Warren Buffett released his annual letter to shareholders Saturday, saying a large portion of Berkshire Hathaway's 2017 gains came from nothing the company did, but came from the federal tax overhaul passed last year.
Still, Buffett said: "The $65 billion gain is nonetheless real — rest assured of that."
The chairman and chief executive of Omaha-based Berkshire Hathaway said the "net worth" of the company increased by $65.3 billion, $36 billion of which came from the company's operations; the remaining $29 billion came from the changes in the tax code.
In 2017, Berkshire stock's per share market value increased 21.9 percent vs. 21.8 percent gain in the broader stock market, when looking at the S&P 500 index with dividends included. The book value, which Buffett encourages as a use of valuing a Berkshire investment, increased 23 percent per share.
That means the overall gain from the company's 1964 initial public offering to the end of last year would have shown a per-share increase in market value of 2,404,748 percent, according to the letter, compare to the broader market's gains of 15,508 percent during that time, when including dividends.
Some highlights from the letter:
» At the end of 2017, Berkshire had more than $116 billion in cash and cash equivalents, up from nearly $87 billion at the end of 2016. The company is sitting on that pile of cash while Buffett waits for an "elephant" — a big company — to buy.
In 2017, that didn't happen. Buffett said in the annual letter that companies broadly are highly valued — that is, expensive — by normal standards. That's because debt is cheap at the moment, fueling a run up in companies' market values.
"In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price," Buffett said.
Price proved to be the barrier to a new, big-time acquisition in 2017, Buffett said. Even so-so businesses, he said, were attracting record prices, and for an army of yield-hungry investors, it seemed any price wasn't too much.
Not so for Berkshire, Buffett said.
"The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own," he wrote in the annual letter.
» Buffett gave details about this year's annual shareholders' meeting in Omaha, to be held May 5 at the CenturyLink Center.
The meeting will again be streamed on Yahoo, and the meeting again will be translated on the Web stream into Mandarin, a bid to interest possible Chinese investors.
Yahoo begin streaming the annual meeting in 2016. Real-time viewership in 2017 was about 3.1 million, a gain of 72 percent over the previous year, Buffett said. Replays added another 17.1 million views.
In person, the CenturyLink will open at 7 a.m. that Saturday; the meeting begins at 8:30. A day-long question-and-answer period, during which Buffett and Vice Chairman Charlie Munger take questions, will run from 9:15 a.m. until 3:30, with a one-hour lunch break at noon.
"Come to Omaha," Buffett beckoned in his letter, dubbing the city the "cradle of capitalism."
» Buffett singled out newly designated vice chairmen Ajit Jain and Greg Abel, longtime operating company executives, Jain with the insurance business and Abel with the company's energy businesses.
Their appointments came earlier this year. Jain will run all of Berkshire's insurance business; Abel will run all of its non-insurance businesses. Buffett and Vice Chairman Munger will focus on investments and capital allocation.
With their appointments, some Berkshire prognosticators have said either man could now be in the running to one day take the top role at Berkshire, when Buffett, 87, no longer holds it.
Said Buffett in Saturday's annual letter: "You and I are lucky to have Ajit and Greg working for us. Each has been with Berkshire for decades, and Berkshire’s blood flows through their veins. The character of each man matches his talents. And that says it all."
Stay with Omaha.com throughout the day for more on this developing story. And pick up Sunday's World-Herald for in-depth coverage.
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