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Feb 22, 2020

Buffett spends record US$2.2B buying up Berkshire shares

McCreath's Lookahead: Look to Buffett's letter for lessons learned

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Warren Buffett kicked his stock-buyback program into high gear, spending US$2.2 billion on repurchases in the last three months of 2019, the most ever in a single quarter -- and he’s looking to buy even more.

Buffett’s Berkshire Hathaway Inc., which loosened its repurchase policy almost two years ago after being stymied on the dealmaking front, has since taken a cautious approach to buybacks, acquiring only US$6.3 billion of stock. In the fourth quarter, Buffett bought shares every month, and has no plans to slow down, if the price is right.

“Shareholders having at least US$20 million in value of A or B shares and an inclination to sell shares to Berkshire may wish to have their broker contact Berkshire’s Mark Millard,” Buffett said in his annual letter to shareholders Saturday. “We request that you phone Mark between 8:00-8:30 a.m. or 3:00-3:30 p.m. Central Time, calling only if you are ready to sell.”

Even as Buffett ramped up his repurchases, Berkshire’s massive pile of cash hovered close to a record, totaling $128 billion at the end of 2019. Buffett, Berkshire’s chairman and chief executive officer, has sought to redeploy those funds into higher-returning deals or stock purchases, but has been stymied by what he’s said are “sky-high” prices for good businesses.

Buffett spent a portion of his annual letter reassuring shareholders about the future of the company once it’s no longer run by the billionaire investor and his business partner, Charlie Munger, who turned 96 this year.

“Berkshire shareholders need not worry: Your company is 100% prepared for our departure,” Buffett said.

At Berkshire’s annual meeting in May, shareholders will be able to submit questions to be answered by lieutenants Ajit Jain or Greg Abel, Berkshire vice chairmen who are considered top contenders to someday replace Buffett. They answered a few investors questions at last year’s meeting.

Berkshire’s operating earnings fell to US$4.42 billion in the fourth quarter, down 23 per cent from a year earlier, driven by underwriting losses at its namesake reinsurance group, which was hurt by typhoons in Japan, wildfires in California and Australia, and widening losses at its business writing retroactive reinsurance contracts.

Berkshire’s Class A shares last year underperformed the S&P 500 Index by the widest margin since 2009. The stock has gained just 1.1% this year.

Also in Berkshire’s 2019 annual report, released alongside Buffett’s letter Saturday:

  • Kraft Heinz Co., which counts Berkshire as its largest shareholder, had a tumultuous 2019, with writedowns, management shakeups and downgrades to junk. Buffett’s company carries its Kraft Heinz investment on its balance sheet at US$13.8 billion, a figure unchanged since 2018’s fourth quarter, even as the market price of the stake dropped to US$10.5 billion at the end of last year.
  • Berkshire’s BNSF railroad posted a 3.8 per cent gain in profit in the fourth quarter, just shy of record earnings in the previous three months, as a decline in expenses helped counter falling revenue across shipments of products such as coal, consumer items and agricultural goods. BNSF posted a regulatory filing Friday night, on the eve of the release of Buffett’s annual letter, giving investors a sneak peek of results.

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