Warren Buffett’s letter to shareholders optimistic on 2015

Warren Buffett's letter to shareholders optimistic on 2015Warren Buffett, shown in 2011 file photo from Omaha, Neb., brims with optimism in his annual letter to shareholders on Feb. 28, 2015.(Photo: Nati Harnik, AP)In his much-anticipated annual letter to stockholders, Warren Buffett, chairman and CEO of Berkshire Hathaway, celebrates his golden anniversary ownership of the company and, sizing up the economy for 2015, takes a genial swipe at “preachers of pessimism.”He reports that the per-share value of the company he bought in 1965 has rocketed from $19 to $146,186. That, he notes in passing, amounts to a “rate of 19.4 percent compound annually.”As for 2014, Buffett reports a $18.3 billion gain in net worth.The 84-year-old billionaire describes how Berkshire shifted over the years from being primarily a vehicle for investment to owning and operating businesses — and that, he says, is how it ought to be.”The unconventional, but inescapable, conclusion to be drawn from the past fifty years is that it has been far safer to invest in a diversified collection of American businesses than to invest in securities,” Buffett explains.The Oracle of Omaha was particularly bullish on the performance of what he calls his company”s “Powerhouse Five,” a collection of its largest non-insurance businesses.The group, he notes, had a record $12.4 billion in pre-tax earnings in 2014, up $1.6 billion from 2013. The “sainted group,” as he calls it, includes Berkshire Hathaway Energy (formerly MidAmerican Energy), BNSF, IMC, Lubrizol and Marmon.The only blemish, he writes, was with BNSF, the second-largest freight network in North America.”During the year, BNSF disappointed many of its customers,” he says. “These shippers depend on us, and service failures can badly hurt their businesses.”To address the problem, Buffett says Berkshire will spend $6 billion on plant and equipment in 2015 — nearly 50% more than any other railroad.He also takes himself to task for moving too slowly to divest himself of the Britain-based food and merchandise retailer Tesco.”An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier,” he writes. “I made a big mistake with this investment by dawdling.”He says Tesco’s problems — with contracting margins and accounting — worsened month by month, while he opted for “thumbsucking” instead of dumping.He should have known better, he confesses.”In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives.”The ordeal, he says, amounted to an after-tax loss of $444 million, or one-fifth of 1% of Berkshire’s net worth. Since he pulled out, Buffett notes with seeming satisfaction, Tesco has hired new management “and we wish them well.”In his traditional excursions on the how-to’s of investing, he takes a few shots at investment bankers, who are “always ready to suspend disbelief” over dubious maneuvers “particularly if these acrobatics produce mergers that generate huge fees for investment bankers.”He is especially disdainful of those who push buying publicly held companies at a premium by arguing the potential to be wrested by new management.”A few years later, bankers – bearing straight faces – again appear and just as earnestly urge spinning off the earlier acquisition in order to ‘unlock shareholder value,’” he writes. “Spin-offs, of course, strip the owning company of its purported ‘control value’ without any compensating payment. The bankers explain that the spun-off company will flourish because its management will be more entrepreneurial, having been freed from the smothering bureaucracy of the parent company. (So much for that talented C.E.O. we met earlier.)”It was one of the few downbeat notes in a letter brimming with optimism about the American economy.”My parents could not have dreamed in 1930 of the world their son would see,” he writes. “Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket).”On the always tantalizing topic of a successor, Buffett offers little. In addressing Berkshire’s future, he does not list any candidates by name, but says he and the board believe the company has the “right person to succeed me as CEO … In certain important respects, this person will do a better job than I am doing.”

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