Home' Trinidad and Tobago Guardian : February 27th 2017 Contents A12 business
guardian.co.tt Monday, February 27, 2017
Buffett sticks to business,
avoids politics in annual letter
OMAHA---Billionaire investor Warren
Buffett reiterated his rosy long-term out-
look for the US economy and his distaste
for high Wall Street fees in his annual let-
ter to Berkshire Hathaway shareholders
that always draws a big audience.
The letter released Saturday also describes
the performance of the more than 90 com-
panies that Berkshire owns. But aside from
that, Buffett largely emphasized points he's
made in the past.
Buffett will likely address other topics dur-
ing a three-hour television appearance today
on CNBC, but he still may leave some people
Here are some highlights of what Berkshire's
86-year-old chairman and CEO did say, and
some of the top things investors wish he had
While reiterating his long-term outlook for
a prosperous America, 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 his-
tory," wrote Buffett, who has said he thinks
the economy will be OK under President Don-
ald Trump. Buffett is a longtime Democrat
who supported Hillary Clinton in last year's
Without mentioning Trump's immigra-
tion policies, Buffett did note that "a tide of
talented and ambitious immigrants" played
a significant role in the country's prosperity.
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 more than
$100 billion over the past decade.
"The bottom line: When trillions of dol-
lars 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."
And it can be extremely difficult for inves-
tors to determine whether a money manager
has the rare ability to outperform the stock
market. So Buffett said most investors are
better off not trying.
"The problem simply is that the great ma-
jority of managers who attempt to over-per-
form will fail. The probability is also very high
that the person soliciting your funds will not
be the exception who does well," Buffett wrote.
Investment manager Cole Smead said he
felt that Buffett spent too much of the letter
extolling Berkshire's virtues instead of talking
about how he'll approach investing the com-
pany's US$86 billion cash or what went wrong
with the failed US$143 billion bid for Unilever
that Berkshire took part in with 3G Capital.
Smead said Buffett and his investing part-
ner, 93-year-old Charlie Munger, seem con-
cerned about their legacies and how Berkshire
"This letter was more about Warren and
Charlie's epitaph even more so than prior let-
ters," said Smead, who is with Seattle-based
Smead Capital Management.
Smead said he wishes Buffett had devoted
more of the letter to discussing the current
investment environment. Even though Buf-
fett won't discuss what he might buy, Smead
said he could have talked more about what he
doesn't like in the market today.
Buffett raised eyebrows last fall when he
invested more than $9 billion in airline stocks
after years of urging investors to stay away
from the airline sector. Berkshire is now one
of the biggest shareholders in American Air-
lines, Delta Air Lines, United Continental and
Southwest, but he has offered little explana-
tion for his change of heart other than to say
airlines are better businesses after all the
consolidation in the industry.
But back in 2008, Buffett used his letter to
label airlines as the worst kind of business be-
cause they grow rapidly and require significant
investments to grow but earn little.
"Think airlines. Here a durable competitive
advantage has proven elusive ever since the
days of the Wright Brothers," Buffett wrote.
"Indeed, if a far-sighted capitalist had been
present at Kitty Hawk, he would have done his
successors a huge favour by shooting Orville
In this June 14, 2016 file photo, Berkshire Hathaway Chairman and CEO Warren Buffett addresses the White House Summit on the United State
of Women in Washington. Buffett is planning to release his annual letter to Berkshire Hathaway shareholders on February 25, 2017. The letter is
always one of the best-read business documents every year because of Buffett's knack for explaining complex issues in simple terms and
because of his remarkably successful investing record. AP PHOTO
Berkshire Hathaway 4Q profit up 15%
company says fourth-quarter
profit improved 15 per cent, but
most of the gains came from the
paper value of Inc's investments
and derivatives contracts.
The Omaha, Nebraska-based con-
glomerate released its latest results
Saturday along with Buffett's annual
letter to shareholders.
Berkshire said it earned US$6.29
billion, or US$2.55 per Class B share.
That's up from US$5.48 billion, or
US$3.65 per Class B share.
The analysts surveyed by FactSet
expected earnings per Class B share
of $1.82, although they generally ex-
clude investments and derivatives
from their estimates. Berkshire said
those operating earnings totalled
US$1.78 per Class B share.
Berkshire generated US$58.3 bil-
lion revenue in the quarter, up from
US$51.7 billion a year earlier.
Berkshire's investments and de-
rivatives were worth roughly US$1.2
billion at the end of the quarter, up
from US$399 million. That over-
shadowed the 6 per cent profit
decline at Berkshire's operating
Buffett has said operating earn-
ings offer a better view of quarterly
performance because they exclude
investments and derivatives, which
can vary widely.
Edward Jones analyst Jim Shana-
han said he didn't see many surpris-
es in Buffett's letter. The lack of any
additional details on Berkshire's plan
to eventually replace the 86-year-
old Buffett as chairman and CEO
suggests little has changed in the
company's plan to split Buffett's
job into three parts: chief execu-
tive officer, chairman and several
"A little more visibility on suc-
cession might have been helpful,"
Buffett has said that all the CEO
candidates are managers who al-
ready work at Berkshire and under-
stand the company's culture well.
Two investment managers, who each
manage about US$10 billion of Berk-
shire's assets are in place already.
For the full year, Berkshire's earn-
ings were nearly flat at US$24.07 bil-
lion, or US$16.05 per Class B share.
Berkshire Hathaway Inc owns
more than 90 companies, includ-
ing railroad, clothing, furniture and
jewelry firms. Its insurance and util-
ity businesses typically account for
more than half of the company's net
income. The company also has major
investments in such companies as
American Express, IBM and Wells
Fargo & Co. (AP)
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