Warren Buffett Defends Berkshire Hathaway’s $25 Billion in Buybacks

In Mr. Buffett’s annual letter to shareholders, he defended the larger-than-usual buybacks, saying they enhance the intrinsic value for shareholders but still leave Berkshire ample funds for any opportunities. He was less than complimentary of other chief executives buying back stock.

“American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked,” he wrote.

Berkshire’s available cash and short-term Treasury bonds were $138.3 billion in the fourth quarter. Investors have been watching for over a year to see if Mr. Buffett would buy a significant stake in a large company as he has in other turbulent times for the U.S. economy.

The conglomerate’s restraint in investing available cash has been in contrast to Wall Street’s flurry of new initial public offerings, deals and moves by special purpose acquisition companies.

While Berkshire has made some smaller investments over the last year—most recently investing $8.6 billion in Verizon Communications Inc. and $4.1 billion in Chevron Corp.—the investments haven’t made a large dent in the conglomerate’s available cash. And Berkshire hasn’t bought a majority stake in a major business.

Bill Smead, chief investment officer of Smead Capital, said he was disappointed that Mr. Buffett didn’t explain more on why Berkshire is holding on to its cash when other investors aren’t.

“The partners need to know not only what he’s doing but why he’s not doing what he’s not doing and give some historical background to some of the goofy stuff that’s been going on,” Mr. Smead said, referring to Wall Street’s hot investment market.

Berkshire’s net earnings rose on the back of a soaring stock market to $35.8 billion, or $23,015 a Class A share equivalent, up almost 23% from the year-before’s profit of $29.2 billion, or $17,909 a share.

An accounting-rule change in recent years has meant that Berkshire’s earnings often reflect the larger performance of the stock market.

Operating earnings, which exclude some investment results, rose to $5 billion from $4.4 billion the year prior. Mr. Buffett has said operating earnings better reflect Berkshire’s performance than net earnings that incorporate unrealized investment gains or losses.

Berkshire runs a large insurance operation as well as railroad holdings, utilities, industrial manufacturers, retailers and even auto dealerships. It also holds large investments, especially in the stock market.

Ninety-year-old Mr. Buffett has built his sprawling Omaha, Neb., conglomerate as a vehicle for investors interested in long-term gains. As such, Berkshire operates a variety of different businesses that Mr. Buffett thinks will stand the test of time. The company also invests the “float” from the premiums its insurance customers pay.

In his letter, Mr. Buffett was particularly critical of those who have increasingly turned to riskier investments thanks to record-low interest rates. This practice, he argues, will be a mistake.

“Some insurers, as well as other bond investors, may try to juice the pathetic returns now available by shifting their purchases to obligations backed by shaky borrowers. Risky loans, however, aren’t the answer to inadequate interest rates. Three decades ago, the once-mighty savings and loan industry destroyed itself, partly by ignoring that maxim,” he said.

Mr. Buffett also addressed a black mark on Berkshire’s bottom line, exposed in part by the economic impact of the pandemic. In 2020, the firm took an $11 billion write-down related to the company’s purchase of Precision Castparts in 2016.

“I paid too much for the company. No one misled me in any way—I was simply too optimistic about PCC’s normalized profit potential. Last year, my miscalculation was laid bare by adverse developments throughout the aerospace industry, PCC’s most important source of customers,” said Mr. Buffett in his letter.

Mr. Buffett did surprise investors with one note.

He said that Berkshire’s annual meeting in May won’t be held as normal in Omaha. Instead, it will be held in Los Angeles, where investors will be able to ask questions of him, as well as Vice Chairmen Charlie Munger, Ajit Jain and Greg Abel. Last year, thanks to the pandemic, Mr. Buffett’s 97-year-old business partner, Mr. Munger, wasn’t able to attend.

With Messers. Buffett and Munger in their 90s, some investors are curious to learn more about the strengths of the next generation of Berkshire’s leaders. Mr. Abel joined Mr. Buffett on stage at last year’s annual meeting.

Despite the rising profit, Berkshire’s stock performance fell short of the broader market for a second year running. The S&P 500 index increased by 16.3% for the year ended Dec. 31 while Berkshire’s stock increased 2.4%. Berkshire’s stock also lagged behind the index in 2019.

Berkshire’s Class A shares closed Friday at $364,580.01, down 0.9% for the day.

Write to Geoffrey Rogow at geoffrey.rogow@wsj.com