Investing legend Warren Buffett published his annual letter on Saturday, and it came with some of the usual trimmings: sage advice and reflections on the past year’s success.
Buffett told investors that Berkshire Hathaway made a $65.3 billion net gain in 2017 — but “only $36 billion came from Berkshire’s operations.”
The rest was a gift from the new U.S. tax code.
“A large portion of our gain did not come from anything we accomplished at Berkshire,” he wrote, adding that about $29 billion of that $65.3 billion gain came from changes to the tax law.
Buffett went on to extol Berkshire’s investing methods. Careful, slow and steady has gotten the firm this far — and that’s the course it’ll stay on, he said.
He noted that Berkshire didn’t go on a buying “frenzy” and acquire a bunch of companies last year, mostly because there were no desirable options that came at a “sensible” purchase price.
“[P]rices for decent, but far from spectacular, businesses hit an all-time high” last year, he wrote.
“[Investing partner] Charlie [Munger] and I believe that from time to time Berkshire will have opportunities to make very large purchases,” Buffett wrote. “In the meantime, we will stick with our simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own.”
Buffett also gave the final details of a 10-year long bet he made against hedge funds in 2007. That ended last year, and Buffett — who bet slow, steady gains by the S&P 500 would beat out hedge funds over the decade — won with flying colors.
All told, the S&P 500 had an overall gain of 125.8% while the group of hedge funds — which have never been publicly named — gained just 27%.
Buffett has long been highly critical of the high fees charged by hedge fund operators.
“Performance comes, performance goes. Fees never falter,” he wrote.