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Amazon, Berkshire Hathaway Could Be Among Top Payers of New Minimum Tax

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Researchers at the University of North Carolina Tax Center analyzed securities filings to determine what companies would have paid if the tax had been in place last year. They found fewer than 80 publicly traded U.S. companies would have paid any corporate minimum tax in 2021, and just six—including Amazon and

Warren Buffett’s

conglomerate—would have paid half of the estimated $32 billion in revenue the levy would have generated.

The tax, which takes effect in January, is the largest revenue-raising provision in Democrats’ climate, healthcare and tax law. The provision, projected to generate $222 billion over a decade, alters tax incentives and complicates corporate tax decisions. Democrats aimed the provision at large companies that report profits to shareholders but pay relatively little tax.

Berkshire Hathaway would have paid $8.3 billion last year if the new tax law had been in place, according to UNC estimates.



Photo:

Michelle Bishop/Bloomberg News

“Who actually pays a lot is just not very many firms at all,” said Jeff Hoopes, an accounting professor at UNC Chapel Hill who is one of the study’s authors. “My guess is it will not be the same firms every single year.”

Although this wasn’t the aim of the law, it could have an impact on some of the wealthiest Americans. Some Democrats proposed direct taxes on billionaires’ unrealized capital gains earlier in the legislative process. While that wasn’t adopted, the new corporate minimum tax would increase the tax burden on some wealthy shareholders, such as Warren Buffett at Berkshire and

Jeff Bezos

at Amazon.

Mr. Buffett owned 16% of Berkshire Hathaway’s shares earlier this year, while Mr. Bezos owned nearly 13% of Amazon’s, securities filings show. Representatives for Messrs. Bezos and Buffett declined to comment.

Corporate tax directors and accounting firms are also analyzing the law, figuring out how they are affected and preparing to lobby over regulations. Few have estimated its impact publicly.

The UNC analysis comes with caveats. Lacking confidential tax returns that would allow precise calculations, the authors used publicly available financial data. Companies might change behavior to minimize taxes. A one-year snapshot includes unusual situations that cause companies to pay the minimum tax once, generating tax credits that can be used in future years.

Jeff Bezos owned nearly 13% of Amazon shares earlier this year, securities filings indicated.



Photo:

Jay Biggerstaff/USA TODAY Sports

Under the new law, companies averaging more than $1 billion in publicly reported annual profits calculate their taxes twice: once under the regular system with a 21% rate and again with a 15% rate and different rules for deductions and credits. They pay whichever is higher.

The new system, known as the book minimum tax, starts with income reported on the financial statement, not traditional taxable income. Differences between the two—the treatment of stock-based compensation, for example—could drive a company into paying the new tax.

According to the UNC estimates, Berkshire Hathaway would have paid the most in 2021, at $8.3 billion—or about a quarter of the estimated total—followed by Amazon at $2.8 billion and

Ford Motor Co.

at $1.9 billion.

Add the next three companies and that reflects more than half the $31.8 billion total:

AT&T Inc.

at $1.5 billion,

eBay Inc.

at $1.3 billion, and

Moderna Inc.

at $1.2 billion.

Berkshire Hathaway didn’t comment. Amazon declined to comment on the figure but said it awaits federal guidance. Amazon said its taxes reflect a combination of investment and compensation decisions and U.S. laws.

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An AT&T spokesman said the company doesn’t expect the minimum tax to affect its 2023 tax bill. “Academics don’t prepare our taxes; trained and expert tax professionals do that work,” the spokesman said.

Moderna’s tax rate in 2021—its first year with an operating profit—was shaped by the use of deductible net operating losses generated from research expenses, said

Jamey Mock,

the company’s chief financial officer. The company also paid much of its 2021 taxes during 2022. “We do not anticipate those unique conditions factoring into our future tax considerations,” he said.

Melissa Miller, a Ford spokeswoman, said the company pays all the taxes it owes and pointed to tax credits in the law designed to accelerate the transition to electric vehicles.

Heather Jurek, eBay’s vice president of tax, said the study’s computations and interpretations of the law are inaccurate when applied to the company. “UNC’s conclusions are driven by a significant disposition in 2021 that eBay is unlikely to replicate,” she said.

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What will be the impact of a 15% minimum tax on large profitable corporations? Join the conversation below.

Exelon Corp.

is among the few companies that has disclosed what it anticipates to be detailed effects from the tax. The utility-services holding company said in an August securities filing that it expected to incur annual cash costs of about $200 million starting next year, down from an earlier $300 million estimate.

Exelon said it continues to evaluate the tax provision and it expects to benefit from legislative provisions encouraging investment in electric vehicles and electrical-grid modernization.

