Warren Buffett said executives who held back on investments because of doubts about the economy are missing an opportunity.
Buffett says America still the land of opportunity
Warren Buffett said executives who held back on investments because of doubts about the economy are missing an opportunity. He plans to accelerate capital spending at his company, Berkshire Hathaway, this year.
"There was a lot of hand-wringing last year among CEOs who cried 'uncertainty' when faced with capital allocation decisions despite many of their businesses having enjoyed record levels of both earnings and cash," Mr Buffett wrote in an annual letter to Berkshire shareholders on Friday. "We will keep our foot to the floor and will almost certainly set still another record for capital expenditures in 2013. Opportunities abound in America."
Berkshire spent US$9.8 billion (Dh35.99bn) last year on plant and equipment as it bolstered railway and utility units, he said in the letter. Thatwas 19 per cent more than the prior year. Most of the spending was in the United States.
Mr Buffett often touts the prospects of the world's largest economy, where Berkshire's biggest units are based and where he amassed a fortune of more than $50bn. US legislators have been divided over how to shrink the budget deficit, frustrating corporate executives. Mr Buffett said managers may be wrong to withhold investments, since the future in the US has been unknown since the country's declaration of independence in 1776.
"If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire," he wrote. "Let us unburden you."
Mr Buffett, 82, led the letter by telling shareholders his performance was "subpar" in 2012. The growth in the Omaha, Nebraska-based Berkshire's per-share book value, a measure of assets minus liabilities, trailed the Standard & Poor's 500 Index including dividends by 1.6 percentage points last year. The billionaire has failed to measure up to that yardstick only nine times since he took control of the company in 1965.
He also said he was disappointed for failing to make a major acquisition even though he had pursued a few large potential takeovers last year. Last month, he ended his drought by joining Jorge Paulo Lemann's 3G Capital in announcing a $23bn deal to take the ketchup maker Heinz private.
"Our total investment of about $12bn soaks up much of what Berkshire earned last year," wrote Mr Buffett, who is the chairman and chief executive. "But we still have plenty of cash and are generating more at a good clip."
Net income rose 49 per cent to $4.55bn in the three months ended December 31 on derivative gains. Mr Buffett uses the contracts to speculate on the long-term gains of stock-market indexes and the creditworthiness of corporate borrowers. He has encouraged investors to look beyond the quarterly fluctuation in derivative liabilities, in part, because the bets tied to equities don't settle until 2018 and later.
Mr Buffett has fuelled Berkshire's growth over the last four decades by financing takeovers and investments with float, the premiums held at insurance units before claims are paid. That money was again cost-free, he wrote, because units including the motor insurer Geico and the reinsurer General Re turned underwriting profits in 2012.
Other insurers can't claim the same track record, he said. In addition to having worse underwriting results, the industry faces "dim prospects" because near-record-low interest rates mean that they face declining income from fixed-income investments.
"Today's bond portfolios are, in effect, wasting assets," he wrote.
* Bloomberg News