Not So Buff

Image source: Midjourney AI

What's going on?

Warren Buffett’s Berkshire Hathaway reported shrug-worthy results over the weekend.

What does this mean?

Buffett’s unrivaled reputation wasn’t born out of thin air: the value of his company’s stock has, on average, increased by twice as much as the US stock market every year for over 50 years. But Berkshire’s latest report hardly screamed success: the conglomerate’s all-important insurance and railroad businesses helped bring home record full-year operating earnings, sure, but hefty costs and slimming demand meant it ended the year in a slump. Berkshire’s $300-billion stock portfolio dropped off too. Now, Buffett often calls those slides meaningless given the firm’s long-term view, but the blip still dragged the firm to a nearly $23 billion loss last year.

Why should I care?

For markets: Money to burn.
Buffett’s annual letter – a surprisingly short one this time round – pushed one big point of contention: stock buybacks. See, there’s a new tax on buybacks in the US, with some arguing the cash would be better spent on workers’ pay or investing in the firm’s future. Buffett, though, defended their merits, saying they’re a smart way to use extra cash, especially when bought for fair prices. (Remember, buybacks reduce the number of shares available and give existing shareholders a bigger stake in the business and any profit.) Berkshire’s been a big fan of that tactic lately: with fewer promising acquisitions to spend money on, the firm bought back almost $8 billion of its shares last year.

The bigger picture: Gotta have faith.
Buffett sold more than $16 billion of stocks last quarter, dumping firms like TSMC, US Bancorp, and Bank of New York Mellon. That pulled its cash pile up to nearly $130 billion by the end of last year – but Buffett’s not completely pessimistic about markets. The Oracle of Omaha reminded investors to have faith in the US, saying there’s no reason to make a long-term bet against the world’s biggest economy.

Originally posted as part of the Finimize daily email.

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