Lynn Good,

chief executive of

Duke Energy Corp.

, told investors in August that the utility giant also expects to be affected, without providing figures. A spokesman said the UNC estimate, $802 million based on 2021 income, is far too high. He said the company also expects to benefit from the legislation’s tax credits for renewable and nuclear power.

Linking taxes closer to publicly reported profits is intentional. It will become harder for companies to maximize profits to impress shareholders while managing taxable profits downward to minimize payments to governments, tax advisers say.

Mr. Biden has said the new tax means that the days of profitable companies paying no tax are over.

“There are companies that, for a variety of reasons, will perpetually be in a minimum-tax position,” said April Little of accounting firm Grant Thornton LLP.

Some profitable companies could still pay very little or no federal income taxes. Companies can offset up to 75% of tax liability with credits—including renewable-energy incentives Congress just expanded. The law includes special provisions benefiting companies with wireless spectrum investments, defined-benefit pensions and significant capital investments.

“We have the anti-loophole tax bill that’s full of loopholes,” Mr. Hoopes said.

Tax advisers say companies are trying to understand the law, pointing to uncertainties such as the treatment of currency losses and gains, capitalized depreciation deductions and rules around mergers and acquisitions.

By early next year, companies will start providing earnings guidance, making estimated-tax payments and reflecting the tax in quarterly earnings. They might also start crafting mitigation strategies and looking for flexibility in the accounting rules for when income and expenses are counted.

“What I see most people doing right now is worrying about: How is it supposed to work? How am I going to do this without going crazy?” said Diana Wollman, a partner at law firm Cleary, Gottlieb, Steen & Hamilton LLP.

“They’re spending more time trying to figure out what they want to ask for in regulations in terms of either clarity or regulatory discretion than they are trying to figure out how they’re going to game it,” Ms. Wollman said.

Write to Richard Rubin at richard.rubin@wsj.com and Theo Francis at theo.francis@wsj.com

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Business

Warren Buffett’s Berkshire Hathaway Cleared to Buy as Much as Half of Occidental’s Shares

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In a regulatory filing Friday, the Federal Energy Regulatory Commission said that Berkshire Hathaway had asked for and received its permission to buy up to 50% of the driller’s shares. Berkshire has been loading up on Occidental’s shares this year, amassing roughly 20% of the company’s stock, public filings show, leaving many analysts to speculate whether Mr. Buffett would seek control of the company, one of the largest U.S. oil producers.

Occidental’s shares jumped to lead stock gains among the S&P 500 Friday, rising 9.9% after the publication of the ruling. The company’s stock has risen about 146% this year, far and away tops in the S&P 500 stock index, which is down 11% this year.

Berkshire requested the authorization on July 11 and said at the time it owned approximately 18.72% of the outstanding common shares of Occidental, according to the federal ruling. Berkshire has since added shares and earlier this month said in a securities filing that it held roughly 20% of Occidental’s common stock. Berkshire also owns warrants to buy another big slug of Occidental’s common stock as well as $10 billion worth of preferred shares that pay Berkshire about $800 million annually, filings show.

“It is concluded that the Proposed Transaction is consistent with the public interest,” Carlos D. Clay from the FERC’s Office of Energy Market Regulation wrote in the filing.

A spokesman for Occidental confirmed that Berkshire could now buy up to 50% of common shares and didn’t comment further. A Berkshire Hathaway representative didn’t respond to a request for comment.

Mr. Buffett has invested billions in renewables such as wind-farm projects through Berkshire’s energy unit and has also added oil companies to the holding company’s portfolio in recent years.

Chevron Corp.

is now one of Berkshire’s largest stock investments.

Occidental has raked in high profits from elevated oil prices, netting $3.7 billion in the second quarter. The profits are a dramatic turnaround for the company, which lost around $14.8 billion in 2020 after the global pandemic gutted oil demand. Berkshire’s stock purchases, as well as that of the many investors who follow Mr. Buffett’s moves, have helped lift Occidental’s shares to the head of the broad rally in energy stocks.

Occidental’s ill-timed $38 billion deal to take over rival Anadarko Corp. in 2019 loaded the company with debt, leaving it in a perilous position as oil prices tumbled during the pandemic. Chief Executive

Vicki Hollub

made deep spending cuts over the past two years, moved to rein in growth and focused on using cash to pay down debt.

The company has repaid $8 billion in debt this year to bring it to $22 billion, down from nearly $36 billion a year ago, according to the company and analysts. Occidental’s endeavor to reach investment-grade status and its cash-generating capabilities have made it an attractive target for Mr. Buffett, said Neal Dingmann, an analyst with Truist Securities. “It’s a great sort of hedge against a lot of his other businesses to own such a high free-cash-flowing business,” he said.

