Warren Buffett has a message for corporate CEOs citing “uncertainty” for failing to spend stockpiles of cash despite record earnings: “The risks of being out of the game are huge compared to the risks of being in it.”
In his long-awaited annual letter to shareholders released Friday night, Buffett recalls his first stock purchase in spring 1942 “when the U.S. was suffering major losses throughout the Pacific war zone.” He writes that “America has faced the unknown since 1776…[but] American business will do fine over time. And stocks will do well just as certainly since their fate is tied to business performance.“
Buffett even offered to take “large profitable” projects off of the hands of any CEO that is shelving them.
That was a “sarcastic offer,” says Jeff Macke of Yahoo! Finance but in keeping with Buffett’s own strategy of investing more money in the U.S. while other CEOs hesitate. Buffett spent 88% of his cash in the United States, upgrading property, plants and equipment to the tune of $9.8 billion, says Jeff Macke.
Among Buffett’s biggest—and most profitable—investments recently: the $28 billion deal with 3G Capital to take H.J. Heinz private. In return he'll receive a 9% preferred cash dividend in that deal, which is “unbelievable,” says Macke.
On CNBC Monday morning Buffett said stocks are not "as cheap as they were four years ago" but still a better investment than most others and he's still buying.
Buffett “sees deals that nobody else sees,” says Michael Santoli, senior columnist at Yahoo! Finance, and at the same time is “getting away with not paying out a cash dividend while sitting on a lot of cash for a triple-A rating.”
Buffett writes in his annual letter that his “shareholders are far wealthier today they would be” if funds he used for acquisitions had been used instead for share purchases or dividends. And he says many of his shareholders are focused on savings and therefore “should prefer no payment at all.”
Buffett says he favors “disciplined repurchases” over dividends as the “surest way to use funds intelligently" if the price is right--if shares are trading at a “meaningful discount to “conservatively calculated intrinsic value.”
For all his experience and wisdom, Buffett laments the “subpar” performance of Berkshire in 2012 when comparing its book value growth to that of the S&P 500. Berkshire’s book value grew by 14.4% vs. 16% for the S&P 500.
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