Annual Letter - 2020

[ValueMaven]

In typical tradition :-) ... let's get this thread started

[adesigar]

Hoping for another quarter with a decent amount of share buyback. I would expect comments on the pandemic, state of the economy, overpriced markets so not making any deals, inflation. Credit to whoever convinced Buffett to buy AAPL.

[kiwing100]

 

 

https://berkshirehathaway.com/letters/2020ltr.pdf

 

[ValueMaven]

Looks like 4Q buyback was more aggressive then people thought!

 

'Berkshire has repurchased more shares since yearend and is likely to further reduce its share count in the future'

[longlake95]

24.7 Billion in buybacks for 2020

[wabuffo]

Looks like 4Q buyback was more aggressive them people thought!

 

Not only that but Buffett kept buying in 2021.  Through Feb 16, 2021, it looks like he repurchased another $4-$4.5b in BRK stock (depending on prices paid).  Very impressive.

 

wabuffo

 

 

 

[gfp]

Interesting that for the first time he basically lets us know what he values BNSF at currently.  In listing the big 4, he points out that P&C Insurance is the largest and most valuable (but gives no value.  certainly higher than the $138 Billion year-end float).

 

But then he basically equates the value of BNSF to Berkshire's 5.4% position in Apple.

 

--------

 

Insurance float up another $3 Billion for the quarter to $138 B. - this has been very healthy growth in float.  A billion extra in cash flowing into Berkshire each month to be allocated.

 

 

[ValueMaven]

Annual meeting now in LA this year with Munger.  Able and Jain will also be there. 

[ValueMaven]

Story really is the buybacks and stability of operating income at this point. 

 

 

[Swedish_Compounder]

Yes, it is great news that he signals large continuing buy-backs. It now seems probable that he will buy back 5% or so of the shares per year. I think he will continue to do so even if the valuation moves up a bit since there is a rather large distance to an over-valuation. I hope so.

 

This should be very positive for the look through EPS development going forward. It also tilts the risk-reward proposition in a positive direction, further reducing the downside.

[Buckeye]

Looks like 4Q buyback was more aggressive them people thought!

 

Not only that but Buffett kept buying in 2021.  Through Feb 16, 2021, it looks like he repurchased another $4-$4.5b in BRK stock (depending on prices paid).  Very impressive.

 

wabuffo

 

Hello wabuffo,

 

Can you please tell me how you determined that there were additional buybacks through Feb 16, 2021? I assume that the information is listed in an SEC filing? I've looked through the Edgar filings made on 2-16-21 but was unable to find any information in this regards.

 

Thanks so much,

 

Buckeye

[gfp]

Cover page of 10-K, which follows chairman's letter in the Annual Report pdf released this morning.  Estimate around $4.3 Billion in 2021 repurchase activity in the first 1 1/2 months - consistent with the $9 Billion / quarter recent rate.  We'll see how prices influence repurchase volume if Berkshire shares rise from recent highs.

 

Screenshot attached

[thepupil]

After 3Q

~7% annualized, not bad at all.

 

the 2nd quarter of over 6% annualized share reduction + continuation in the 1st quarter shows that Berkshire is increasingly comfortable with a ~100% payou ration and capping the growth of excess capital (if the stock price is sufficiently cheap).

 

think we knew this already, but it's always good to get confirmation. Likewise, we could comp BNSF to UNP and get a number of $120B or whatever, but it's also great to see that "pretty much a toss up" language from the GOAT.

 

 

[Spekulatius]

It seems like he really likes to put more funds into BHE. Come to think about it, an regulated utility is an ideal bond substitute to invest insurance float in - low risk and volatility, secure  and growing cash flow for decades and reinvestment potential - ROE around 10% give or take.

[ValueMaven]

BHE has a negative tax rate ... with regulated returns...so I can see why

[John Hjorth]

Buckeye,

 

Yes, as gfp, just "said", then you compare with the information in note 22, p. K-107 about shares oustanding YE2020, calculate the difference, and multiply with estimated average market price for the A and the B in the period beginning of the year to mid February, which will get you in the area which gfp stated.

[Buckeye]

Cover page of 10-K, which follows chairman's letter in the Annual Report pdf released this morning.  Estimate around $4.3 Billion in 2021 repurchase activity in the first 1 1/2 months - consistent with the $9 Billion / quarter recent rate.  We'll see how prices influence repurchase volume if Berkshire shares rise from recent highs.