Occidental has raked in high profits from elevated oil prices, netting $3.7 billion in the second quarter.



Photo:

Reuters Staff/REUTERS

Mr. Buffett has made no secret of his admiration for Ms. Hollub, describing her as one of the best executives in the business. In 2019, he acquired $10 billion in preferred stock to help the company pay for the Anadarko deal.

“What Vicki Hollub was saying made nothing but sense,” Mr. Buffett said at Berkshire’s annual shareholder meeting in April. Occidental looked like “a good place to put Berkshire’s money,” he added.

Mr. Buffett had to show his hand to the market because power plants controlled by both Occidental and Berkshire Hathaway feed the same grid in Louisiana. Occidental owns a power plant in Taft, La., that feeds its chemical plant next door. Leftover power is sold on the local grid, which Berkshire Hathaway Energy plants also feed.

FERC ruled that since Occidental’s plant accounts for just 0.48% of the capacity connected to the region’s grid, a combination with Berkshire “will not have an adverse effect on competition” in the local electricity market. Mr. Buffett had to ask, though, before beefing up Berkshire’s Occidental stake.

In recent years, Occidental has ventured into renewables through its Oxy Low Carbon Ventures unit. This new focus dovetails with Berkshire’s own investments in renewable energy and puts Mr. Buffett’s company in a position to benefit from tax breaks, said

Bill Smead,

chief investment officer at Smead Capital Management.

“We see Berkshire’s filing as a vote of confidence in the oil macro and the value proposition in energy equities,” said Kevin MacCurdy, a managing director at investment firm Pickering Energy Partners.

Write to Benoît Morenne at benoit.morenne@wsj.com and Ryan Dezember at ryan.dezember@wsj.com

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Business

These 20 EVs Will Keep Their Tax Credits for Now

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Photo: Ford

There are 20 electric vehicles that will qualify for the $7,500 EV tax credit through the end of the year, the U.S. and Mexico are ending a labor probe at a Mexican Stellantis plant, and Warren Buffet doesn’t seem to0 worried about the car market. All that and more in The Morning Shift for Wednesday (my dudes), August 17, 2022.

1st Gear: The 20 Qualifiers

President Biden signed the sweeping tax, climate and health care bill on Tuesday, and the administration now says about 20 models will still qualify for the up to $7,500 EV tax credit through the end of 2022.

That being said, the law immediately ends credits for almost three quarters of the 72 models that were previously eligible. That’s because, in order to qualify, the EVs must now be assembled in North America.

The number of eligible vehicles is likely to change come January 1, 2023, when new restrictions on battery and mineral sources and pricing caps come into play. The Alliance for Automotive Innovation, an industry trade group, says it’ll make all or nearly all EVs ineligible. From Automotive News:

The automaker group said it will work with the administration “as they issue critical guidance and new regulations – so the EV tax credit is as available and beneficial to consumers as possible.”

Currently eligible vehicles are 2022 model year EV or plug-in hybrid electric versions of the Audi Q5; BMW X5 and 3-Series Plug-in; Ford Mach-E, F-Series, Escape PHEV and Transit Van; Chrysler Pacifica PHEV, Jeep Grand Cherokee PHEV and Wrangler PHEV; Lincoln Aviator PHEV and Corsair Plug-in; Lucid Air; Nissan Leaf; Volvo S60; and Rivian, R1S and R1T. The 2023 Nissan Leaf, BMW 3-Series and Mercedes EQS are also eligible.

Some models are built both in North America and overseas and consumers should check vehicle identification numbers to ensure eligibility, the Treasury Department said.

…

Buyers can still qualify if they had binding written contracts before Biden’s signing and some automakers had been urging customers to make portions of deposits non-refundable to qualify.

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The law also makes General Motors and Tesla vehicles eligible for tax credits starting on January 1. They had previously lost the credits after hitting the old 200,000-vehicle per manufacturer cap. However, it’s not clear if any of the vehicles they make would qualify under the new restrictions.

2nd Gear: U.S. and Mexican Labor Probe Ends

The U.S. and Mexican governments have resolved a labor dispute with a Mexican Stellantis manufacturing plant.

The agreement at Teksid Hierro de Mexico is the fourth labor probe to end under the 2020 United States-Mexico-Canada Agreement (USMCA). It was one of Mexico’s longest-running labor conflicts.

U.S. labor officials said workers at the plant, which makes parts for heavy vheicles including Cummins, Volvo and Mack, were previously denied their rights to choose their union and do collective bargaining. From Reuters:

Reuters reported last week that Teksid, which employs some 1,500 people, expected to close the case without going to a dispute panel after the company recognized an independent union, a move workers attributed to U.S. pressure under the USMCA.

