Buf­fett an­nual let­ter rosier this year, less about pol­i­tics

Northwest Arkansas Democrat-Gazette - - NATIONAL - JOSH FUNK

OMAHA, Neb. — Bil­lion­aire War­ren Buf­fett used his an­nual let­ter to Berk­shire Hath­away share­hold­ers to re­it­er­ate his wari­ness of high Wall Street fees and his pos­i­tive out­look for the U.S. econ­omy.

He re-em­pha­sized points he’s made in the past, such as his ad­vice to avoid such Wall Street fees by in­vest­ing in low­cost in­dex funds. And he again praised the coun­try’s mar­ket sys­tem for its abil­ity to al­low Amer­i­cans to con­tinue build­ing “mind-bog­gling amounts” of wealth over time.

Un­like last year’s let­ter, when the long­time Demo­crat and Hil­lary Clin­ton sup­porter took the op­por­tu­nity to say he thought the coun­try was in much bet­ter shape than some pres­i­den­tial can­di­dates made it sound, Buf­fett mostly steered clear of pol­i­tics this year.

“I’ll re­peat what I’ve both said in the past and ex­pect to say in fu­ture years: Ba­bies born in Amer­ica to­day are the luck­i­est crop in his­tory,” wrote Buf­fett, who has said he thinks the econ­omy will be OK un­der Pres­i­dent Don­ald Trump.

With­out men­tion­ing Trump’s im­mi­gra­tion poli­cies, Buf­fett noted that “a tide of ta­lented and am­bi­tious im­mi­grants” played a sig­nif­i­cant role in the coun­try’s pros­per­ity.

Buf­fett plans to also make a three-hour tele­vi­sion ap­pear­ance Mon­day on CNBC.

In­vest­ment man­ager Cole Smead said he thought that Buf­fett spent too much of the let­ter ex­tolling Berk­shire’s virtues in­stead of talk­ing about how he’ll ap­proach in­vest­ing the com­pany’s $86 bil­lion cash or what went wrong with the failed $143 bil­lion bid for Unilever that Berk­shire took part in with 3G Cap­i­tal.

Smead said the 86-year-old Buf­fett and his in­vest­ing part­ner, 93-year-old Char­lie Munger, seem con­cerned about their lega­cies and how Berk­shire is per­ceived.

“This let­ter was more about War­ren and Char­lie’s epi­taph even more so than prior let­ters,” said Smead, who is with Seat­tle-based Smead Cap­i­tal Man­age­ment.

Buf­fett used the let­ter to again ex­plain the ad­van­tages of low-cost in­dex funds. He said he es­ti­mates that wealthy in­vestors who use high-priced ad­vis­ers have wasted over $100 bil­lion over the past decade.

“The bot­tom line: When tril­lions of dol­lars are man­aged by Wall Streeters charg­ing high fees, it will usu­ally be the man­agers who reap out­sized prof­its, not the clients,” Buf­fett wrote. “Both large and small in­vestors should stick with low-cost in­dex funds.”

To prove his point, Buf­fett re­counted the first nine years of a 10-year bet he made in 2008 that an S&P 500 in­dex fund would out­per­form a col­lec­tion of hedge funds that the money man­agers who own Pro­tege Part­ners LLC picked. Both sides picked a char­ity that would get at least $1 mil­lion.

Buf­fett’s cho­sen in­dex fund has recorded an 85.4 per­cent gain over that time while the hedge funds de­liv­ered an av­er­age of 22 per­cent.

Buf­fett de­voted most of his let­ter to de­scrib­ing the evo­lu­tion of Berk­shire and the per­for­mance of the Omaha, Neb.based com­pany last year. His an­nual let­ters are al­ways well­read be­cause of his suc­cess­ful track record and his knack for ex­plain­ing com­pli­cated sub­jects in sim­ple terms.

In­vestor Andy Kilpatrick, who wrote Of Per­ma­nent Value: The Story of War­ren Buf­fett, said he wishes Buf­fett had gone into more de­tail about how in­di­vid­ual Berk­shire busi­nesses per­formed, but over­all he thought it was a good let­ter.

Berk­shire has come to rely in­creas­ingly on ac­quir­ing en­tire op­er­at­ing busi­nesses in­stead of the firm’s stock port­fo­lio, which in­cludes ma­jor stakes in Coca-Cola, Wells Fargo, and Ap­ple, among other com­pa­nies.

Berk­shire al­ready owns more than 90 sub­sidiaries, in­clud­ing Ge­ico in­sur­ance, Berk­shire Hath­away En­ergy, BNSF rail­road, and cloth­ing, fur­ni­ture and jew­elry com­pa­nies.

Buf­fett said he will con­tinue look­ing for more ac­qui­si­tions with Berk­shire’s roughly $86 bil­lion in cash, but the com­pany’s size means it will be hard to match its pre­vi­ous re­sults.

Buf­fett said Satur­day that Berk­shire recorded a 10.7 per­cent in­crease in book value and a 23.4 per­cent gain in stock price in 2016. Over the past 52 years, Berk­shire’s book value — which is an es­ti­mate of its as­sets mi­nus li­a­bil­i­ties — im­proved 19 per­cent, and its stock price grew 20.8 per­cent in com­pounded an­nual gains.

Berk­shire’s fourth-quar­ter earn­ings re­port was re­leased with the let­ter. The com­pany said profit im­proved 15 per­cent, but most of the gains came from the pa­per value of its in­vest­ments and de­riv­a­tives con­tracts.

An­a­lysts sur­veyed by Fac­tSet ex­pected earn­ings per Class B share of $1.82, ex­clud­ing in­vest­ments and de­riv­a­tives from their es­ti­mates. Berk­shire said those op­er­at­ing earn­ings to­taled $1.78 per Class B share.

Berk­shire gen­er­ated $58.3 bil­lion in rev­enue in the quar­ter, up from $51.7 bil­lion a year ear­lier.

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