Berkshire Rail, Insurance units see earnings hit on weak demand

Share Buybacks

Buffett has spent the last few years dialing back on controversial statements in his public comments, preferring to talk up his own businesses and the prospects for the American economy. But he decided to wade into a topic that’s gotten increased attention both on the political stage and in the operations of Berkshire Hathaway: share buybacks.

“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue — characters that are not mutually exclusive,” Buffett wrote.

The comment comes after President Joe Biden called for lawmakers to quadruple the levy on corporate stock repurchases alongside a greater tax on billionaires. Democrats have favored such increases in the hopes that they would motivate companies to invest more in the economy and increase wages, but those aspects of the president’s economic agenda are unlikely to pass in a divided Congress.

Berkshire itself has turned toward buybacks more often as high valuations in public markets have made it more challenging for Buffett to identify promising acquisitions. The company spent approximately $2.6 billion repurchasing its own shares in the last three months of 2022, bringing the full-year total to $7.9 billion. Buffett noted that some of the companies Berkshire has bet the most on, including Apple Inc. and American Express Co., deployed similar measures.

Another target in Buffett’s cross-hairs: investment bankers, a familiar adversary.

“Every small bit helps if repurchases are made at value-accretive prices,” Buffett wrote. “Just as surely, when a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases.”

Operations

The annual letter was released alongside fourth-quarter and full-year results for Buffett’s sprawling conglomerate. The results also showed that Berkshire was a net seller of stocks in that period, which became evident after the company’s 13F filing indicated it had abruptly slashed a position in Taiwan Semiconductor Manufacturing Co. disclosed in the prior filing.

Berkshire reported it had $128.6 billion of cash on hand at the end of last year, the ninth-largest stockpile in data going back to 2014. Buffett emphasized that he would keep maintaining that financial bulwark.

“As for the future, Berkshire will always hold a boatload of cash and US Treasury bills along with a wide array of businesses,” Buffett wrote. “We will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses.”