Banking

Warren Buffett Extols ‘Family Jewels’ As He Maintains Key Investment Strategy In 2021

Warren Buffett said in his closely watched annual letter Saturday that Berkshire Hathaway (BRKB) is buying back more shares this year after a record 2020.




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In Q4, Berkshire repurchased about $9 billion in shares, steady with the record $9 billion in Q3, and up from $5.1 billion in Q2, and $1.7 billion in Q1. For the year, buybacks totaled $24.7 billion, while the two prior years saw a combined $6.4 billion.

Buffett said the company has repurchased more shares since the end of 2020, and “is likely to further reduce its share count in the future.”

After historically shying away from repurchases, the conglomerate’s CEO further explained his change of heart as a way for investors to benefit more from Berkshire’s portfolio of holdings.

In a section of the letter titled “The Family Jewels and How We Increase Your Share of These Gems,” he noted that most of Berkshire’s value resides in its insurance operations, rail giant BNSF, its 5.4% ownership in Apple (AAPL), and the Berkshire Hathaway Energy utility business.

“The math of repurchases grinds away slowly, but can be powerful over time,” he wrote. “The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses.”

The more aggressive buying of Berkshire’s own shares last year contrasts with Buffett’s deals during and after the Great Recession, indicating that the latest economic downturn and recovery offer none of the bargains he has historically pounced on.


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Buffett Admits Mistake

Berkshire’s cash pile dipped to $138.3 billion in Q4 from $145.7 billion in Q3. Still, in recent years the amount of available funds had swelled to record levels, raising expectations that Buffett would make a big acquisition.

But as he praised Berkshire stock buybacks, Buffett also admitted that his last big acquisition, buying Precision Castparts in 2016 for $37 billion, was a mistake.

The business has suffered due to its exposure to the aviation and energy sectors, and Berkshire had to book an $11 billion write-down in Q4.

Buffett said Saturday that it’s still a fine company but acknowledged he was too optimistic about its profit potential “and, consequently, wrong in my calculation of the proper price to pay for the business.”

Warren Buffett Stocks Boost Earnings

While generally seen as a buy-and-hold investor, Berkshire made dramatic changes to its stock investment portfolio in 2020.

As the coronavirus pandemic spread, he dumped vast holdings in several bank stocks, including a complete exit from JPMorgan Chase (JPM), while also buying up then quickly cashing out airline stocks.

Elsewhere, Buffett loaded up on drug stocks and atypically bought IPO stock Snowflake (SNOW).

Amid all the churn, the $281.2 billion stock portfolio helped lift Berkshire’s net income 23% to $35.8 billion in Q4. Excluding some of the investments, operating earnings rose to $5 billion from $4.4 billion a year ago.

Meanwhile, Berkshire’s annual meeting in May will again be online instead of in person, but will move to Los Angeles from Omaha, Neb.

Investors will be able to question him as well as Vice Chairman Charlie Munger, Ajit Jain and Greg Abel.

Find Aparna Narayanan on Twitter at @IBD_Aparna.

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