wide — whether pension funds, insurance companies or retirees — face ableak future. He cautioned against owning risky bonds backed by “shaky borrowers” paying higher yields.
“Three decades ago, the once-mightysavings and loan industry destroyeditself, partly by ignoring that maxim,”he noted.
2 Stock repurchases can enhance the intrinsic value of shares
but not at any price. “American CEOs
have an embarrassing record of devot-
ing more company funds to repurchas-
es when prices have risen than whey
they have tanked,” Buffett wrote. “Our
approach is exactly the reverse.”
Although Berkshire sold some of its
Apple position in 2020, its stake actually
increased from the 5.2% it held in 2019
to 5.4% in 2020 because of April’s repur-
chases, which shrunk the number of its
3 Ownership of stocks is a “pos- itive-sum game,” but investors“must never forget that their expensesare Wall Street’s incomes” and “WallStreeters do not work for peanuts.”
4 “Productive assets such as farms, real estate, and businessownership produce wealth. … Allthat’s required is the passage of time,an inner calm, ample diversification andminimization of transitions and fees.”
5 “The best results [in fixed asset ownership] occur at companies
that require minimal assets to con-
duct high-margin businesses — and
offer goods or services that will expand
their sales volume with only minor
needs for additional capital.” Berkshire
Hathaway owns a few such “exceptional
businesses,” according to Buffett.
6 Asset-heavy companies also can be good investments but they
can require major capital invest-
ments, according to Buffett, whose
Berkshire Hathaway owns two such
giants — BNSF, a railroad company, and
BHE (Berkshire Hathaway Energy).
The two companies earned a com-
bined $8.3 billion 2020, almost double
the $. 4. 2 billion earned in 2011, but both
will require major capital expenditures
for decades to come, wrote Buffett.
Since Berkshire acquired BNSF in2010, it has invested $41 billion in fixedassets — $20 billion more than its depreciation charges, but it has earned thefirm $41.8 billion.
7 The outdated electric grid cou- pled with the advent of renew-able energy creates opportunities,but also requires massive investment.
BHE has committed $18 billion to
rework and expand a substantial por-
tion of the outdated grid that transmits
electricity throughout the West in a
project that is expected to be completed
“Billions of dollars needed to beinvested before meaningful revenuewould flow,” wrote Buffett. He expectsBHE “will be a leader in delivering ever-cleaner energy” and he’s searching forsimilar big projects to take on.
8 “Conglomerates have earned their horrible reputation.”History shows that many conglomerates created by leaders once “lionized as business geniuses” …. ”endedup as business junkyards.” Their leaders bought whole businesses that weremediocre and used promotional, oftendeceptive techniques that overvaluedtheir own stocks in order to take overother companies.
9 Berkshire Hathaway differs from the conglomerate prototype, because it owns some companies it controls and some it doesn’t;it also deploys capital into companiesthat Buffett and Munger believe makethe most sense based on competitivestrengths, capabilities and character ofmanagement and price.
While Berkshire owns BNSF, BSE andsome other companies outright, it hasdouble-digit stakes in American Express( 18.8%), Moody’s Corp. ( 13.2%) and Bankof America ( 11.9%) and smaller stakes inother companies.
Bernice Napach can be reached email@example.com.