The im­por­tant omis­sions in Buf­fett’s an­nual let­ter to Berk­shire in­vestors

The Washington Post Sunday - - TAKING STOCK - Al­lan.sloan@wash­post.com

Lots of peo­ple have been giv­ing you their views about what War­ren Buf­fett had to say in his re­cent an­nual let­ter to Berk­shire Hath­away share­hold­ers.

What I’m go­ing to do, how­ever, is some­thing dif­fer­ent — talk with you about what Buf­fett didn’t say. Think of it as a mod­ern-day ver­sion of “Sil­ver Blaze,” the fa­mous Sher­lock Holmes story in­volv­ing the dog that didn’t bark.

In his let­ter, con­tain­ing his usual deft com­bi­na­tion of one-lin­ers (“what is smart at one price is stupid at an­other”), self­dep­re­ca­tion (“my er­ror caused Berk­shire share­hold­ers to give far more than they re­ceived”) and at­tacks on Wall Street greed­meis­ters, there was one thing con­spic­u­ously miss­ing. To wit: any se­ri­ous dis­cus­sion of Berk­shire’s two largest stock in­vest­ments — the Kraft Heinz food con­glom­er­ate and the Wells Fargo bank­ing gi­ant, whose com­bined $60 bil­lion value at year-end mat­ters even to a com­pany like Berk­shire, whose stock is worth more than $400 bil­lion.

In his 2015 let­ter, Buf­fett lav­ished praise on 3G Cap­i­tal, the Brazil­ian pri­vate-eq­uity crew that con­trols Kraft Heinz and that Berk­shire has backed with tens of bil­lions of dol­lars of cap­i­tal in var­i­ous deals. 3G’s spe­cialty is fir­ing thou­sands of peo­ple at the com­pa­nies it buys, which Buf­fett thought was just fine.

“Their method, at which they have been ex­traor­di­nar­ily suc­cess­ful,” he wrote, “is to buy com­pa­nies that of­fer an op­por­tu­nity for elim­i­nat­ing many un­nec­es­sary costs and then — very promptly — to make the moves that will get the job done.”

He also had nice things to say about the man­age­ment of Wells Fargo and man­agers of three other com­pa­nies in which Berk­shire holds ma­jor stakes: Coca-Cola, Amer­i­can Ex­press and IBM. “Th­ese four in­vestees pos­sess ex­cel­lent busi­nesses and are run by man­agers who are both tal­ented and share­holder-ori­ented,” he wrote.

This year, the only dis­cus­sion of Kraft Heinz in­volved ac­count­ing quirks. There was no dis­cus­sion what­ever of Wells Fargo. Given that Berk­shire’s 27 per­cent Kraft Heinz stake was worth $28.4 bil­lion and its 10 per­cent Wells stake was worth $27.6 bil­lion — and Buf­fett isn’t sub­ject to space lim­i­ta­tions in his share­holder let­ter — I found that si­lence strik­ing.

I sent an email to Buf­fett ask­ing for an ex­pla­na­tion. I didn’t hear back. Buf­fett, with whom I was friendly for decades, has de­clined to speak to me since I crit­i­cized his role fa­cil­i­tat­ing the 3G cor­po­rate de­ser­tion trans­ac­tion in which Flor­ida-based Burger King bought Tim Hor­tons of Oakville, On­tario, and be­came Cana­dian.

But I think it’s quite clear why Buf­fett didn’t dis­cuss Kraft Heinz or Wells. It’s cli­mate change. The so­cial cli­mate, that is.

Now that we’ve got a pres­i­dent elected with huge sup­port from ag­grieved work­ing-class vot­ers — the kind of peo­ple whose jobs van­ish when 3G ap­pears — it would be need­lessly provoca­tive for Saint War­ren to pub­licly sup­port fir­ing peo­ple.

And as for Wells Fargo — th­ese days, given its nu­mer­ous mis­steps, it feels like “Scan­dalRid­den” should be added to its name.

Look, in many ways, I’m a Buf­fett fan. I own a sub­stan­tial (by my stan­dards) chunk of Berk­shire stock, and I have enor­mous re­spect for his de­ci­sion to give vir­tu­ally all of his wealth to char­ity and for his cam­paign to get fel­low bil­lion­aires to agree to do­nate at least half their wealth. I’ve seen him be in­cred­i­bly gra­cious to peo­ple, in­clud­ing one of my chil­dren to whom I in­tro­duced him.

But when it comes to busi­ness, as I’ve said be­fore, Buf­fett is no saint. Get be­tween him and some­thing he wants, and you’ll find a hole in your­self the size of War­ren Ed­ward Buf­fett.

In 2015, I was struck by the way that Kraft Heinz, which he helped cre­ate and on whose board he sits, an­nounced it was fir­ing 2,600 work­ers the day be­fore Berk­shire re­ported record quar­terly prof­its be­cause it was re­quired to write up the value of its Kraft Heinz stake by $4.4 bil­lion.

This year, I’m struck by the con­trast be­tween his lav­ish 2015 praise of the man­age­ments of 3G and Wells Fargo and his 2016 si­lence. What he’s not say­ing now is even more in­ter­est­ing than what he did say the year be­fore. The Sil­ver Blaze syn­drome strikes again.

SHAN­NON STA­PLE­TON/REUTERS

In his an­nual let­ter to Berk­shire Hath­away share­hold­ers, War­ren Buf­fett skirts the com­pany’s ma­jor hold­ings in Kraft Heinz and Wells Fargo.

Deals AL­LAN SLOAN

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