Buffett Holds Out Hope for Mammoth Deal as Cash Pile Grows - EcoFinBiz Blog

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Buffett Holds Out Hope for Mammoth Deal as Cash Pile Grows

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(Bloomberg) -- Warren Buffett says he wants to spend Berkshire Hathaway Inc.’s growing pile of cash on a giant acquisition, but he doesn’t see that happening anytime soon.

“Prices are sky-high for businesses possessing decent long-term prospects,” Buffett wrote in his annual letter to investors, adding that will lead to buying more public stocks in 2019. “We continue, nevertheless, to hope for an elephant-sized acquisition.”

Read Warren Buffett’s annual letter to investors.

Berkshire’s cash pile rose to $112 billion, showing how hard it’s been for Buffett to put money to work as fast as Berkshire accumulates it. The legendary investor made his name by consistently outpacing the broader market, but that’s become harder as Berkshire has grown. While the company’s book value has increased at almost twice the rate of the S&P during his career, it has actually trailed the index over the last decade.

Berkshire slowed its stock buybacks in the fourth quarter, repurchasing $418 million of shares, down from $928 million in the third quarter. The board loosened its policy on stock buybacks in July, allowing Buffett and Vice Chairman Charlie Munger to buy back shares whenever the price was below what they considered the intrinsic value.

The Berkshire CEO said in his annual letter to investors Saturday that the company will probably become a “significant repurchaser” of its own stock in coming years.

Key Takeaways

  • An eye-popping $25 billion net loss in the quarter was driven by $27.6 billion in unrealized losses from the investment portfolio. Buffett has warned investors to look more at underlying operating figures, as accounting rules now incorporate unrealized gains and losses from stocks into net income. He said the volatile fourth quarter featured several days where Berkshire’s stock portfolio swung more than $4 billion.
  • Berkshire felt the ripple effects from Kraft Heinz Co.’s $15.4 billion writedown in the fourth quarter. As its biggest shareholder, Buffett’s company took a $2.7 billion markdown to its stake.
  • Berkshire benefited from its railroad and energy businesses, which along with tax cuts helped boost overall operating results to $24.8 billion in 2018.
  • The company’s insurance businesses posted an underwriting profit of $1.57 billion last year, rebounding from a $2.2 billion loss in 2017, the first in 15 years. That boosted overall operating earnings at the conglomerate 71 percent from a year earlier.

MORE COVERAGE:

  • Buffett praises Geico CEO who quietly stepped down
  • Bipartisanship works is Buffett’s message to D.C.

Get More

  • For Buffett’s annual letter to investors, click here.
  • Berkshire’s statement is here.

--With assistance from Michelle Kim.

To contact the reporter on this story: Katherine Chiglinsky in New York at kchiglinsky@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Matthew G. Miller

©2019 Bloomberg L.P.

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