 

Screenshot attached

 

Yep, right there is it, thanks for the information gjp!

[Buckeye]

Buckeye,

 

Yes, as gfp, just "said", then you compare with the information in note 22, p. K-107 about shares oustanding YE2020, calculate the difference, and multiply with estimated average market price for the A and the B in the period beginning of the year to mid February, which will get you in the area which gfp stated.

 

Thanks John!

[John Hjorth]

You're welcome, Buckeye,

 

-So friggin' many numbers each quarter! [ ;-D ]

[ValueMaven]

In 2020 BHE's tax rate was negative 40%

[nickenumbers]

I am admittedly speculating here, but we are all just a bunch of fanboys girls,  fan-people offering up observations and ideas:

 

A.)  near the end of his letter he talks a fair amount about the types of shareholders that BRK has and he significantly prefers the Partners/Long Term shareholder owners, and he chuckles at the short term index/robo trade shareholders.

 

B.) Couple that with the Significant share repurchase.

 

C.)  AND- Q.E.D.  WEB and Charlie are happier to buy out partners at an increasing pace now who are not long term shareholders.  Certainly there is the compounding there, but there is WEB psychology implied.

 

Seems like more to come in the future at these present prices.

 

Thoughts?

[hasilp89]

I am admittedly speculating here, but we are all just a bunch of fanboys girls,  fan-people offering up observations and ideas:

 

A.)  near the end of his letter he talks a fair amount about the types of shareholders that BRK has and he significantly prefers the Partners/Long Term shareholder owners, and he chuckles at the short term index/robo trade shareholders.

 

B.) Couple that with the Significant share repurchase.

 

C.)  AND- Q.E.D.  WEB and Charlie are happier to buy out partners at an increasing pace now who are not long term shareholders.  Certainly there is the compounding there, but there is WEB psychology implied.

 

Seems like more to come in the future at these present prices.

 

Thoughts?

 

I think that is accurate. I believe he’s just  trying to be transparent and fair about it. Let his long term partners/investors know that he’s not trying to take advantage of them - “ it’s worth more than what it trades for” “ now may not be the time to sell.” Pretty sure I’ve read him talk about buybacks and considering the partners you are buying back from - or I’m just making it up. Eg If there were just 10 investors/partners he wouldn’t try and buyback shares on the cheap from one of them them if they were either down and out or if prices were advantageous to him. 

[Cigarbutt]

In 2020 BHE's tax rate was negative 40%

The float related to deferred taxes has been growing steadily.

In BHE presentations, this is referred to tax appetite from the parent. Because of the preferred treatment on 'real' investments and because of various 'credits' (as per last fall presentation):

"Tax appetite of Berkshire Hathaway has allowed us to receive significant cash tax benefits from our parent, including $1.0 billion in the nine months ended September 30, 2020, and $942 million in 2019".

Of course, there is nothing wrong with that but maybe it's a reason to mention, in passing, that BRK reports a GAAP valuation for these "infrastructure" assets exceeding the amount owned by any other U.S. company, with a depreciated cost of these domestic “fixed assets” at $154 billion.

 

Bridging to end-yr 2020, insurance float has grown (CAGR) at 7.1% and tax float has grown at 12.5%, being about 35% of total float now.

[Spekulatius]

^ Yes, the tax angle makes this even better. When I read the annual letter, it sounded to me that Buffet wanted to go even bigger with BHE, most likely with an large acquisition of an utility.

I can see the rationale for covering the entire amount of float (minus the $20B+ in spare change) with regulated investments in Railroads and Utilities. The Utilities yield about ~10% ROE and if that’s mostly tax free, it is a great deal compared to bonds yielding ~2-3%. He needs the insurance co to be overcapitalized because since is still equity, but very low risk. I think his last act may be just to do this and find a large acquisition to supplement BHE. it would be almost Malone like in terms of taxes.

Then his successor can run is on autopilot and just worry about the other holdings and the unregulated business within the BRK umbrella.

[no_free_lunch]

It seems like he really likes to put more funds into BHE. Come to think about it, an regulated utility is an ideal bond substitute to invest insurance float in - low risk and volatility, secure  and growing cash flow for decades and reinvestment potential - ROE around 10% give or take.

 

I really like the utility's, in theory, however the industry has challenges. Home based solar on demand side and carbon regulations on supply side. Meanwhile concern that regulations are stuck in the past. Any industry experts here?  Is it still a good industry?