Warren Buffett admitted a ‘big’ mistake, touted Berkshire Hathaway’s past deals, and cautioned traders in his annual letter

Warren Buffett
Warren Buffett.

  • Warren Buffett published his annual letter to shareholders on Saturday.
  • The Berkshire Hathaway CEO made a “big” mistake in overpaying for Precision Castparts.
  • Buffett reminded stock traders that their transaction fees go straight to Wall Street.
  • Visit Business Insider’s homepage for more stories.

Warren Buffett owned up to a major mistake, trumpeted Berkshire Hathaway’s past successes, and drew a line between his long-term shareholders and the meme-stock crowd in his annual letter on Saturday.

The billionaire investor said Berkshire’s focus is boosting operating earnings and making large, high-quality acquisitions. His conglomerate “met neither goal” in 2020 as its operating earnings slumped 9% and it failed to close any major deals, he said.

Moreover, Buffett admitted to overpaying for Precision Castparts, the aerospace-parts manufacturer that Berkshire purchased for $37 billion in 2016. The price tag was a “big” error that fueled an “ugly” $11 billion writedown last year, he said.

Buffett dedicated most of his letter to reflecting on some of Berkshire’s most famous investments. See’s Candies, Geico, National Indemnity, Nebraska Furniture Mart, and Clayton Homes all received a mention.

The 90-year-old investor argued their US origins were a key factor in their success. “These builders needed America’s framework for prosperity,” he said. “Our unwavering conclusion: Never bet against America.”

Buffett didn’t miss the chance to highlight that Berkshire owns $154 billion in US-based assets such as factories and equipment – more than any other US company. AT&T is the runner-up with $127 billion worth, he said.

The Berkshire chief also discussed his shareholder base. He emphasized the “special kinship” he feels to the million-plus individual investors who trust him with their money and embrace Berkshire’s culture of partnership.

Buffett made a distinction between Berkshire’s long-term shareholders and people who buy into the hype around the likes of Tesla, GameStop, and Bitcoin. He reminded traders that the fees they pay to constantly tweak their portfolios flow straight into Wall Street’s pockets.

“The tens of millions of other investors and speculators in the United States and elsewhere have a wide variety of equity choices to fit their tastes,” Buffett wrote. “They will find CEOs and market gurus with enticing ideas.”

“If they want price targets, managed earnings and ‘stories,’ they will not lack suitors,” he continued. “‘Technicians’ will confidently instruct them as to what some wiggles on a chart portend for a stock’s next move. The calls for action will never stop.”

Finally, Buffett revealed that his 97-year-old business partner and Berkshire’s vice-chairman, Charlie Munger, will join him on stage at Berkshire’s shareholder meeting in May.

The event will be held in Munger’s home state of California, after he decided not to fly to its usual Nebraska location last year due to the pandemic.

Read the original article on Business Insider

‘Big Short’ investor Michael Burry turns to Warren Buffett to underscore the dangers of inflation

Michael Burry Warren Buffett

  • Michael Burry cited Warren Buffett to highlight the dangers of inflation.
  • “The Big Short” investor highlighted Buffett’s warning that inflation erodes real returns.
  • Burry studied Buffett as a young man but decided to forge his own path.
  • Visit the Business section of Insider for more stories.

Michael Burry of “The Big Short” fame turned to Warren Buffett to hammer home the dangers of inflation in a Twitter thread on Tuesday.

“Warren Buffett’s #BerkshireHathaway annual letters guided me tremendously earlier on,” the Scion Asset Management boss said.

“During the last great inflation, #WarrenBuffett wrote about the topic at hand, and for those eyeing the future, this is worth revisiting, the 1980 chairman’s letter.”

Burry shared several screenshots from Buffett’s 1980 letter to Berkshire Hathaway shareholders. In the letter, Buffett explained that high rates of inflation act as a tax on capital, discouraging companies from investing by reducing their real returns.

Inflation can also result in investors earning negative returns, Buffett said, because it serves as an implicit tax on their purchasing power, on top of the explicit taxes they pay on dividends and investment gains.

“The average tax-paying investor is now running up a down escalator whose pace has accelerated to the point where his upward progress is nil,” the Berkshire chief wrote.

Burry dredged up the letter to emphasize that if inflation ramps up, corporate profits today will be far more valuable then profits in the future.

“Taking #Buffett’s lessons from 1980, and porting them to 2021 doesn’t take much translation,” he tweeted

“If high inflation…Each $ of earnings today becomes important,” he continued. “Earnings 10 and 20 years from now, the corollary goes, may be worth substantially less tomorrow than today.”

Banging the inflation drum

Burry shot to fame after his billion-dollar bet against the US housing bubble was immortalized in the book and movie “The Big Short.”

He also paved the way for the GameStop short squeeze in January when he bought a stake in the video-game retailer in 2019 and wrote several letters to its board.

Burry has been sounding the alarm on inflation. He warned investors last week to “prepare for inflation” as the US economy reopens and receives a fresh round of stimulus. He also compared America’s current trajectory to Germany’s path to hyperinflation in the 1920s.

The Scion chief studied Buffett early in his career, but decided not to model himself on the Berkshire boss. Burry realized Buffett’s quirks and distinctive investment style were key to his outsized success, and also recognized he was too socially awkward to ever be as popular as the investing icon.

Read the original article on Business Insider