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Berkshire Hathaway

Warren Buffett’s Berkshire Hathaway scores US$29 billion windfall thanks to Donald Trump’s US tax law

In his much-anticipated annual letter to shareholders, Buffett explained that the company’s net gain of US$65.3 billion in 2017 was only partly due to his employees’ efforts

PUBLISHED : Sunday, 25 February, 2018, 10:04am
UPDATED : Sunday, 25 February, 2018, 11:15pm

Berkshire Hathaway, the holding company of US billionaire investor Warren Buffett, received a stunning US$29 billion last year from the US government, thanks to a new tax law that massively lowered corporate tax rates.

In his much-anticipated annual letter to shareholders, Buffett explained that the company’s net gain of US$65.3 billion in 2017 was only partly due to his employees’ efforts.

“Only US$36 billion came from Berkshire’s operations,” he wrote.

“The remaining US$29 billion was delivered to us in December when Congress rewrote the US Tax Code.”

Still, Buffett assured stockholders: “The US$65 billion gain is nonetheless real – rest assured of that.”

The new law, greatly touted by US President Donald Trump, lowered the tax rate paid by US corporations from 35 per cent to 21 per cent, allowing many to undertake major new outlays and others to book significant fiscal gains.

Berkshire Hathaway wholly owns dozens of companies – from Dairy Queen to Duracell – and holds significant shares in large and diverse corporations including American Express, Apple, Bank of America, Charter Communications, Coca-Cola, Delta Air Lines, General Motors, Goldman Sachs, Moody’s, Wells Fargo and Southwest Airlines.

Buffett’s newsletters are read with intense interest on Wall Street and beyond.

Known as the “Oracle of Omaha” – after his birthplace in the Midwestern state of Nebraska -he is one of the world’s most successful investors and one of its richest men. Now 87, he has been investing since he first bought stock at the age of 11.

His latest newsletter reports that Berkshire’s net earnings rose last year from US$24.07 billion to US$44.94 billion.

In the letter, he added: “2017 was far from standard: A large portion of our gain did not come from anything we accomplished at Berkshire.”

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The year also saw the company’s war chest swell to US$116 billion in cash and US Treasury bills, financial manna that Buffett wants to use to make significant new acquisitions.

Berkshire’s often-impressive pace of acquisitions had slowed last year, he noted, when the prices asked for businesses “hit an all-time high,” amid what he called “a purchasing frenzy.”

“Price seemed almost irrelevant to an army of optimistic purchasers,” Buffett noted.

Still, he said, the company “will have opportunities to make very large purchases” going forward, with emphasis on those available at “a sensible purchase price.”

Buffett said Berkshire would stick with a “simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own.”

Buffett also said that while Berkshire’s insurance holdings would take a US$2 billion after-tax hit from losses caused by hurricanes last year in Florida, Texas and Puerto Rico, other reinsurance companies did far worse.

And he estimated the chances of a “mega-catastrophe” this year -causing losses of at least US$400 billion – at two per cent.

“No one, of course, knows the correct probability,” he added.

Buffett concluded with a little advice to fellow investors: “Though markets are generally rational, they occasionally do crazy things.”

“Seizing the opportunities then offered does not require great intelligence … (or) a degree in economics,” but rather “an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals,” he added.

Forbes magazine estimates Buffett’s personal worth at some US$87 billion.

He has undertaken – as part of the so-called Giving Pledge he co-founded with Bill Gates and Facebook CEO Mark Zuckerberg – to donate more than 99 per cent of his fortune to charities, and has already given away some US$32 billion.