Workers since 2014 had fought to establish a union known as The Miners at the Teksid plant in the northern state of Coahuila, and accused the company of colluding with a powerful rival union to block their efforts.

…

The USMCA resolution “will help end eight years of rights violations against Teksid workers,” U.S. Labor Secretary Marty Walsh said in a statement.

As part of the agreement, the unit of Italian-French carmaker Stellantis in July agreed to re-hire, with back pay, 36 workers who said they had been fired in retaliation for supporting the union, which also represents metalworkers and miners.

Stellantis says it is “diligently cooperating” with governmental officials during the process. The company says it respects collective bargaining rights and will comply with local laws.

3rd Gear: Buffett Ain’t Worried

Warren Buffett doesn’t seem to think the good times are over for car dealers just yet. New filings show Berkshire Hathaway tripled its stake an Ally Financial, a long-time automotive financial company, to $1 billion in the second quarter of 2022.

The world’s most famous investor seems to believe lending margins will remain strong and default rates will stay low. From Financial Times:

In the two pandemic years, shares in Ally rallied 57 per cent. The stock was buoyed by consumers flush with cash flocking to buy used vehicles. Auto manufacturers were unable to meet demand for new cars.

Ally shares, have fallen by a quarter so far in 2022. Wall Street is worried about the finances of the US consumer as well as a normalisation in the auto market. Ally says those worries remain overstated, a view that now has the implicit endorsement of a legendary investor.

Between the end of the 2019 and the start of 2022, the Manheim Used Vehicle Value Index increased by a vertiginous 70 per cent. Higher used car prices supported bigger loans at a time when there were virtually no concerns about immediate credit losses.

Net interest revenue increased substantially in the current quarter, compared with 2021. However, Ally was forced to accrue credit loss provisions so big that pre-tax income fell 40 per cent year on year. The company insists those provisions are simply a natural reversion to ordinary levels.

The move is a vote of confidence not only in auto loans, but in consumer spending power as a whole. If Warren’s not worried about our ability to confidently spend money, why should we be?

4th Gear: BMW’s Battery Switch Up

China’s EVE Energy CO Ltd is going to start supplying BMW with large cylindrical batteries for the company’s electric cars in Europe. It’s reported BMW is following in Tesla’s footsteps by adopting the new technology. Vehicles with the new batteries are due to hit the market in 2025.

Earlier this year, Tesla starting manufacturing its new large-format 4680 cylindrical battery. 4680 means 46 millimeters in diameter and 80 millimeters in length. Tesla says it expects the new battery to lower production costs and improve range compared to the current-generation 2170 cylindrical batteries.

EVE’s batteries are expected to be a similar size to Teslas. From Reuters:

EVE, a supplier to BMW in China, did not directly address Reuters queries when asked for comment. BMW said it plans to release some battery-related news in early September but declined further comment.

The shift by BMW, which currently uses prismatic batteries, underscores growing momentum for larger-format cylindrical batteries. Prismatic batteries, which are rectangular in shape, have become the most common form of auto battery in the past two years as they can be more densely packed, saving on costs. But proponents of cylindrical batteries argue the newer larger format cells have become more cost-effective due to improvements in energy density.

China’s CATL (300750.SZ), the world’s largest battery maker, is also due to start supplying cylindrical batteries to BMW from 2025.

Expectations are high that these batteries will also be large-sized cells. CATL did not respond to a request for comment on planned dimensions.

Right now, it’s not clear exactly how many batteries BMW plans to get from EVE and CATL.

5th Gear: Out Of Power

Toyota has suspended operations at one of its plants in China after local authorities issued an order to conserve electricity. The manufacturing facility will be shuttered until Saturday, according to a spokesperson for the company.

Sichuan province, where the plant is located, is rationing industrial electricity consumption during its worst heatwave in 60 years. It’s caused producers of fertilizers, lithium and other metals to suspend plant operations or curb output. From Reuters:

Industrial users across 19 out of 21 cities in the province were ordered to suspend production from Aug. 15 until Aug. 20 to prioritise residential power supply, according to a notice issued on Sunday by the Department of Economy and Information Technology of Sichuan.

…

“We’re monitoring the situation every day and following the guidance from the government,” the Toyota spokesperson said.

Toyota wouldn’t say just how much vehicle output would be impacted by the suspension.

Reverse: Up!

This is transportation content if I’ve ever seen it.

