually find a way to cope with monetary instability as long as their goods or services are desired by the country’s citizenry. So, too, with personal skills,” Buffett added. “Lacking such assets as athletic excellence, a wonderful voice, medical or legal skills or, for that matter, any special talents, I have had to rely on equities throughout my life. In effect, I have depended on the success of American businesses and I will continue to do so.”
Buffett also addressed a record payment made to the U.S. Treasury on corporate income tax, totaling $26.8 billion, which Buffett touted as making up around 5 percent of all taxes paid by corporate America. Berkshire Hathaway also paid “sizeable amounts for income taxes to foreign governments and to 44 states.”
The biggest difference that Buffett highlighted in his letter was the increase in foreign investment over the previous five years. Berkshire Hathaway invested in five Japanese companies, marking the first serious foreign investment the company has made.
“As the years have passed, our admiration for these companies has consistently grown,” Buffett wrote, adding that Berkshire Hathaway Energy chairman Greg Abel—Buffett’s handpicked successor—”has met many times with them, and I regularly follow their progress. Both of us like their capital deployment, their managements and their attitude in respect to their investors.”
Buffett added: “I expect that Greg and his eventual successors will be holding this Japanese position for many decades and that Berkshire will find other ways to work productively with the five companies in the future.”
What Happens Next?
Berkshire Hathaway will hold its annual shareholders meeting in Omaha in May, during which Buffett and Berkshire Hathaway’s two vice chairmen will answer questions to shareholders—anyone who holds at least one share of Class A or Class B stock.
The company also sells products from its various holdings as a way to show shareholders where their money is going.
The post Why Is Warren Buffett Hoarding So Much Cash? Investor Shares Annual Letter appeared first on Newsweek.
