Finding things to buy at a “sensible purchase price” had become a challenge, Warren Buffet wrote in his annual letter to shareholders, and a major reason Berkshire was awash with $116bn of low-yielding cash and government bonds.
Buffett blamed a “purchasing frenzy” binge by deal-hungry chief executives employing cheap debt. Berkshire typically pays all cash for acquisitions.
“Our smiles will broaden when we have redeployed Berkshire’s excess funds into more productive assets,” Buffett wrote. “Berkshire’s goal is to substantially increase the earnings of its non-insurance group. For that to happen, we will need to make one or more huge acquisitions.“
The lower tax rate contributed to a 23% full-year boost in Berkshire’s book value, which measures assets minus liabilities and which Buffett considers a good indicator of Berkshire’s net worth, to $211,750 per class A share. Insurance float, or premiums collected before claims are paid, which gives Buffett more money to invest, was about $114bn at year end.
Warren Buffett reported a record quarterly and annual profit for his Berkshire Hathaway conglomerate, thanks in part to a $29.1bn boost “delivered” by the Republican tax cut.
“Berkshire’s gain in net worth during 2017 was $65.3bn. 2017 was far from standard: a large portion of our gain did not come from anything we accomplished at Berkshire. But only $36bn came from Berkshire’s operations. The remaining $29bn was delivered to us in December when Congress rewrote the US tax code.”
Buffett said “no company comes close” to his conglomerate in its ability to financially withstand even a mega-catastrophe causing $400bn of insurance losses. Buffett said the odds of a giant hurricane, earthquake or other conflagration inflicting unprecedented, catastrophic damage in any year is just 2%, but that in such an event Berkshire would lose only about $12bn, a sum more than offset by annual profits from its non-insurance businesses.