Neutral: I’m A Gossip Girl Now

I just signed the lease on an apartment on the Upper East Side of Manhattan. Call me Blair Waldorf, because I’m very fancy. Unfortunately, this will continue my issue of not being able to have my car in the same state I live in. You win some, you lose some. What can ya do, ya know? It’s going to be a fun time. Buh bye, Lower Manhattan.

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Business

Berkshire Hathaway Inc. Cl B stock outperforms market on strong trading day

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Shares of Berkshire Hathaway Inc. Cl B
BRK.B,
+4.02%
rose 4.02% to $278.28 Friday, on what proved to be an all-around favorable trading session for the stock market, with the S&P 500 Index
SPX,
+3.06%
rising 3.06% to 3,911.74 and the Dow Jones Industrial Average
DJIA,
+2.68%
rising 2.68% to 31,500.68. The stock’s rise snapped a two-day losing streak. Berkshire Hathaway Inc. Cl B closed $83.82 below its 52-week high ($362.10), which the company achieved on March 29th.

The stock demonstrated a mixed performance when compared to some of its competitors Friday, as Honeywell International Inc.
HON,
+3.12%
rose 3.12% to $180.02, 3M Co.
MMM,
+3.21%
rose 3.21% to $134.33, and General Electric Co.
GE,
+4.70%
rose 4.70% to $67.08. Trading volume (6.4 M) eclipsed its 50-day average volume of 4.6 M.


Editor’s Note: This story was auto-generated by Automated Insights, an automation technology provider, using data from Dow Jones and FactSet. See our market data terms of use.

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Business

Coachella for Capitalists: Why bitcoin topped the bill at Berkshire Hathaway’s AGM

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It’s been called the Woodstock of Capitalism, Coachella for Capitalists, and a whole lot worse too.

What’s for certain is that Berkshire Hathaway’s annual general meeting is a must-watch event for market lovers.

While our UK readers may have been catching a break over the public holiday, the long weekend saw plenty of fiery comments from Berkshire’s storied leaders Warren Buffett and Charlie Munger, not least on the future of cryptocurrencies like bitcoin.

“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,” Buffett said.

What’s the entire world’s stash of bitcoin worth? Not even $25, according to the Oracle of Omaha.

Not to be outdone, Munger added: “In my life, I try and avoid things that are stupid, evil and make me look bad in comparison to somebody else… and bitcoin does all three.”

Robinhood — which owed a significant part of its lockdown-induced success to bumper crypto trading volumes — also came in for another beating from Munger.

God is “getting just”, he said, as the day trading platform continues to lose customers and report stalling revenue.

The continued criticism of bitcoin marks the latest salvo in a war of words between the Berkshire bosses and crypto enthusiasts like Peter Thiel.

Last month, the billionaire entrepreneur branded Buffett a top “enemy” of bitcoin and part of a “finance gerontocracy” that has held back the cryptocurrency’s adoption — a club that also includes Jamie Dimon, chief executive of JPMorgan, and Larry Fink, chief executive of BlackRock.

Thiel’s fellow crypto fans were quick to hit back again after the Berkshire AGM.

“They’re not exactly the most technology-forward investors,” said Eric Chen, co-founder and chief executive at Injective Labs. “As a matter of fact, I think that goes more towards the affirmation that the space is really disrupting something.”

David Tawil, president and co-founder of cryptoasset fund ProChain Capital, noted that it was “decades before [Berkshire] decided to go ahead and invest in Apple”.

In case you missed any of the action from the event, see below for the most talked-about themes.

We’ve also got a roundup of what you need to know as crypto faces a challenging path ahead — down some 13% over the year to date, big names such as Starling Bank’s Anne Boden are among the latest to sound a sceptical note on bitcoin’s fortunes in recent days.

Regulators across the world are also stepping up their scrutiny of the sector.

Last week, Commodity Futures Trading Commission chair Rostin Behnam told an audience at the City Week 2022 conference that giving firms permission to clear crypto derivatives directly was not a given.

“It might not sound like a big issue, but it is a significant issue. It is really proposing and presenting a very different market structure model that has some opportunity, but certainly some risk,” said Behnam.

Meanwhile, the US Labor Department said it has “grave concerns” about Fidelity’s bitcoin pension plan, putting a potential spanner in the works for firms looking to expand crypto’s range in the retirement space.

