Warren Buffett defends investments in stocks, which fuelled record Berkshire profit

Berkshire ‘fully prepared’ for his death

Updated - February 22, 2020 10:54 pm IST

Published - February 22, 2020 10:53 pm IST - NEW YORK

Mr. Buffett says the returns in the insurance businesses were   strong compared with  long-term U.S. Treasuries.

Mr. Buffett says the returns in the insurance businesses were strong compared with long-term U.S. Treasuries.

Warren Buffett on Saturday defended Berkshire Hathaway Inc.’s decision to invest heavily in the stocks of companies such as Apple Inc, while giving new details about how Berkshire Hathaway is prepared for his death, in an annual letter to shareholders.

The letter, widely read on Wall Street, came as Berkshire Hathaway posted record full-year earnings of $81.42 billion that nearly doubled its previous record from 2017, largely as a result of accounting rule changes that require the company to report paper gains and losses from its stock holdings with net income.

Despite those gains, Berkshire Hathaway’s stock has underperformed the broad U.S. stock market by gaining 11.7% over the last 12 months, compared with a 20.3% gain in the S&P 500 over the same time.

In his letter, Mr. Buffett focused on his company’s investments in the stock of companies such as Apple at a time when the conglomerate has struggled to find whole companies to buy, while also highlighting the growth of its core insurance businesses. Mr. Buffett noted that the returns in the insurance businesses were especially strong compared with the low yields on long-term U.S. Treasuries.

“If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments.”

The 89-year-old assured that Berkshire is prepared for the eventual departures of himself and vice-chairman Charlie Munger, 96.

“Charlie and I long ago entered the urgent zone,” he wrote. “But shareholders need not worry: Your company is 100% prepared for our departure.” He gave new details about what will happen to his shares in the company after his death, noting he expects it will take 12 to 15 years for his estate to fully liquidate his position in the company.

He wrote, “I myself feel comfortable that Berkshire shares will provide a safe and rewarding investment during the disposal period.”

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