More than five years have passed since Warren Buffett publicly proclaimed that he was buying American stocks for his personal account. The announcement came as investors were fearful of a complete financial meltdown and just a few months before stocks found a bottom. While many people doubt how much farther the bull market will run, Buffett is still bullish on America.
The Oracle of Omaha recently released his annual letter to shareholders. Berkshire Hathaway’s (NYSE:BRKA) gain in net worth during 2013 totaled $34.2 billion as per-share book value jumped 18.2 percent. Over the past 49 years, or since the present management took over, Berkshire’s book value has increased from $19 per share to an astounding $134,973, representing a rate of 19.7 percent compounded annually. A large amount of money is being deployed in America to ensure future gains.
In 2013, Buffett completed acquisitions of two large American companies. In fact, Berkshire spent $18 billion to purchase all of NV Energy and a major interest in H.J. Heinz. “Both companies fit us well and will be prospering a century from now,” Buffett wrote. Berkshire now owns 8.5 companies that would be in the Fortune 500 if they were standalone businesses — “only 491.5 companies to go.”
Berkshire’s subsidiaries spent a record-breaking $11 billion on plant and equipment last year. Interestingly, about 89 percent of that money was spent in the United States. “Though we invest abroad as well, the mother lode of opportunity resides in America,” said Buffett. Including Heinz, Berkshire’s yearend employment also reached a new record of 330,745, up 42,283 from the prior year.
In additional to the plant and equipment investments, Berkshire raised its stakes in each of its top four equity holdings. Shares were added to Wells Fargo (NYSE:WFC), Coca-Cola (NYSE:KO), American Express (NYSE:AXP), and International Business Machines (NYSE:IBM). These four American giants had unrealized gains of $39 billion at yearend, and their earnings continue to add billions to Berkshire’s bottom line each year.
“Going by our yearend holdings, our portion of the ‘Big Four’s’ 2013 earnings amounted to $4.4 billion,” said Buffett. “In the earnings we report to you, however, we include only the dividends we receive — about $1.4 billion last year. But make no mistake: The $3 billion of their earnings we don’t report is every bit as valuable to us as the portion Berkshire records. The earnings that these four companies retain are often used for repurchases of their own stock — a move that enhances our share of future earnings — as well as for funding business opportunities that usually turn out to be advantageous.”
There is also one major equity position that investors should not overlook. Berkshire has the option to purchase 700 million shares of Bank of America (NYSE:BAC) at any time prior to September 2021 for $5 billion. At the end of 2013, these shares were worth $10.9 billion, effectively making the bank Berkshire’s fifth-largest equity investment. According to the annual letter, Berkshire will likely purchase the shares just before expiration.
Late in 2009, Berkshire agreed to buy Burlington Northern Santa Fe (BNSF) as the Great Recession paralyzed many investors. It was Berkshire’s largest purchase in company history and Buffett’s “all-in wager on the economic future of the United States.” BNSF carries about 15 percent of all inter-city freight and moves more ton-miles of goods than anyone else. Buffett and Charlie Munger have always considered a bet on ever-rising U.S. prosperity to be “very close to a sure thing.”
“Indeed, who has ever benefited during the past 237 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder,” said Buffett. “And the dynamism embedded in our market economy will continue to work its magic. America’s best days lie ahead.”
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