Everything you need to know from Berkshire’s famed AGM

Warren Buffett and Charlie Munger hit out at bitcoin at Berkshire’s AGM but crypto fans are unmoved

Why Warren Buffett says markets are a ‘gambling parlour’

Berkshire Hathaway’s Charlie Munger hits out at Robinhood again

Warren Buffett Is Still Setting Berkshire’s Direction. For How Much Longer? (The Wall Street Journal)

And on crypto’s current troubles

The Fed isn’t going to save bitcoin’s bear market

Too many crypto transactions are fraudulent, Starling CEO Anne Boden warns

US Labor Department has ‘grave concerns’ about Fidelity’s bitcoin pension plan

The SEC is beefing up crypto enforcement. Its target is basically everything (Barron’s)

The new way to get a tax break: NFT and crypto donations (The Wall Street Journal)

To contact the author of this story with feedback or news, email Justin Cash

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Business

Warren Buffett Says Markets Have Become a ‘Gambling Parlor’

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OMAHA, Neb.—As recently as February,

Warren Buffett

lamented he wasn’t finding much out there that was worth buying. 

That is no longer the case.

After a yearslong deal drought, Mr. Buffett’s

Berkshire Hathaway Inc.

BRK.B -2.55%

is opening up the spending spigot again. It forged an $11.6 billion deal to buy insurer

Alleghany Corp.

Y -0.62%

, poised to be Berkshire’s biggest acquisition in six years. It bought millions of shares of

HP Inc.

HPQ -2.53%

and

Occidental Petroleum Corp.

OXY -3.40%

And it dramatically ramped up its stake in

Chevron Corp.

CVX -3.16%

, making the energy company one of Berkshire’s top four stock investments.

The big question: Why?

“It’s a gambling parlor,” Mr. Buffett said Saturday of the markets over the past few years. He added that he blamed the financial industry for motivating risky behavior among investors. While he finds speculative bets “obscene,” the pickup in volatility across the markets has had one good effect, he said: It has allowed Berkshire to find undervalued businesses to invest in again following a period of relative quiet. 

“We depend on mispriced businesses through a mechanism where we’re not responsible for the mispricing,” Mr. Buffett said.

Mr. Buffett, 91 years old, shared his thoughts on the state of the markets, Berkshire’s insurance business and recent investments at the company’s annual shareholder meeting in downtown Omaha.

Berkshire also held votes on shareholder proposals, with investors ultimately striking down measures that asked Berkshire to make its board chairman independent and called for the company to disclose climate risk across its businesses. 

Shareholders eager to score prime seats lined up for hours before the doors opened in the arena where Mr. Buffett; right-hand-man

Charlie Munger,

98; and Vice Chairmen

Greg Abel,

59, and

Ajit Jain,

70, took the stage. As Mr. Buffett entered, a lone audience member took the opportunity to send a message. “We love you,” the person shouted. 

Mr. Buffett appeared equally enthused to see the thousands of shareholders sitting before him. 

It was a lot better being able to be with everyone in person, he said.

Up until recently, Berkshire had largely been sitting on its cash pile. Its business thrived; a recovering economy and roaring stock market helped push net earnings to a record in 2021. But it didn’t announce any major deals, something that led many analysts and investors to wonder about its next moves. Berkshire ended the year with a near record amount of cash on hand. (After Berkshire’s buying spree, the size of the company’s war chest shrank to $106.26 billion at the end of the first quarter, from $146.72 billion three months earlier.)

Mr. Buffett’s feeling that there were no appealing investment opportunities for Berkshire quickly gave way to excitement in late February, he said Saturday, when he got a copy of Alleghany Chief Executive

Joseph Brandon’s

annual report.

The report piqued his interest. He decided to follow up with Mr. Brandon, flying to New York City to talk about a potential deal over dinner. 

Warren Buffett headed in to speak to shareholders at Berkshire Hathaway’s annual meeting in Omaha, Neb., on Saturday.



Photo:

SCOTT MORGAN/REUTERS

If the chief executive hadn’t reached out, “it wouldn’t have occurred to me to write to him and say, ‘Let’s get together,’” Mr. Buffett said.

Berkshire’s decision to build up a 14% stake in Occidental also came about with a report. Mr. Buffett said he had read an analyst note on the company, whose stock is still trading below its 2011 high, and decided the casino-like market conditions made it a good time to buy the stock.

Over the course of just two weeks, Berkshire scooped up millions of shares of the company. 

“I don’t think we ever had anything quite like we have now in terms of the volumes of pure gambling activity going on daily,” Mr. Munger said. “It’s not pretty.” 

But the amount of speculation in the markets has given Berkshire a chance to spot undervalued businesses, Mr. Munger said, allowing the company to put its $106 billion cash reserve to work.

“I think we’ve made more because of the crazy gambling,” Mr. Munger said.

Another business that caught Berkshire’s eye? Chevron. Berkshire’s stake in the company was worth $25.9 billion as of March 31, up from $4.5 billion at the end of 2021, according to the company’s filing. That makes Chevron one of Berkshire’s four biggest stockholdings, alongside

Apple,

American Express Co. and Bank of America Corp.

