Buffett: Good deals are tough to find
OMAHA, NEB. » Investor Warren Buffett says Wall Street’s lust for deals has prompted CEOs to act like oversexed teenagers and overpay for acquisitions, so it has been hard to find deals for Berkshire Hathaway.
In his annual letter to shareholders Saturday, Buffett mixed investment advice with details of how Berkshire’s many businesses performed. Buffett blamed his recent acquisition drought on ambitious CEOs who have been encouraged to take on debt to finance pricey deals.
“If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life,” Buf- fett said.
Berkshire is also facing more competition for acquisitions from private equity firms and other companies such as privately held Koch Industries.
Buffett is sitting on $116 billion of cash and bonds because he’s struggled to find acquisitions at sensible prices. And Buffett is unwilling to load up on debt to finance deals at current prices.
“We will stick with our simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which wemust conduct our own,” Buffett wrote.
He said the conglomerate recorded a $29 billion paper gain because of the tax reforms Congress passed late last year. That helped it generate $44.9 billion profit last year, up from $24.1 billion the previous year.
Buffett’s letter is always well-read in the business world because of his remarkable track record over more than five decades and his talent for explaining complicated subjects in plain language. But this year’s letter left some investors wanting more because he didn’t say much about Berkshire’s succession plan, some noteworthy investment moves or the company’s new partnership with Amazon and JP Morgan Chase to reduce health care costs.
Edward Jones analyst Jim Shanahan said he expected Buffett to devote more of the letter to explaining his decision to promote and name the top two candidates to eventually succeed him as Berkshire’s CEO. Buffett briefly mentioned that move in two paragraphs at the very end of his letter.
That surprised John Fox, chief investment officer at FAM Funds, which holds Berkshire stock.
“He didn’t say a lot about succession. I was expecting more,” Fox said.
Greg Abel and Ajit Jain joined Berkshire’s board in January and took on additional responsibilities. Jain will now oversee all of the conglomerate’s insurance businesses while Abel will oversee all of the conglomerate’s non-insurance business operations.
Buffett, 87, has long had a succession plan in place for Berkshire to ensure the future of the conglomerate he built even though he has no plans to retire. Until January, he kept the names of Berkshire’s internal CEO candidates secret although investors who follow Berkshire had long included Jain and Abel on their short lists.