Warren Buffett Talks Succession Plans, Compares Acquisitions To Marriage In Annual Letter

Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) CEO Warren Buffett’s annual letter to stockholders said equities would outperform long-term fixed-rate debt instruments should low corporate tax rates remain in place.

What Happened

Buffett released his annual letter to shareholders on Saturday and urged investors to focus on operating earnings instead of quarterly or annual gains and losses in investments.

Berkshire earned $81.4 billion in 2019 based on the generally accepted accounting principles (GAAP) rule. Operating earnings stood at $24 billion, $3.7 were realized capital gains. A $53.7 gain was from an increase in the amount of net unrealized capital gains in the stocks that the company holds.

Buffett said forecasting interest rates has never been his or Charlie Munger’s game.

"What we can say is that if something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments," Buffett wrote in the letter.

The chairman of Berkshire reflected on the fact that the firm had acquired “dozens of companies” all of which he regarded as “good businesses” but not all of them had delivered. Comparing acquisitions with marriage, he reflected, “They start, of course, with a joyful wedding – but then reality tends to diverge from pre-nuptial expectations.”

Talking about mortality, Buffett assured investors, “Your company is 100% prepared for our departure.”

Why It Matters

Buffett’s letter is always anticipated as it provides insights into his thinking and investment strategy.

Berkshire is a major investor and holds a $73 billion stake in Apple Inc. AAPL, $22 billion in Coca Cola Co. KO and $33 billion in Bank of America Corp BAC.

Buffett emphasized that his company has capable managers and the directors of the company will follow the usual path after his and Munger’s demise. He said his two key operating managers, Ajit Jain and Greg Abel, would be given more exposure in the future.