The Art of Doing Nothing
A look at Berkshire’s 2021 annual letter
For investing nerds, Berkshire Hathaway’s annual letter is like Christmas in February. Relative to the cautionary tone of Berkshire’s 2020 annual letter, colored by its $11 billion write-down of its investment in Precision Castparts, a go-go market, and the beginnings of the SPAC craze, the 2021 letter strikes a more balanced tone. With his fortune already made, I get the sense that Buffett is thinking more about his legacy. Let’s dig in.
Capital Allocation: A High-Class Problem
Patience is one of Warren Buffett’s hallmark traits as an investor. Once again, this virtue was on display in 2021.
Berkshire is blessed with the high-class problem of generating more cash than it can profitably put to work. That’s a problem most people can only dream of. The company ended 2021 with $144 billion of cash on its balance sheet. Berkshire has committed to holding at least $30 billion of cash, leaving it plenty of dry powder.
From a capital allocation perspective, the company has three options for putting its war chest to work. The first is growing the earnings power of Berkshire’s portfolio of controlled businesses through organic investments and M&A. In 2021, it invested over $13 billion in its operating companies like…
