Buffett's letter to shareholders in 2017: a bite of apples earned 1.6 billion, he said that the industry has a crisis

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Introduction: Beijing time on the 26th this weekend is unusual for Wall Street. Many fund managers will still start as early as the working day, waiting for the "stock god" Buffett to publish the annual letter of Berkshire Hathaway to find investment opportunities for the new year. This is the 52nd letter he wrote to shareholders.

In this letter, Buffett also rarely uses a long space to tell how he won the hedge fund's ten-year gamble, and reminded investors that they should choose low-cost index funds instead of spending money on Wall Street. Management fee.

Source: Tencent Finance, Sina Finance

Since Buffett’s first shareholding in Berkshire Hathaway in 1964, a century-old textile mill has become one of the most successful insurance and diversified investment groups in the world.

The following is the main content of the 52nd letter from Buffy's close-up to shareholders:

Overall record

Buffett's Berkshire Hathaway announced that the fourth quarter profit growth of 15%, thanks to increased investment income.

Net profit climbed to $6.29 billion, or $3,823 per share, compared with a net profit of $5.48 billion, or $3,333 per share for the same period last year. Operating profit after deducting part of the investment income was $2,665 per share, and the three analysts surveyed by Bloomberg expected an average of $2,717 per share.

Buffett is well known for his talent selection. Most of Berkshire Hathaway's revenue comes from Buffett's 50 years of business. The company's dozens of subsidiaries include auto insurer Geico, railroad company BNSF, car dealer network, retailers and electric utility companies.

Buffett said: We expect that investment income will still be very rich, but it shows randomness as time changes. This will provide a lot of money for corporate mergers and acquisitions. Berkshire's top CEO team will focus on increasing the revenues of the companies they manage and growing at the right time through mergers and acquisitions.

Win a ten-year gamble with hedge funds

Buffett set a $1 million gamble in 2005: With a 10-year period, can hedge fund performance outperform index funds? Buffett thinks impossible. Ten years later, Buffett proved this with practical actions.

After Buffett released the gambling game, Protege Partners partner Ted Seides fought in 2007. In the 2017 annual letter, Buffett announced the transcripts of the two sides for nine years, showing that since the establishment of the gambling bureau, Buffett has selected an index fund with an average annual growth rate of 7.1%, while the asset management company Protege Partners selected five baskets. The average annual growth rate of hedge funds is 2.2%, which means that if you invest $1 million in index funds and hedge funds in 2005, the difference will be between $854,000 and $220,000.

Buffett reminded the investors that when trillions of funds flooded into Wall Street and needed to pay management fees, fund managers generally always get huge profits, not their customers. In short, retail investors should choose low-cost index funds.

Investing in Apple earned 1.6 billion

Buffett also said that after the rapid rise of Apple's stock price, Berkshire Hathaway has seized nearly 1.6 billion US dollars in Apple's first battle.

Berkshire Hathaway’s annual report released on Saturday showed that 61.2 million shares of Apple stock were purchased last year, costing $6.75 billion, and the average purchase price was about $110.17. According to Apple's closing price of 136.66 on Friday, this part of the shareholding value has exceeded $8.3 billion.

Berkshire Hathaway is one of Apple's top ten investors in 2016. It bought more than 9 million shares in the first quarter and then continued to increase positions in the fourth quarter. Previous regulatory filings for an insurance subsidiary had exposed the initial purchase price of an average of $99.49 per share, but the Berkshire Hathaway Annual Report on Saturday disclosed more overall investment as of December 31. detail.

Buffett teased that during the US election last year, Berkshire added more than just Apple, and other $12 billion in assets.

Increase in holdings of aviation stocks

In the fourth quarter of last year, Buffett also increased its holdings of four major aviation stocks (Dalta Airlines, United Continent Holdings, American Airlines Group, Southwest Airlines), and its aviation stock positions were seven times higher than the previous quarter.

Buffett has long been shunned by the civil aviation industry. Last year's 180-degree turn began to re-examine the industry that he once called "investor death trap." In the second half of 2016, Berkshire turned into one of the top two investors in Delta Air Lines, United Continental Holdings, American Airlines Group and Southwest Airlines.

During the same period, the shares of the above four companies soared by 33%, 67%, 57% and 27%, respectively, both far exceeding the 6.6% increase in the S&P 500 index.

Last year, he also completed the deal with battery manufacturer Duracell and Precision Castparts, an airline supplier that also helped boost his company's manufacturing profit.

Charlie Munger, a 93-year-old billionaire, is the vice chairman of Berkshire Hathaway. He explained the purchase of Apple and airline stocks at the Daily Journal in the middle of this month. I don't think we are crazy, we are just adjusting.

"When Buffett bought airline stocks and bought Apple stock, he has changed."

Immigration is part of the magic of the American economy

After the new US President Trump took office, he was worried about the US economy and was curious about global investors. Some people worry that Trump’s “protectionist” trade policy is really conducive to the development of American business. In this year's letter, Buffett did not directly mention the Trump administration, but his expression of the US economy shows that his attitude toward immigrants is different from that of Trump.

"Using one word to sum up the achievements of our country is magic." Buffett said that the American economy is not worthy of praise. "Since 240 years ago, the United States has gathered humans in less than three times as long as I am three years old. The ingenuity, the market system, a group of intelligent and ideal immigrants, and laws and regulations to achieve the prosperity of our ancestors' ideals."