Neither Mr. Buffett nor Mr. Munger specifically addressed Berkshire’s decision to increase its Chevron stake.

But the two men offered a defense of the oil industry. It is a good thing for the U.S. to be producing more of its own oil, Mr. Buffett said. Mr. Munger went further, saying he could hardly think of a more useful industry. 

At the meeting, Mr. Buffett also revealed that Berkshire has increased its stake in

Activision Blizzard Inc.

The company now holds a 9.5% position in Activision, a merger-arbitrage bet from which Berkshire stands to profit if

Microsoft Corp.’s

proposal to acquire the videogame maker goes through.

SHARE YOUR THOUGHTS

Do you agree with Warren Buffett’s market outlook? Why or why not? Join the conversation below.

At the end of the day, Berkshire doesn’t try to make its investments based on what it believes the stock market will do when it opens each Monday, Mr. Buffett said.

“I can’t predict what [a] stock will do…We don’t know what the economy will do,” he said.

What Berkshire focuses on is doing what it can to keep generating returns for its shareholders, Mr. Buffett said. Berkshire produced 20% compounded annualized gains between 1965 and 2020, compared with the S&P 500, which returned 10% including dividends over the same period.

“The idea of losing permanently other people’s money…that’s just a future I don’t want to have,” Mr. Buffett said.

Write to Akane Otani at akane.otani@wsj.com

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Warren Buffett’s Tone Deaf Annual Letter Skirts Controversies

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Warren Buffett’s annual letters are seen as chance to offer investors help in understanding his thinking.

Warren Buffett’s 15-page annual letter to shareholders on Saturday made mention of the pandemic that ravaged the globe in 2020 exactly once: One of his furniture companies had to close for a time because of the virus, the billionaire noted on page nine.

Buffett likewise steered clear of politics, despite the contested presidential election and riots at the U.S. Capitol, and never touched on race or inequality even after protests and unrest broke out in cities across the nation last year. He also avoided delving into the competitive deal-making pressures faced by his conglomerate, Berkshire Hathaway Inc., a topic routinely dissected in past year’s letters.

“Here you have a company with such a revered leader who’s held in such high regard — whose opinion matters, who has businesses that were directly impacted by the pandemic, insurance companies that were influenced by global warming and social inflation — and there was not one word about the pandemic,” Cathy Seifert, an analyst at CFRA Research, said in a phone interview. “That to me was striking. It was tone deaf and it was disappointing.”

Buffett, 90, has been unusually quiet since last year’s annual meeting in May amid a multitude of issues facing Americans. His annual letters are often seen as a chance to offer investors help in understanding his thinking on broad topics and market trends, in addition to details on how his conglomerate is faring.

But the Berkshire chief executive officer carefully weighs his words, and some topics, such as the pandemic, risk veering into highly controversial political territory, Jim Shanahan, an analyst at Edward D. Jones & Co., said in an interview.

“There’s been a lot of comments about the pandemic and the impact on the businesses, but by not saying something in the letter, I think it’s just a way to try and avoid saying something that could be perceived as a political statement, which he’s been less willing to do in recent years,” Shanahan said.

A representative for Buffett didn’t immediately respond to a request for comment placed outside routine office hours.

Buffett also stayed quiet on topics that are key to his conglomerate, such as the market environment amid a tumultuous year — and the work of key investing deputies like Todd Combs and Ted Weschler, according to Cole Smead, whose Smead Capital Management oversees investments in Berkshire.

“There’s more found by what’s not in the letter,” said Smead, the firm’s president and portfolio manager. “I think just time and time again in this letter were sins of omission.”

Here are other key takeaways from Buffett’s letter and Berkshire’s annual report:

1. Buffett Relies on Buybacks Instead of Deals

Berkshire repurchased a record $24.7 billion of its own stock as Buffett struggled to find better ways to invest his enormous pile of cash.

And there’s more where that came from: The conglomerate has continued to buy its own stock since the end of last year, and is likely to keep at it, Buffett said Saturday in his annual letter.

“That action increased your ownership in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet,” Buffett said in the letter, which pointed out that the company “made no sizable acquisitions” in 2020.

Berkshire did make a small amount of progress in paring the cash pile, which fell 5% in the fourth quarter to $138.3 billion. Buffett has struggled to keep pace with the flow in recent years as Berkshire threw off cash faster than he could find higher-returning assets to snap up, leading to the surge in share repurchases.

2. Apple Is as Valuable to Berkshire as BNSF Railroad

Berkshire’s $120 billion investment in Apple Inc. stock has become so valuable that Buffett places it in the same category as the sprawling railroad business he spent a decade building.

