The ability to capitalize on any situation is a talent, while boosting capital amid tough economic climate is even greater one. Very few people can boast of this ability. One of them is Warren Buffett, a legendary investor and the chairman of Berkshire Hathaway. In his annual letter to Berkshire Hathaway shareholders, he posted full-year earnings of $81.4 billion. According to analysts, the company's net income increased by 1,900% compared to 2018.
This news could not fail to attract the attention of market participants. Analyzing this explosive growth in profits of Berkshire Hathaway, experts have concluded that this comes from a number of factors. Warren Buffett attributed such dizzying growth to the new reporting rules introduced in 2018 during the tax reform of US President Donald Trump. The new rules provide for the net profit change in the value of the companies' securities, the investor emphasized.
As a result, Berkshire Hathaway's portfolio gained in 2019, while its unrealized profit amounted to $53.7 billion. Warren Buffett criticized the rules, calling the new regulation into question. He called the growth of 1,900% “crazy” and unbelievable, and recommended investors focus on operating profit which reflects the real situation. In 2019, Berkshire Hathaway's operating profit reached $23.9 billion. In 2018, it amounted to $24.8 billion.
According to the billionaire, Berkshire Hathaway invests available funds in companies where it already holds a share. At the same time, the corporation is always looking for new firms for purchases, preferring to acquire 100% of a stock. However, Berkshire Hathaway investment firms must meet three criteria: generate good profits and have substantial capital, be managed by competent and impactful managers, and the transaction value should remain reasonable.
Warren Buffett believes that if the key rate and corporate tax rate in the United States remain unchanged, long-term stock returns of Berkshire Hathaway will most likely be higher than long-term bond yields. However, in the event of a financial crisis, the value of securities may slump by an impressive 50%, the investor noted.