Warren Buffett's letter to Berkshire Hathaway shareholders: 5 things to watch for

Buffett reveals $29B windfall for Berkshire thanks to tax cuts

Manufacturing, services and retailing operations reported that profit increased to $6.2 billion previous year from $5.6 billion in 2016.

Investor Warren Buffett says offered a collection of investment advice in his annual letter to Berkshire Hathaway shareholders. Cash has been piling up at Berkshire, but Buffett said most of the businesses he looked to buy previous year were too expensive. "The remaining $29 billion was delivered to us in December when Congress rewrote the U.S. Tax Code", he explained in the letter.

The new law cut the corporate income tax rate to 21% from 35%, a change that has seen boosting the earnings of scores of US companies. "We have $90 or $95 billion in gains, and our owners, dollar for dollar, will participate in that..."

The company also saw its war chest swell: it had $116 billion in cash and US Treasury bills as of the end of 2017, a financial manna that Buffett wants to use to make significant new acquisitions. Berkshire typically pays all cash for acquisitions. He admitted that the struggle in finding a "sensible purchase price" had "proved a barrier to virtually all deals" past year.

Wells Fargo and Apple were at the top of the list.

Last month, Buffett gave greater oversight of Berkshire's non-insurance businesses such as the BNSF railroad, Precision Castparts and Dairy Queen ice cream to energy executive Gregory Abel, while insurance specialist Ajit Jain added supervision of insurance operations such as the Geico auto insurer.




It's important to remember that even Buffett's Berkshire Hathaway (BRK-A, BRK-B) hasn't been immune to significant swings in its stock price either.

Previous year was another good one for Berkshire shareholders, as the company's "A" shares rose almost 22%, vs. a gain of 19.4% for the S&P 500, a broad stock market index.

Buffett predicted the company's stock will fall again by similar large declines in the next 53 years.

Despite our recent drought of acquisitions, Charlie and I believe that from time to time Berkshire will have opportunities to make very large purchases. As a result, we recorded an income tax benefit of approximately $29.6 billion and we increased regulatory liabilities of our regulated utility subsidiaries by approximately $6.0 billion for the portion of the deferred income tax liability reduction that we will be required to, effectively, refund to customers in the rate setting process.

Buffett in 2007 bet a founder of the asset management company Protégé Partners LLC $1 million that a Vanguard S&P 500 index fund would outperform several groups of hedge funds over a decade.

The takeaway: owning a broad basket of stocks and holding them is a better investment approach than a rapid trading strategy or investing in high-fee investment products run by Wall Street pros that charge fees and whose job it is to "help" investors. The fees - typically 2% of the investment's value and 20% of the profits - eat into clients returns, Buffett argued, and said returns do not typically justify those fees compared to the returns an investor could get from a low-priced S&P 500 index fund.

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