Posted Feb 23 2020 at 5:47 p.m.Updated Feb 24. 2020 at 10:27 am
“Let your left hand not know what your right is doing”. It is with this quote from the Bible that Warren Buffett, the famous boss of the American conglomerate Berkshire Hathaway, returned to the fire at the Lubrizol factory in Rouen last year in his letter annual to its shareholders. It must be said that Berkshire Hathaway is the sole shareholder of the company and therefore finds itself faced with significant losses, which should be offset by “significant insurance recoveries”. But the situation is not so simple for the conglomerate. “One of Lubrizol’s main insurers is a company … owned by Berkshire,” Warren Buffett admitted to his shareholders: even the Omaha Oracle is getting lost in the galaxy of companies controlled by Berkshire.
Mountain of cash
However, it is of course the absence of a new large-scale acquisition that Warren Buffett devoted the main part of his letter. While the group’s cash reserves amount to $ 128 billion, Berkshire Hathaway has mainly acquired minority stakes in listed companies in recent years. However, the price of Berkshire Hathaway significantly underperformed the main American stock index in 2019, posting an increase of 11%, against a gain of more than 30% for the S&P 500 reinvested dividends.
“Opportunities to make major acquisitions that meet our expectations are rare. Much more often, a capricious stock market offers us opportunities to buy large positions, but without taking control, in companies listed on the stock market that meet our requirements, “he justifies in his letter.
In fact, its listed investments, notably in Apple, Coca-Cola, Moody’s and even Bank of America, saw their valuation jump 44% last year, allowing the group to post a profit of 81 billion dollars in 2019 , thanks to the accounting rules for holding securities in the portfolio. However, these companies keep a significant part of their profits, notes Warren Buffett. Reinvested profits which correspond to $ 8 billion and are not reflected in the accounts of Berkshire. The profits made by its subsidiary companies fell by 3.3% last year.
Preparing for the post Warren Buffett
If valuations remain too high for the taste of the American billionaire for major acquisitions, Berkshire Hathaway could continue to buy back its own shares rather than paying a dividend. The group thus bought a record amount of $ 5 billion in 2019, even if Warren Buffett insists on his desire not to “support the course [de Berkshire] whatever the price “.
89-year-old Warren Buffett also devoted a significant part of his letter to the future of the group, mentioning in particular the provisions of his will. His personal Berkshire shares will not be sold after his death, he said, but will gradually be turned over to charities. By then, his lieutenants Ajit Jain and Greg Abel, aged 68 and 57 respectively, already expected to take over, will be more visible. From the next Berkshire general meeting, they will have to answer questions directly from shareholders and journalists.
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