Buffett pointed out that the biggest contribution of the US economic magic is the market system. “A system that guides capital, talent, and labor creates the richness of the United States.” He pointed out that this system is also the main system for distributing wealth. “By guiding through federal and local taxes, most of the distribution can be made.”

Buffett once supported the Democratic candidate Hillary Clinton before the US presidential election. Although he voted for the wrong candidate in the general election, Buffett’s Berkshire share price benefited from the US stock market after Trump’s election. Buffett was in the interview. It said that after the announcement of the election on November 8, the company had bought US$12 billion in US stocks, and Berkshire’s share price rose by US$250,000 per share in the historical record at the end of last year.

Support stock repurchase

Buffett, who focuses on long-term investments, publicly supports an act that is sometimes condemned as short-termism: stock repurchases. The dispute over stock repurchases is not a day or two in the United States, because it allows shareholders to enjoy more benefits, rather than increasing the wages of employees or spending money on research and development to serve the entire society.

Buffett believes that repurchase is a reasonable use of capital. No company is repurchasing, but has voluntarily given up long-term investment.

Ammunition depot "insurance industry" is in trouble

In the annual letter, Buffett also reviewed the performance of Berkshire's major businesses as usual. Among them, the insurance industry is the core business of Berkshire. Berkshire Hathaway and its insurance business's insurance income and floating deposits have been the "ammunition depot" that supports Buffett's huge investment. However, industry competition and global interest rates have been at a low level for a long time, which has damaged the profitability of the insurance industry.

In the letter, Buffett pointed out that the overall dilemma of the insurance industry, but also said that the low interest rate environment has little impact on Berkshire's insurance industry. "Almost all portfolios of property and casualty insurance companies do not include Kehir - all concentrated on bonds. Once those high-yield investments mature and are replaced by bonds, investment income from floating deposits will fall steadily. Therefore, there is reason to believe that in the next decade, Industry returns are not as good as in the past, especially reinsurance companies."

But Buffett also pointed out that considering Berkshire's financial ability is stronger than the average insurance company, it is more flexible in terms of investment. "When others are restricted, our opportunities are expanding."

In last year's annual letter, Buffett once said that "Berkehill's largest unregistered wealth exists in the insurance industry. We have spent decades creating a multidimensional business model that cannot be replaced." This is one of the reasons why Buffett insists that Berkshire will not split and that the overall value is higher than the value of a single company.

Roughly calculated, Buffett will hold at least $40 billion in 2017 to "hunt elephants" (big mergers). In 2016, he bought the aircraft parts manufacturer, precision parts, for $37.2 billion.

Invest heavily in infrastructure

In Berkshire's non-insurance, capital-intensive sector, Buffett points out that railroad operators Burlington Northern Santa Fe and Berkshire Energy are the most prominent performers in 2016. After-tax operating profit contributed 33%.

Buffett pointed out that the key feature of the two companies is that they have invested heavily in long-term regulated assets. And the investment is funded by a large amount of long-term debt that is not guaranteed by Berkshire.

Buffett pointed out that the two companies invested $8.9 billion in factories and equipment in 2016. "This is a huge commitment to US infrastructure. We like this investment, as long as they promise a reasonable return - in this regard, we Trust in the future of regulation."

Buffett pointed out that "based on our experience and knowledge, society will always need huge investments for transportation and energy. For its own benefit, the government will also guide capital providers to ensure that funds continue to flow to key projects. At the same time, we It will also conduct business in a manner approved by the regulatory body."

The mystery of Buffett's heirs

The successor of Buffett has always been one of the most concerned topics for shareholders. In the annual letter of the year, Buffett praised who, and became one of the focus of attention.

In this year's letter, Buffett continues to praise Ajit Jain, the head of Berkshire Reinsurance. Buffett said, "His operations combine capabilities, speed, and decision-making. Most importantly, he understands the unique way of operating in the insurance industry." Buffett also praised Ajit Jain, "I have never exposed Berkshire to us." Improper risk."

In this year's letter, Buffett also mentioned two chief investment officers, Todd Combs and Ted Weschler.

At the 2016 annual meeting, Buffett has said that he is satisfied with the current performance of the two fund investors. "They are now managing $9 billion each." When asked if they are considering continuing to increase the assets of the two people, Buffett said that it has not been confirmed in the near future, "but it will definitely be."

This year's letter shows that the fund pool managed by the two fund managers has increased to 10 billion US dollars. In the past two years, Buffett’s portfolio changes have gradually been affected by the two. For example, Buffett’s acquisition of the “new favorite” precision machine is influenced by Todd. In 2012, Todd purchased the stock of precision parts and recommended it to Buffett. This year's increase in holdings of Apple and airline stocks in the portfolio is also said to have been recommended by two investment officers.

In this annual letter, Buffett did not mention the reason for abandoning the Unilever offer, nor did he explain the reasons for the increase in Apple and aviation stocks. Investors are also waiting for Buffett to elaborate on this year's shareholders meeting. In 2017, the Berkshire Hathaway General Meeting of Shareholders will be held in Omaha as usual on May 6.

View of the future

In the letter, Buffett is still optimistic about the US economy. He believes that because of innovation, productivity, entrepreneurship and rich capital, American industry and corresponding stocks will almost certainly increase in the future.

However, for what may happen in the market in the next few years, Buffett appears to be more cautious than before. He believes that in the next few years, major market declines and even panic may occur from time to time, which will affect all stocks.

Editor of this issue, Li Yutong