Warren Buffett sounds warning to Washington as Berkshire reports record profit, cash

By Jonathan Stempel

NEW YORK (Reuters) -Berkshire Hathaway on Saturday reported record annual profits even while boosting its cash stake to $334.2 billion, as Warren Buffett used his annual shareholder letter to caution Washington to spend money "wisely" and take care of those who get "short straws in life."

The 94-year-old Buffett, arguably the world's most famous investor, also acknowledged his advanced age in the letter, telling shareholders he now uses a cane and will spend less time fielding their questions at Berkshire's annual meeting in May.

He nonetheless assured shareholders they would be in good hands after he turns over the conglomerate's reins to Vice Chairman Greg Abel, saying the 62-year-old Abel has "vividly shown his ability" to deploy capital.

Buffett's letter was accompanied by Berkshire's annual report, where it reported a third straight record annual operating profit, rising 27% to $47.44 billion.

Net income totaled $89 billion, including gains from Berkshire's common stock investments such as Apple and American Express.

Berkshire's cash stake reflected high business valuations and nine straight quarters of the company selling more stocks than it bought, including Apple.

"Often, nothing looks compelling; very infrequently we find ourselves knee-deep in opportunities," Buffett wrote.

AMERICAN MIRACLE

This year is Buffett's 60th at the helm of Berkshire, which he transformed from a failing textile company into a $1.03 trillion conglomerate with dozens of businesses in insurance, railroad, energy, industrial, retail and other sectors.

Buffett said his company will continue to prefer owning equities, primarily U.S. stocks, over cash, adding Berkshire is "not finished."

But he sent a cautionary message to Washington, lamenting how capitalism "has its faults and abuses--in certain respects more egregious now than ever," with malfeasance by "scoundrels and promoters" in full force.

He also urged lawmakers to help preserve a stable U.S. dollar, saying "paper money can see its value evaporate if fiscal folly prevails," and that the United States has in its history "come close to the edge."

Buffett said long-term success of Berkshire and the American economy, which he called the "American miracle," has depended on people's ability to participate. That, he said, is something Uncle Sam can encourage, or take away.

"Take care of the many who, for no fault of their own, get the short straws in life," Buffett wrote, addressing the government. "They deserve better. And never forget that we need you to maintain a stable currency and that result requires both wisdom and vigilance on your part."

Cathy Seifert, an analyst at CFRA Research who rates Berkshire "hold," said: "Talking about the business of America being messy was his way of addressing the political landscape and its impact on the macroeconomic environment. He is warning Washington: Be careful where you tread."

FEWER BUYING OPPORTUNITIES

While Berkshire has not made a major purchase of an entire company since 2016, Buffett said it is likely to increase its combined $23.5 billion of investments in five Japanese trading houses: Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo.

But other stocks appear pricey, with the Standard & Poor's 500 hitting a new high on Wednesday and the Nasdaq just 3% below its December 16 peak.

Berkshire's size also inhibits its shares from trouncing the indexes as they did decades ago.

The company's stock price has risen 15% in the last year, while the S&P 500 rose 18%. Over the last decade, Berkshire's stock price has risen 225%, while the index rose 241% including dividends and 185% excluding dividends, Reuters data show.

"They will have lots of buying opportunities but Berkshire will never be the large double-digit compounder it had been," said Bill Smead, chief investment office at Smead Capital Management in Phoenix. "Berkshire will be a solid way of participating in owning major companies, and avoiding trouble."

At the annual meeting, which tens of thousands of people attend, Buffett will spend less time on the stage where he, Abel and Berkshire Vice Chairman Ajit Jain answer shareholder questions.

Buffett told Fortune magazine last month that he was still having fun and able to do a few things reasonably well, while other activities had been "eliminated or greatly minimized."

The meeting will also not feature the traditional movie created by Buffett's daughter Susie.

In discussing his age, Buffett said he talks regularly on Sundays with his 91-year-old sister Bertie, using an old-fashioned phone.

"We cover the joys of old age and discuss such exciting topics as the relative merits of our canes," he said. "In my case, the utility is limited to the avoidance of falling flat on my face."

(Reporting by Jonathan Stempel, in New York; Writing by Carolina Mandl in New York; Editing by Diane Craft)