Page 23 - Investment Advisor April 2021

wide — whether pension funds, insur-
ance companies or retirees — face a
bleak future. He cautioned against own-
ing risky bonds backed by “shaky bor-
rowers” paying higher yields.
“Three decades ago, the once-mighty
savings and loan industry destroyed
itself, partly by ignoring that maxim,”
he noted.

Stock repurchases can enhance
2 the intrinsic value of shares needs for additional capital.” Berkshire project that is expected to be completed
but not at any price. “American CEOs Hathaway owns a few such “exceptional by 2030.
have an embarrassing record of devot- businesses,” according to Buffett. “Billions of dollars needed to be
ing more company funds to repurchas- invested before meaningful revenue
es when prices have risen than whey Asset-heavy companies also can would flow,” wrote Buffett. He expects
they have tanked,” Buffett wrote. “Our 6 be good investments but they BHE “will be a leader in delivering ever-
approach is exactly the reverse.” can require major capital invest- cleaner energy” and he’s searching for
Berkshire Hathaway purchased the ments, according to Buffett, whose similar big projects to take on.
equivalent of 80,998 shares in 2020, Berkshire Hathaway owns two such
spending $24.7 billion, according to giants — BNSF, a railroad company, and “Conglomerates have earned
Buffett. It also benefited when Apple, BHE (Berkshire Hathaway Energy). 8 their horrible reputation.”
whose shares it owns, repurchased its The two companies earned a com- History shows that many conglom-
own shares. bined $8.3 billion 2020, almost double erates created by leaders once “lion-
Although Berkshire sold some of its the $.4.2 billion earned in 2011, but both ized as business geniuses” …. ”ended
Apple position in 2020, its stake actually will require major capital expenditures up as business junkyards.” Their lead-
increased from the 5.2% it held in 2019 for decades to come, wrote Buffett. ers bought whole businesses that were
BNSF: dbvirago/stock.adobe.com; Power plant: AlexanderNovikov/stock.adobe.com
to 5.4% in 2020 because of April’s repur- Since Berkshire acquired BNSF in mediocre and used promotional, often
chases, which shrunk the number of its 2010, it has invested $41 billion in fixed deceptive techniques that overvalued
outstanding shares. assets — $20 billion more than its depre- their own stocks in order to take over
ciation charges, but it has earned the other companies.
Ownership of stocks is a “pos- firm $41.8 billion.
3 itive-sum game,” but investors Berkshire Hathaway differs
“must never forget that their expenses The outdated electric grid cou- 9 from the conglomerate proto-
are Wall Street’s incomes” and “Wall 7 pled with the advent of renew- type, because it owns some compa-
Streeters do not work for peanuts.” able energy creates opportunities, nies it controls and some it doesn’t;
but also requires massive investment. it also deploys capital into companies
“Productive assets such as rework and expand a substantial por- that Buffett and Munger believe make
BHE has committed $18 billion to
4 farms, real estate, and business
the most sense based on competitive
Treasury: Michael A. Scarcella/ALM Media) an inner calm, ample diversification and some other companies outright, it has
tion of the outdated grid that transmits
strengths, capabilities and character of
ownership produce wealth. … All
electricity throughout the West in a
that’s required is the passage of time,
management and price.
While Berkshire owns BNSF, BSE and
minimization of transitions and fees.”
double-digit stakes in American Express
“The best results [in fixed asset
(18.8%), Moody’s Corp. (13.2%) and Bank
5 ownership] occur at companies
of America (11.9%) and smaller stakes in
that require minimal assets to con-
other companies.
duct high-margin businesses — and
offer goods or services that will expand
Bernice Napach can be reached at
their sales volume with only minor
[email protected].
APRIL 2021 INVESTMENT ADVISOR 21