Thanks to its huge collection of businesses — from insurance to railroads to candy — Warren Buffett’s Berkshire Hathaway is often seen as a barometer for the U.S. economy.
And in that respect, its performance last year mirrored the country’s economic performance as a whole.
Berkshire reported Saturday that it earned $45.2 billion for 2020, down 48% from the previous year, while its operating earnings fell. But while the pandemic hurt many of its business lines — and forced Berkshire to again stage its forthcoming annual meeting as an online-only event, this time in Los Angeles — its profits rose 23% in the fourth quarter, as its stock investments were bolstered by soaring markets.
Among the biggest winners in Berkshire’s vast investment portfolio was its 5.4% stake in Apple, whose shares have been among the top market winners over the past year. In his annual letter to investors that accompanied the company’s financial results, Buffett noted that the iPhone maker was now one of his company’s three biggest assets, with its stake worth $120 billion as of Dec. 31. (Berkshire calculates that it paid $31 billion for its holdings.)
And Buffett, who is Berkshire’s chairman and CEO, professed enthusiasm for another investment: Berkshire’s own shares. The conglomerate spent $24.7 billion buying back its own stock last year and said that it has spent more money doing so since.
To Buffett, stock repurchases may not be immediately exciting, but they give existing Berkshire shareholders even more of a stake in what he called “exceptional businesses.”
But Buffett’s stock repurchases suggest that the huge amounts of cash that Berkshire generates every year from its insurance holdings — which he has called his “elephant gun” — are unlikely to be spent on the kind of major corporate acquisitions that have been among his signature business achievements. Berkshire ended last year with $138 billion in cash, an enormous pile that he must find ways to spend.
Buffett also admitted to a big mistake: the $37.2 billion that he paid in 2016 to buy Precision Castparts, a maker of airplane parts, in what was the company’s biggest-ever takeover. Precision Castparts has failed to live up to expectations, leading up to an $11 billion accounting write-down that Buffett called “ugly.”