Oversexed Wall St chiefs overpaying, says Buffett

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 over the weekend, 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,” Buffett said.

Buffett is sitting on US$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 we must conduct our own,” Buffett wrote.

He said the conglomerate recorded a US$29b paper gain because of the tax reforms Congress passed late last year. That helped it generate US$44.9b profit last year, up from US$24.1b the previous year.

Buffett’s letter is always wellread 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 new partnership with Amazon and JP Morgan Chase to reduce health care costs.

Edward Jones analyst Jim Shanahan said he expected the 87-year-old 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. Shanahan said it also would have been nice to read why he is selling off Berkshire’s IBM investment but maintaining big stakes in Wells Fargo and US Bancorp.

— AP