Eagerly anticipated by savvy investors the world over, never mind Berkshire Hathaway shareholders, Warren Buffett's latest annual letter reveals one of the biggest blunders the stockpicking legend has ever made, talks up America, and offers plenty of sage advice. Yet, the letter sidesteps several elephant-in-the-room issues, from COVID-19 and race inequality to the burning question of succession. Click or scroll through for the 10 key takeaways.

The letter provides plenty of insight. First up, Buffett advises against going by generally accepted accounting principles (GAAP) to gauge a company's performance as they are distorted by stock portfolio gains and losses. “Operating earnings are what count the most,” writes the investing guru. Last year, Berkshire Hathaway's turnover based on GAAP amounted to $42.5 billion, but its operating income totaled just $21.9 billion, a decline of 9% from the previous year.

In the letter Buffett extols the virtues of buying back stocks that are trading below their intrinsic value, revealing the conglomerate splashed a record $24.7 billion last year repurchasing the equivalent of 80,988 Class A shares. This has enabled stockholders to increase ownership in Berkshire Hathaway businesses by 5.2% at no cost to themselves, and makes for a judicious use of the conglomerate's enormous cash pile in a year that saw no major acquisitions.

The ever-optimistic Buffett pays homage to US ingenuity and innovation, proclaiming “there has been no incubator for unleashing human potential like America” and describing the nation's economic progress as “breathtaking”. The investing guru showers much of the praise on the middle part of the country, which is often overlooked in favor of the East and West Coasts. The takeaway? “Never bet against America.”

Not everything Buffett touches turns to gold and the Oracle of Omaha is the first to admit his mistakes. In the letter the Berkshire Hathaway CEO explains that last year's “ugly $11 billion write-down” was almost entirely the consequence of a major blunder he made in 2016 by paying over the odds for aircraft and industrial parts maker Precision Castparts, which cost the conglomerate $32.1 billion and remains its largest ever acquisition.

Buffett shares a fact about Berkshire Hathaway that he “never suspected”: his pride and joy owns more US infrastructure assets – property, plant and equipment – by value than any other company. These fixed assets are worth a humongous $154 billion. The runner-up is AT&T, which has $127 billion-worth in its portfolio.

The letter highlights the importance of Berkshire Hathaway's “family jewels”, the four businesses that represent the lion's share of the conglomerate's value. It owns three of these outright: the insurance arm of the business; railroad firm BNSF; and Berkshire Hathaway Energy; plus its 5.2% stake in Apple, a position it has grown significantly in recent years thanks to buybacks, which has turned out to be incredibly lucrative. 

Buffett attributes much of Berkshire Hathaway's success to its mix of wholly-owned companies and sizable stakes. The head honcho writes that this differentiates it from traditional conglomerates, which he slams for limiting themselves to buying companies in their entirety. This, Buffett argues, mean they miss out on investing in the most successful firms, since the best businesses have “no interest in anyone taking them over”.

As well as reiterating his commitment to playing the long game, Buffett repeats his belief that bonds are a bad investment. “Bonds are not the place to be these days,” he writes, warning that “fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.”

Now let's take a look at what's missing from the letter... Seemingly due to Buffett's desire to focus on business and avoid taking a political stance, the letter makes no direct mention of hot topics such as last year's presidential election, the Black Lives Matter protests and January's storming of the Capitol, while COVID-19 is only referred to very briefly, which one commentator has called “tone deaf” and “disappointing”. 

The burning question of who will take over as Berkshire Hathaway CEO when Buffett eventually steps down isn't answered in the letter, though the smart money is on Greg Abel (pictured). But Buffett is certainly aware of the interest surrounding the issue, stating that "Charlie [vice chairman Charlie Munger, who is 97 years old] and I long ago entered the urgent zone [in terms of age]. That’s not exactly great news for us. But Berkshire shareholders need not worry: Your company is 100% prepared for our departure." Adding to the disappointment of the lack of named successor, the lacklustre performance of Berkshire Hathaway shares last year isn't addressed nor is the lack of a dividend payout, and there is zero discussion of the competitive trading pressures the conglomerate is up against. Buffett did though reveal that the next annual meeting will be a virtual affair held in Los Angeles on 1 May, which will enable him to take the stage with Charlie Munger.

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