Warren Buffett on Bonds, Buybacks, and Apple

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Berkshire Hathaway (BRK.A) (BRK.B) Chairman Warren Buffett released its annual letter to shareholders, along with the company’s 2020 results, over the weekend. (Morningstar’s Berkshire analyst Gregg Warren shared his thoughts on Berkshire’s 2020 earnings.)

Despite negative Comments from Berkshire partner Charlie Munger last week about the market mania around GameStop (GME), Bitcoin and SPACs, Buffett directly mentioned none of this in his letter. Instead, he extolled the virtues of long-term investing.

Here we take a look at some of the highlights from this year’s message.

“Dark future” for bond investors
When it comes to fixed income investments, Buffett takes no blows: “[B]onds are
not the place you should be these days. “

He points out that the yield on ten-year government bonds fell 94% between September 1981 and the end of 2020 – and recalls that some investors around the world are seeing negative yields on government bonds. The solution to investing in a world with low returns is not enough for substandard incomes: The debacle in the savings and credit industry some 30 years ago is evidence of that, notes Buffett.

“Fixed-income investors worldwide – whether pension funds, insurance companies Corporations or retirees – face a bleak future, “he concludes.

Buybacks, Apple and the “Jewels”
Berkshire spent $ 24.7 billion buying back its own shares last year – and Buffett notes that the company continued to buy back shares in 2021. Why the buying frenzy? Because this increases Berkshire’s intrinsic value per share for current shareholders while the company is still left with ample cash (at $ 138 billion), he explains.

Additionally, the buybacks offer current shareholders a greater interest in what Buffett calls the company’s four “jewels”: controlling interests in its property / casualty business, railroad BNSF and Berkshire Hathaway Energy, and its 5.4% stake Apple (AAPL).

“We don’t think in any way that Berkshire stock should be bought back at any price,” he clarifies. “I emphasize that Period, because American CEOs have an embarrassing record of spending more company money on buybacks, though prices have risen than when refueling. Our approach is exactly the opposite. “

Invest for the long term
Buffett divides Berkshire’s shareholder base into several categories, including index funds, active institutional investors, active individual investors, and long-term individual investors. Buffett says he appreciates the mix – although he’s not interested in attracting shareholders who don’t appreciate the company’s “hamburger and coke” style.

“The tens of millions of other investors and speculators in the United States and elsewhere are of great diversity” of stock options to match your Taste, “he writes.” You will find CEOs and market gurus with tempting ideas. If you want the price Goals, Managed Profits, and ‘Stories’, they won’t be short of applicants. ‘Technicians’ will confidently instruct you some of the wobbling on a chart suggests the next move in a stock. The calls to action will never stop.

Buffett has a particular affinity with the Berkshire “Lifers,” the long-term investors who treat an investment in Berkshire as a partnership.

“Productive assets like farms, real estate and, yes, business property to produce Wealth – lots of it, ”he notes. “Most Owners of such properties are rewarded. All it takes is time, an inner peace, plenty Diversification and a minimization of transactions and fees. “

Also noteworthy: Buffett confirmed that Berkshire Hathaway’s annual meeting will be on May 1st and will be virtual again this year. However, the event will be in Los Angeles rather than Omaha, and Munger will appear (after being absent last year). Likewise, Vice Chairs Ajit Jain and Greg Abel. And if we’re lucky, maybe Buffett’s ukulele will also have an appearance this year.

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