Warren Buffett's 50th letter to Berkshire shareholders (DIA, SPY, SPX, BRK)
Berkshire Hathaway just released its 2014 letter to shareholders.
Here are some of the highlights:
- Berkshire Hathaway earned $2,412 per Class A share in the fourth quarter of 2014, missing expectations for earnings of $2,702.
- As of Dec. 31, Berkshire Hathaway's book value per Class A share was $146,186.
- Berkshire's return over the last 50 years? 1,826,163%
For the first time, Berkshire included the historical stock price in this year's annual letter.
Buffett acknowledged that the intrinsic value of the company and the price of the shares isn't always exact; in fact that relationship used to be closer than it is today. However, Buffett and his partner Charlie Munger believe the increase in the share price and the increase in intrinsic value are roughly equal.
Buffett said that Berkshire's "Powerhouse Five" — the company's largest non-insurance businesses — earned $12.4 billion pre-tax, up from $1.6 billion in 2013. These businesses include, Berkshire Hathaway Energy (formerly MidAmerican Energy), BNSF, IMC (I’ve called it Iscar in the past), Lubrizol, and Marmon. If the US economy continues to improve in 2015, Buffett expects earnings for these companies will improve as well.
BNSF's results, however, was the major spot of bad news for the company in 2014, and the company plans to spend $6 billion on plant and equipment in 2015, which Buffett says is nearly 50% more than any other railroad has spent in a single year. "A truly extraordinary amount," Buffett wrote.
In all, Berkshire Hathaway's subsidiaries spent $15 billion on plants and equipment in 2015, with 90% of that money spent in the US.
Berkshire Hathaway also completed its acquisition of Van Tuyl Automotive, a group of 78 auto dealerships with annual sales of $9 billion. With this deal, Buffett said, "we are now 'car guys.'"
And the company is clearly open to more acquisitions.
Buffett wrote: "With the acquisition of Van Tuyl, Berkshire now owns 9 1/2 companies that would be listed on the Fortune 500 were they independent (Heinz is the 1/2). That leaves 490 1/2 fish in the sea. Our lines are out."
On Berkshire's "Big Four" investments — American Express, Coca-Cola, IBM, and Wells Fargo — Buffett said Berkshire increased its ownership stake in each. The biggest increase was to take a 7.8% stake in IBM, up from 6.3% at the end of 2013. Its stake in Coke was up 0.1% to 9.2%, in AmEx Berkshire's stake increased 0.6% to 14.8%, an the company increased its stake in Wells Fargo by 0.2% to 9.4%.
Buffett wrote, "And, if you think tenths of a percent aren’t important, ponder this math: For the four companies in aggregate, each increase of one-tenth of a percent in our ownership raises Berkshire’s portion of their annual earnings by $50 million."