In the 50 years since Warren Buffett took over Berkshire Hathaway, the per-share market value has increased 1,826,163 percent, or a compounded annual gain of 21.6 percent, Buffett reports in his annual letter to shareholders, which was released over the weekend.
It's a remarkable record, and reason enough to give Buffett's annual letter a careful read. It can tell us something about how Buffett got so rich, and it might even yield some insights about what he wants from Washington.
The investor known as the sage of Omaha can sometimes come off as clueless or complacent. At one point, he writes, "Though the preachers of pessimism prattle endlessly about America's problems, I've never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket)."
Did Buffett miss the report by Bloomberg News in 2014 that "So far, 2,353 Americans have renounced their citizenship this year, close to the all-time high of 2,369 in the first nine months of 2013"? Did he miss the cases of songwriter Denise Rich and of Facebook co-founder Eduardo Saverin, who also renounced their American citizenship? Sure looks that way.
At other times, Buffett sounds like he's counting on politicians and bureaucrats to make his bets pay off. He brags that "regulated-industry segments" like the Burlington Northern Santa Fe railroad and Berkshire Hathaway Energy are where "the truly big winners reside" among Berkshire's many dozens of businesses.
Buffett writes that Berkshire Hathaway Energy "now accounts for 6% of the country's wind generation capacity and 7% of its solar generation capacity." The company will have spent $15 billion on renewable energy projects. And here's the kicker: Buffett writes, "we relish making such commitments as long as they promise reasonable returns—and, on that front, we put a large amount of trust in future regulation."
Buffett's attitude toward regulation seems highly situational. He likes it when it helps him make money, dislikes it when it costs him money. So he recommends the lightly regulated hotel alternative Airbnb to Berkshire shareholders who are "on a tight budget" but who plan to come to Omaha for the Berkshire Hathaway annual meeting. And he thanks his corporate staff for dealing with "a multitude of SEC and other regulatory requirements" and for filing "a 24,100 page Federal income tax return" and overseeing the filing of "3,400 state tax returns."
Speaking of taxes, that is another area where Buffett's view has its internal tensions. Some might even go so far as to call them contradictions. The Berkshire CEO is known for his New York Times op-ed pieces calling for higher taxes on other people and claiming that investors who turn down opportunities because of taxes exist "only in Grover Norquist's imagination." Yet Buffett devotes a substantial section of his 50-year retrospective to explaining how Berkshire's conglomerate structure is advantageous because of "our ability to move funds between businesses or into new ventures instantly and without tax." If the businesses were spun off, Buffett explains, Berkshire "would lose control value, capital-allocation flexibility and, in some cases, important tax advantages." Why, he sounds like a figment of Grover Norquist's imagination.
The tax angle is significant, Buffett acknowledges, in those renewable energy investments: "certain tax credits that are available to our utilities are currently realizable only because we generate huge amounts of taxable income at other Berkshire operations. That gives Berkshire Hathaway Energy a major advantage over most public-utility companies in developing wind and solar projects."
Buffett makes more sense, at least to me, when he warns of the declining value of the dollar. "The purchasing power of the dollar declined a staggering 87%" between 1964 and 2014, he writes. "That decrease means that it now takes $1 to buy what could be bought for 13 cents in 1965 (as measured by the Consumer Price Index)."
The congressmen who are responsible for the value of the dollar (or delegating it to the Federal Reserve) are the same ones that Mr. Buffett is counting on with his "large amount of trust in future regulation" to mandate solar and wind power. I wish Buffett and his shareholders good luck with that.
In the meantime, it sure is interesting that while Berkshire Hathaway Energy was spending $15 billion on solar and wind projects that it is counting on politicians to make profitable, a Berkshire Hathaway director, Bill Gates, was going around giving interviews saying things like "Solar is much, much harder than people think it is. When the sun shines, electricity is going to be worth zero, so all the money will be reserved for the guy who brings you power when there's no wind and no sun" and "I think people deeply underestimate what a huge problem this day-night issue is if you're trying to design an energy system involving solar technology that's more than just a hobby."
According to the Forbes and Bloomberg lists, Gates is the one guy in the country who is even richer than Warren Buffett.
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