Berkshire Hathaway’s annual report and Buffett’s letter to shareholders arrived in February as scheduled.
Buffett first shared part of the source of the company’s profits in 2020. Affected by the epidemic, operating profits as the most important part fell by 9% compared to the same period last year.
The part of capital gains related to voting investment has achieved a profit of more than 30 billion. Buffett said that the fluctuations in this part are very large every year, reflecting the nature of the volatility of the capital market.
In addition, he pointed out that the retained earnings of the invested company’s shares cannot be included in Berkshire’s earnings, but it can bring huge benefits to the company in the long run.
Since the full text of the letter to shareholders is long, I will do some simple analysis and comments for everyone, focusing on the following points:
1. In the US stock market crash last year, although Berkshire’s portfolio fell for a while, it finally survived. In 2020, the Berkshire portfolio once fell by more than 30%, shrinking by nearly $100 billion. However, Buffett withstood the pressure. In addition to decisively clearing out aviation stocks, he still held other important positions firmly; in the end, Apple alone brought a profit of 40 billion US dollars to the portfolio, and realized a profit of 40 billion for the whole year. It is not easy for such a large scale to survive the stock market crash in 2020.
2. Praise and introduction to the invested entrepreneurs. In the letter, Buffett introduced a number of entrepreneurs from Berkshire companies, such as the Nebraska Furniture City and founder Mrs. B, which have been mentioned many times, and the growth of companies and founders such as Clayton House. story.
Buffett chooses the target, paying special attention to the quality of entrepreneurs. If the person and ability do not meet the standards of the old man and cannot be included in the Buffett circle of friends, he may not be willing to cooperate with the best company.
3. Prompt that the repurchase will continue. In 2020, Berkshire has allocated more than 24 billion US dollars to repurchase shares, but in the letter, the old bus made it clear that it will continue to increase repurchase efforts in 2021.
4. BYD is now Buffett’s eighth largest stock. Some unprofessional platforms use Buffett to buy BYD into the eighth largest stock, but in fact, BYD has risen on its own.
In September 2008, Berkshire subscribed for 225 million H shares of BYD at a price of 8 Hong Kong dollars per share, with a total transaction price of 1.8 billion Hong Kong dollars, or approximately 230 million US dollars. Since then, Buffett has held it all the way, and its market value has steadily increased.
Especially in 2020, the share price of BYD Hong Kong stock rose 423.6% for the whole year, which made its market value rapidly expand, and it could even occupy the 8th position in the portfolio of the old bus.
Will Berkshire realize this profit?
Whether it is according to Munger’s statement two days ago, “BYD is in a favorable position in the transformation of China’s auto industry chain from fuel to new energy, which has allowed Chinese stock investors to push up its share price. We like this company very much. The company also appreciates its management, so we will follow the true inner thoughts and continue to hold it.” It is Buffett’s usual style, and continued holding is a high probability event.
The above is as of the end of 2020, Berkshire’s top 15 common stock investments with market capitalization. Although it slightly reduced its holdings of Apple stocks, 5.4% of Apple’s holdings brought Berkshire $40 billion to Berkshire last year. Part of the harvest was also due to Apple’s share repurchase.
Verizon Communications, Chevron, and CHARTER Communications are all new investment targets of Berkshire last year. Although Buffett said that he still has not been able to find a big guy to invest, the combined market value of these companies has exceeded 15 billion US dollars.
5. Lao Ba’s summary and analysis of his valuation mistakes are especially worth reading. In the 2020 financial report, there is an asset value write-down of about 11 billion U.S. dollars, most of which came from the aerospace parts company PCC acquired by Berkshire in 2016. (The write-down mainly comes from) A mistake I made in 2016. That year, Berkshire acquired Precision Castparts (PCC), and I spent too much money on this company. “He pointed out in the letter.
“No one misled me at the time. I was just overly optimistic about PCC’s normal profit potential. Last year, the entire aerospace industry, which is PCC’s most important source of customers, was sluggish, which completely exposed my misjudgment.”
In 2016, Berkshire completed the acquisition of Precision Components Corporation (PCC), a manufacturer of aircraft parts and energy production equipment, for a total of 37.2 billion U.S. dollars.
To this day, Buffett still believes that PCC is a very good company, and its CEO management is also very good, and believes that its investment in PCC may still achieve good returns in the future.
But he also confessed that his judgment on the company’s average future earnings was wrong at the time, and therefore overestimated the company’s reasonable price.
At this point, Mr. Ba is frank and humble, because the new crown epidemic is also a black swan event to some extent, and it is difficult to put such factors into the valuation model in advance.
6. The general meeting of shareholders will be held on May 1 this year, but it will be relocated to Los Angeles and will still be held in an online live broadcast.
The good news is that Munger will return to the meeting this time and answer shareholder questions with Buffett. The location in Los Angeles should also take into account the convenience of the 97-year-old Munger to attend the conference.
7. In the future, the outlook for bond investment is bleak. Buffett pointed out that Berkshire Insurance, one of the four companies that bring the greatest value to Berkshire, has the advantage over other insurance companies that it can rely on its strong financial capabilities and huge cash flow to invest mainly in equity assets. Other insurance companies can only invest mainly in bonds due to various restrictions.
But in the future, the prospects for bond investment are bleak.
In addition, unlike many foreign institutions who have begun to short US stocks and call on everyone to invest in the Chinese stock market, Buffett still adheres to one creed: never bear the US…