Buffett’s Berkshire Hathaway received $29B windfall from Trump’s tax overhaul

By MarketsFOXBusiness

Warren Buffett annual letter: What to watch for

Holland & Co. Chairman Mike Holland discusses what the Oracle of Omaha, Warren Buffet, may highlight in his annual letter.

Billionaire investor Warren Buffet touted a $29 billion profit just from President Trump’s business-friendly tax overhaul that was signed into law in December. In his widely anticipated annual letter to Berkshire Hathaway Inc. shareholders that was released early Saturday morning, Buffett reported that his conglomerate gained $65.3 billion in net worth during 2017.

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Per share, it was a value gain of 23% - the company’s best result in nearly 20 years. It also topped the average annual gain of 19.1% since Buffett began running the company in 1965. That’s likely because of the tax reform plan, which slashed the corporate tax rate to 21% from 35%.

Despite holding more than $116 billion in cash – “far beyond” the level that Buffett and Vice Chairman Munger prefer – the company did not make any big acquisitions in 2017 because the asking prices were too high.

He blamed that, in part, on subordinates who want enlarged domains and increased compensation levels cheering on the CEOs. And once a CEO has a deal, and asking price, in sight, it’s difficult to sway their opinion, he said, comparing them to oversexed teens.

“Why the purchasing frenzy?” Buffett wrote. “In part, it’s because the CEO job self-selects for “can-do” types. If Wall Street analysts or board members urge that brand of CEO to consider possible acquisitions, it’s a bit like telling your ripening teenager to be sure to have a normal sex life.”

Berkshire’s financial reach extends to almost every sector of the economy, and it owns a number of marketable, blue chip-stocks that are valued at $170 billion (excluding the company’s shares of Kraft Heinz). Some of those stocks include Apple, the Coca-Cola Company, Goldman Sachs, Southwest Airline, American Express Company and the General Motors Company. Those shares had a year-end market value of $25.3 billion.

However, Berkshire, whose earnings power is largely concentrated in the insurance business, also lost an estimated $3 billion ($2 billion, after the taxes) after the three devastating hurricanes hit Texas, Florida and Puerto Rico in September. Still, the Omaha, Nebraska-based company likely only lost less than 1% of its net worth, Buffett noted.

“No company comes close to Berkshire in being financially prepared for a $400 billion mega-cat,” he wrote in the letter, adding: “Our unparalleled financial strength explains why other [property/casualty] insurers come to Berkshire – and only Berkshire – when they, themselves, need to purchase huge reinsurance coverages for large payments they may have to make in the far future.”

Buffett, 87, has been notoriously tight-lipped about who he plans to name as his successor as CEO at Berkshire Hathaway. In early January, he designated two in-house executives – Ajit Jain and Greg Abel – as directors of the company as well as vice chairman.

Although there’s been speculation that Buffett would officially identify the next CEO in his letter, he instead laid out the new responsibilities of Jain and Abel. Jain will be responsible for insurance operations, while Abel will oversee the rest of Hathaway’s sprawling businesses.

“Each has been with Berkshire for decades, and Berkshire’s blood flows through their veins,” Buffett wrote. “The character of each man matches his talents. And that says it all.”

In the 1960s, when Berkshire Hathaway first began trading publicly, shares cost about $11. Today, it’s at $301,404, for a gain of two million percent. 

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