Berkshire Hathaway buys back a record $24.7bn of own stock in 2020

Apple continues to drive Warren Buffett's conglomerate as net income jumps 23% to $35.8bn in the fourth quarter

FILE PHOTO: Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc's annual shareholder meeting in Omaha, Nebraska, U.S., May 4, 2019. REUTERS/Scott Morgan -/File Photo
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Warren Buffett’s Berkshire Hathaway bought back a record $24.7 billion of its own stock last year and said there’s more to come, as the conglomerate struggled to find other ways to deploy its enormous pile of cash.

The company’s purchase of $9bn of shares in the fourth quarter matched a record set in the previous three-month period, Mr Buffett said on Saturday in his annual letter to investors.

“Berkshire has repurchased more shares since year-end, and is likely to further reduce its share count in the future,” Mr Buffett, 90, said. “That action increased your ownership in all of Berkshire’s businesses by 5.2 per cent without requiring you to so much as touch your wallet.”

Mr Buffett’s letter, a closely watched missive from one of the world’s most renowned investors, devoted large portions to the impact of repurchases, one of Berkshire’s biggest capital-deployment moves last year as it “made no sizable acquisitions”. He also shared his thoughts on the strategy of conglomerates, praising businesses such as Berkshire’s insurance operations and railroad.

There was a small amount of progress in paring the cash pile, which fell 5 per cent in the fourth quarter to $138.3bn. Mr Buffett, known as the "Oracle of Omaha", has struggled to keep pace with the flow in recent years as Berkshire threw off cash faster than he could find higher-returning assets to snap up.

Apple is one of Berkshire’s top three most-valuable assets, at $120bn, Mr Buffett said. The technology company has said it intends to repurchase its own shares as well.

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

Separately, Mr Buffett acknowledged that the $11bn writedown Berkshire took last year was almost entirely due to what he conceded was a “mistake” in 2016, when he paid too much for Precision Castparts. Precision is a fine company, Mr Buffett said, but he admitted he made a big error.

“I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business,” he said.

The math of repurchases grinds away slowly, but can be powerful over time

Swings in Berkshire’s massive $281.2bn stock portfolio feed into the company’s net income because of an accounting technicality. That drove the figure up 23 per cent to $35.8bn in the fourth quarter from a year earlier.

For all of 2020, Berkshire's operating income fell 9 per cent to $21.92bn, while net income fell 48 per cent to $81.42bn. Reuters reported.

Berkshire’s Class A shares gained roughly 2.4 per cent last year, falling short of the 16 per cent increase in the S&P 500.

The billionaire only briefly touched on one of the largest questions looming over Berkshire — how long he might stay at the helm. He once again referenced a favourite chief executive, Rose Blumkin, who founded Nebraska Furniture Mart. She worked until she was 103 – “a ridiculously premature retirement age as judged by Charlie and me”, Mr Buffett wrote, referring to Charlie Munger, 97, a Berkshire vice chairman.