He began building a stake in the iPhone maker in 2016, and spent just $31.1 billion acquiring it all. The surge in value since then places it among the company’s top three assets, alongside his insurers and BNSF, the U.S. railroad purchase completed in 2010, according to the annual letter.

“In certain respects, it’s his kind of business,” said James Armstrong, who manages assets including Berkshire shares as president of Henry H. Armstrong Associates. “It’s very much brand name, it’s global, it’s an absolutely addictive product.”

Buffett had always balked at technology investments, saying he didn’t understand the companies well enough. But the rise of deputies including Combs and Weschler has brought Berkshire deep into the sector. In addition to Apple, the conglomerate has built up stakes in Amazon.com Inc., cloud-computing company Snowflake Inc., and Verizon Communications Inc.

3. Buffett Concedes Error in $37.2 Billion Deal

Buffett admitted he made a mistake when he bought Precision Castparts Corp. five years ago for $37.2 billion.

“I paid too much for the company,” the billionaire investor said Saturday in his annual letter. “No one misled me in any way — I was simply too optimistic about PCC’s normalized profit potential.”

Berkshire took an almost $11 billion writedown last year that was largely tied to Precision Castparts, the maker of equipment for aerospace and energy industries based in Portland, Oregon.

The pandemic was the main culprit. Precision Castparts struggled as demand for flights plummeted, prompting airlines to park their jets and slash their schedules. Less flying means lower demand for replacement parts and new aircraft. Precision slashed its workforce by about 40% last year, according to Berkshire’s annual report.

4. Profit Gains Thanks to Railroad, Manufacturers

Despite the pandemic’s effects continuing to hit Berkshire’s collection of businesses, the conglomerate posted a near 14% gain in operating earnings in the fourth quarter compared to the same period a year earlier.

That was helped by a record quarter for railroad BNSF since its 2010 purchase and one of the best quarters for the manufacturing operations since mid-2019.

5. Good-bye Omaha, Hello Los Angeles

Berkshire’s annual meeting has for years drawn throngs of Buffett fans to Omaha, Nebraska, where the conglomerate is based. This year, the show is moving to the West Coast.

While still virtual because of the pandemic, the annual meeting will be filmed in Los Angeles, the company said Saturday.

That will bring the event closer to the home of Buffett’s longtime business partner, Charlie Munger. Buffett and Munger will be joined by two key deputies, Greg Abel and Ajit Jain, who will also field questions.

Buffett and Abel, who lives closer to Berkshire’s headquarters, last year faced “a dark arena, 18,000 empty seats and a camera” at the annual meeting, Buffett said in his letter. The 90-year-old billionaire said he expects to do an in-person meeting in 2022

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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Warren Buffett blames $11 billion loss on a ‘mistake’

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Even oracles make mistakes.

Berkshire Hathaway earned $42.5 billion in 2020, but on Saturday, CEO Warren Buffett admitted the conglomerate’s results for the year included a rare “mistake” — that cost the company $11 billion.

The Oracle of Omaha said in his annual letter to shareholders that his 2016 purchase of the company Precision Castparts went bad, forcing Berkshire to “write down,” or deduct, nearly $11 billion from its bottom line last year.

Buffett labeled the write-down on the company, “ugly.” And he blamed himself, saying it was “almost entirely the quantification of a mistake I made in 2016.”

Berkshire, based in Omaha, Nebraska, bought the aerospace manufacturing firm for $32 billion.

“I paid too much for the company,” Buffett, 90, wrote. “No one misled me in any way – I was simply too optimistic about PCC’s normalized profit potential.”

Berkshire Hathaway Chairman and CEO Warren Buffett, center, looks at products produced by Precision Castparts.
AP Photo/Charlie Riedel

With airlines worldwide flying far less over the last year due to the pandemic, the aerospace industry suffered from major disruption, making 2020 a rough year for PCC.

“Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC’s most important source of customers,” Buffett wrote.

Buffett stood his ground on the company and said he still believes over time it will earn good returns.

Attendees pass the Precision Castparts Corp. booth during the Berkshire Hathaway Inc. annual shareholders meeting in Omaha, Nebraska on April 30, 2016.
Bloomberg via Getty Images

“I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business,” Buffett said. “PCC is far from my first error of that sort. But it’s a big one.”

Berkshire Hathaway remains the most expensive stock on the market, with its lightly traded “A” shares closing Friday at $364,580, up about 6 percent since the start of the year. Its “B” shares, which were split off several years ago to create a more easily traded stock, settled Friday at $240.51, up about 7.5 percent this year.

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