Warren Buffett discussed many topics in his annual letter to Berkshire Hathaway shareholders.
Here are four takeaways from his letter, which was released Feb. 24.
1. Tax cuts led to big gains. "Berkshire's gain in net worth during 2017 was $65.3 billion, which increased the per-share book value of both our Class A and Class B stock by 23 percent," wrote Mr. Buffett. "A large portion of our gain did not come from anything we accomplished at Berkshire. The $65 billion gain is nonetheless real — rest assured of that. But only $36 billion came from Berkshire's operations. The remaining $29 billion was delivered to us in December when Congress rewrote the U.S. Tax Code."
2. Why Berkshire didn't make a deal last year. "In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price," wrote Mr. Buffett. "That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high."
3. Berkshire needs more big acquisitions. "Berkshire's goal is to substantially increase the earnings of its non-insurance group. For that to happen, we will need to make one or more huge acquisitions," wrote Mr. Buffett. "We certainly have the resources to do so. At yearend Berkshire held $116.0 billion in cash and U.S. Treasury Bills (whose average maturity was 88 days), up from $86.4 billion at yearend 2016."
4. Investors should focus on fundamentals. "Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon such as alpha and beta," wrote Mr. Buffett. "What investors then need instead is an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals. A willingness to look unimaginative for a sustained period — or even to look foolish — is also essential."
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