Warren Buffett issues annual letter to investors: 4 takeaways

Doris Richards
March 1, 2018

The Oracle of Omaha explained the perils of using debt and leverage in his 2017 annual letter to Berkshire Hathaway shareholders released on Saturday.

Nonetheless, Buffett's own business stands to benefit from the law, which effectively lowers the federal corporate tax rate from 35% to 21%.

"It isn't hard to shave a little bit off here", Buffett said. However, it's important for shareholders to know that this was a result of the combination of Berkshire's performance as well as the Tax Cuts and Jobs Act. "That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high". It also acknowledged the $116b cash hoard that Berkshire has on hand, and the challenge of looking for an investment at the right price.

"The inclination might be more toward repurchases than dividends because dividends have the implied promise that you keep paying them forever", Buffett said.

Berkshire Hathaway's Buffett, Amazon's Bezos and J.P. Morgan's Dimon announced last month a venture created to cut health costs and improve services for their US employees.

Don't get Warren Buffett wrong: There are some things he and his 400-year-old sidekick Charlie won't own, like immoral pharmaceutical companies.

"It would be very easy I think to go in and shave off 3 or 4 percent just by negotiating power. For that to happen, we will need to make one or more huge acquisitions", wrote Mr. Buffett. "Hopefully we can find a way where perhaps better care could be delivered even at a somewhat lesser cost". Regulators determined that bank employees opened millions of unauthorized accounts to meet sales quotas. "Though markets are generally rational, they occasionally do insane things".

Buffett, who has called healthcare costs "the hungry tapeworm" on the USA economy, said the goal is to deliver better care and take costs out of the system to at least halt the industry's growing share of gross domestic product (GDP).

Buffet's annual letter this time was much shorter than usual. "You obey your government and if you don't you can have plenty of consequences, and Wells Fargo is suffering through those", he said, "but they will get through it". "You will not be way happier if you double your net worth". Zacks Investment Research's EPS calculations are a mean average based on a survey of research firms that cover Berkshire Hathaway. Its segments include Insurance, such as GEICO, Berkshire Hathaway Primary Group, General Re Corporation and Berkshire Hathaway Reinsurance Group; Burlington Northern Santa Fe, LLC, which is engaged in the operation of the railroad system; Berkshire Hathaway Energy, which includes regulated electric and gas utility; Manufacturing, which includes manufacturers of various products, including industrial, consumer and building products; McLane Company, which is engaged in the wholesale distribution of groceries and non-food items; Service and retailing, which includes providers of various services, including fractional aircraft ownership programs, aviation pilot training and various retailing businesses, and Finance and financial products, which includes manufactured housing and related consumer financing, transportation equipment, manufacturing and leasing, and furniture leasing.

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