On Saturday, Berkshire Hathaway (BRK.A) said its net income rose to $6.29 billion, up from $5.48 billion the year prior, increasing the value of both Class A and Class B stock by 10.7 percent.
In his annual letter to shareholders, CEO Warren Buffett condemned the hedge fund community, briefly touch on a political hot topic and once again questioned the motives behind large companies engaging in share repurchases.
Hedge fund fees
Buffett set aside multiple pages of his letter to call out the hedge fund community and their unwarranted fees. "When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients," Buffett wrote.
He continued his attack by releasing documents of his 10-year performance bet between a pick of his own - a low-cost S&P 500 index fund managed by Vanguard - and asset manager Protégé Partners that chose to bet on the average performance of five hedge funds. After nine years of the 10-year bet, the index fund selected by Buffett is up 85.4 percent, and the average of the five hedge funds is a distant second - up 22 percent.
Under the agreement, the five hedge funds are not named, but Buffett said he views their annual audits.
Buffett, who campaigned with Democratic nominee Hillary Clinton in the 2016 election, did not make any direct remarks to the 45th President of the United States. However, with President Trump's recent executive orders on immigration, the Oracle of Omaha reminded how great diversity has been for this country. "Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers," Buffett wrote.
"Early Americans, we should emphasize, were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it. This economic creation will deliver increasing wealth to our progeny far into the future," Buffett continued.
This was about as political as Buffett got. (See also: Buffett Bought $12B in Shares after Trump Win)
Share repurchases have become increasingly popular over the last five years, bringing into debate the merits of them. Some argue, by reducing the total number of shares available to the market, companies are inflating its share price. Buffett said companies should be more transparent about the price it is willing to repurchase shares at. "It is puzzling, therefore, that corporate repurchase announcements almost never refer to a price above which repurchases will be eschewed," Buffett wrote.
"That certainly wouldn’t be the case if a management was buying an outside business. There, price would always factor into a buy-or-pass decision."
Buffett goes on to remind investors of Berkshire Hathaway's share repurchase policy, which is if the company reaches 120 percent of its book value. Even then, Buffett said he would only undergo a share repurchase if he saw it beneficial to the company. "The authorization given me does not mean that we will “prop” our stock’s price at the 120% ratio. If that level is reached, we will instead attempt to blend a desire to make meaningful purchases at a value-creating price with a related goal of not over-influencing the market," Buffett wrote.
The Bottom Line
It was another successful year for the Omaha-based fund with a continued uptick in revenue. Earlier this month Berkshire announced - via its 13F - that it had increased its stake in tech giant Apple Inc. (AAPL), something Buffett had previously said he wouldn't get involved in, saying he knows to little about the tech industry. Despite his change of heart, it seems Buffett will be standing by one of his long held promises.
"I would rather prep for a colonoscopy than issue Berkshire shares," Buffett wrote.