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Buffett suggests shift from long-term perspective

Berkshire Hathaway’s eye-catching recent bets on Apple and US airline stocks are not likely to prove as enduring as the investments that it made on Coca-Cola or American Express more than two decades ago, according to readers of Warren Buffett’s annual letter to shareholders.

Mr Buffett struck a new tone in his passages on Berkshire’s $122bn portfolio of public equities in this year’s letter, released over the weekend to allow shareholders to digest it before the start of trading on Monday.

While the letter once again sets out Berkshire’s largest equity positions — topped by its $27.6bn investment in Wells Fargo — Mr Buffett this year mentioned that some of them were the work of his investment deputies, the former hedge fund managers Todd Combs and Ted Weschler, and that “I usually learn about decisions they have made by looking at monthly trade sheets”.

Mr Buffett also appended a line to the business principles that have appeared with each letter since 1983, saying that his aversion to selling businesses does not apply to public market securities.

“It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we’re talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever,” he said.

The tweaks appeared to Buffett-watchers to be a signal that Berkshire’s investment portfolio could become more fluid now that it has become less important to the company’s fortunes.

Berkshire long ago left behind its roots as a vehicle for Mr Buffett’s stockpicking and is now one of the largest conglomerates on the planet, with businesses spanning insurance, utilities, railroads, manufacturing and more.

“Recent equities investments may prove to have been opportunistic,” said Jim Shanahan, analyst at Edward Jones. “Potentially, Mr Buffett is preparing investors for the possibility that they are going to trade in and out of names. That would appear inconsistent with Berkshire’s strategy, but it wouldn’t be inconsistent with what Combs and Weschler had done historically.”

We have made no commitment that Berkshire will hold any of its marketable securities forever

Berkshire’s stake in Apple, worth $7.1bn at the start of the year, is believed to have been the idea of one of Mr Buffett’s deputies.

Larry Cunningham, author of Berkshire Beyond Buffett, said: “Big public equity positions are no longer what defines Berkshire and what Todd and Ted do is far less important than what the business managers do. The future of Berkshire is the operating companies.”

Berkshire recorded $1.2bn in investment gains in the final quarter of 2016, without which the company would have reported a decline in profits versus the same period last year.

The company’s main operating businesses posted mixed results, including at BNSF, its railroad where net earnings were down 8 per cent. The company warned that coal and crude oil shipments by rail had declined and would remain weak.

Overall, Berkshire’s net earnings in the fourth quarter were $6.3bn, up from $5.5bn, taking earnings for the full year to $24.1bn, flat against 2015.


Further reading on Berkshire Hathaway

News: Warren Buffett endorses share buybacks
John Gapper: Buffett needs a new recipe for investing


Via FT