Warren Buffett has released his much-anticipated annual letter, and many media outlets have seized upon his remark that Berkshire Hathaway’s annual gains of $24.1 billion are subpar.
But as disappointing as these gains may be for someone of the Oracle’s calibre, his core investments still did well last year.
“Berkshire’s ‘Big Four’ investments – American Express, Coca-Cola, IBM and Wells Fargo – all had good years. Our ownership interest in each of these companies increased during the year,” he wrote.
“We purchased additional shares of Wells Fargo (our ownership now is 8.7% versus 7.6% at year-end 2011) and IBM (6% versus 5.5%). Meanwhile, stock repurchases at Coca-Cola and American Express raised our percentage ownership,” Buffett explains.
“Our equity in Coca-Cola grew from 8.8% to 8.9% and our interest at American Express from 13% to 13.7%.”
He adds Berkshire will likely increase its ownership further in each firm. Why? They have talented and shareholder-oriented managers, and he “prefers owning a non-controlling but substantial portion of a wonderful business to owning 100% of a so-so business.”
He adds, “Our flexibility in capital allocation gives us a significant advantage over companies that limit themselves only to acquisitions they can operate.”
Little lizards and broadsheets
Insurers were also strong performers for the world’s most famous investor.
“While giving Berkshire $73 billion of free money to invest, they also delivered a $1.6 billion underwriting gain, the tenth consecutive year of profitable underwriting,” Buffett writes.
The company famous for commercials featuring an Aussie-accented mini-lizard – GEICO – is at the top of his list.
“Since 1995, GEICO’s share of the personal-auto market has grown from 2.5% to 9.7%. Premium volume meanwhile increased from $2.8 billion to $16.7 billion. Much more growth lies ahead.”
Berkshire also acquired 28 daily newspapers over the last 15 months, with a total bill of $344 million.
While Buffett acknowledges “circulation, advertising and profits of the newspaper industry overall are certain to decline,” the broadsheet will “continue to reign supreme…in the delivery of local news,” he explains.
“If you want to know what’s going on in your town – whether the news is about the mayor or taxes or high school football – there is no substitute for a local newspaper that is doing its job.”
Buffett, therefore, buys papers that focus on strong local content and online presence.
“Skimpy news coverage will almost certainly lead to skimpy readership,” he warns. “And the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time.
And, if you’re groaning about tax season, at least you don’t have to file a 21,500-page return, as Berkshire does. That works out to just under 1,000 pages for every billion it raked in last year.