Buffett: Do not listen to Wall Street

OMAHA, Nebraska: Warren Buffett warned shareholders of the Berkshire Hathaway conglomerate not to listen to Wall Street pundits or financial advisors who urge them to trade often.

In his annual letter on Saturday (Sunday in Manila), Buffett also credited his longtime partner — the late Charlie Munger — with being the architect of Berkshire Hathaway.

Buffett said he always writes his letter with smart, long-term investors like his sister Bertie in mind and tries to tell them what he thinks they’d like to know about Berkshire.

“She is sensible — very sensible — instinctively knowing that pundits should always be ignored,” Buffett wrote about Bertie. “After all, if she could reliably predict tomorrow’s winners, would she freely share her valuable insights and thereby increase competitive buying? That would be like finding gold and then handing a map to the neighbors showing its location.”

Buffett told investors that Berkshire is a safe place to park their cash as long as they don’t expect the “eye-popping performance” of its past because there are no attractively priced acquisition targets out there big enough to make a meaningful difference in the Omaha, Nebraska-based company’s results. But he said Berkshire would be ready to swoop in with its $167.6 billion whenever the casino-like stock market seizes up.

Investor Cole Smead of Smead Capital Management said Buffett is reassuring investors that “we’ll be ready to buy things when things finally get rational” while warning about the dangers of Wall Street that “is like a denizen of thieves, and they’ll 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 Buffett relied on over the decades as Berkshire acquired companies like See’s Candy, Geico insurance, BNSF railroad and others to reshape the failing textile mill they took over in the 1960s into the massive eclectic conglomerate Berkshire is today.

Buffett already devoted part of last year’s annual letter to Berkshire shareholders to a tribute to Munger, but this year’s version led off with even more praise for the revered curmudgeon’s contributions to Berkshire over the years. Buffett said, “Charlie was the ‘architect’ of the present Berkshire,” who realized early on that it was better to buy wonderful businesses at fair prices.

“Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades,” 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 blundered he never — never — reminded me of my mistake.”

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

Succession plan

Berkshire has established a succession plan and said that Vice Chairman Greg Abel will one day replace Buffett as chief executive officer (CEO) while the company’s two other investment managers will take over the stock portfolio. Abel has already overseen all of Berkshire’s many noninsurance businesses since 2018, and managers at those companies say investors shouldn’t worry about Abel’s ability to lead the company. To a great extent, Berkshire lets its companies run themselves on a day-to-day basis while headquarters decides where to invest all the cash they generate.

Buffett told investors in his letter that Abel “in all respects is ready to be CEO of Berkshire tomorrow.”

Edward Jones analyst Jim Shanahan found that comment about Abel comforting, but the question is whether he’ll be ready to take advantage of a big opportunity when there is a financial panic because Abel might be afraid that his first big investment would be a dud.

“I have no doubt, given his operational background, that he can step in and run Berkshire today, but I don’t know if he’s ready to commit a huge amount of capital,” Shanahan said.

CFRA Research analyst Cathy Seifert said Berkshire does have “really strong, stable, second and third tier level managers” who don’t get much attention, but investors understandably want to hear more from Abel and fellow Vice Chairman Ajit Jain, who runs the insurance businesses. Maybe that will happen at this year’s shareholder meeting in May.

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

Berkshire’s eclectic mix of businesses, combined with the strong performance of its investments, delivered a profit of $37.57 billion, or $26,043 per Class A share, in the fourth quarter. That’s more than double the $18.08 billion profit, or $12,355 per Class A share, that Berkshire reported a year earlier.

But Buffett cautioned that investors should largely ignore those bottom line figures because they are swayed so much by the paper value of their investments. Instead, he has long urged investors to pay attention to Berkshire’s operating earnings that exclude investments.