Berkshire Hathaway says tax law gives it $29-billion boost

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Every year, the world's third-richest man pens a much-anticipated letter (pdf) to shareholders of his company, Berkshire Hathaway.

Buffett's letter, which past year clocked in at 28 pages as opposed to modern-day tweets that now max out at 280 characters, is substantive and insightful, but written in his folksy, easy-to-understand style. Both were elected to Berkshire Hathaway's board earlier this year.

American tycoon Warren Buffett has played down speculation that he is putting in place plans to step down as boss of conglomerate Berkshire Hathaway, insisting that he has "never felt better". But the biggest contributor to the $29 billion windfall, by far, was Berkshire's huge unrealized gains on stocks (a net figure of more than $100 billion at yearend) and a tax item that goes with them.

Last month, Buffett gave greater oversight of Berkshire's non-insurance businesses such as the BNSF railroad, Precision Castparts and Dairy Queen ice cream to energy executive Gregory Abel, while insurance specialist Ajit Jain added supervision of insurance operations such as the Geico auto insurer.

Buffett's newsletters are read with intense interest on Wall Street and beyond.

Buffett urged investors to stick with stocks even though they can be riskier in the short-term. "Nevertheless we think this move (to elevate Abel and Jain) should allay concerns over succession planning at Berkshire". "Most wouldn't mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering". Now 87, he has been investing since he first bought stock at the age of 11.

"Capital deployment is crucial to Berkshire's future earnings growth", Kai Pan, a Morgan Stanley analyst, told clients in a research note released Friday.

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"Prices for decent, but far from spectacular, businesses hit an all-time high", he said.

Those increases, however, masked declines in operating profit, which Buffett considers a better gauge of overall performance, and which fell 18 percent a year ago to $14.46 billion.

For all of 2017, Berkshire's net income rose 87 percent to $44.94 billion.

To explain: On Berkshire's financial statements, unrealized gains and losses become a part of "Investments in equity securities", a marked-to-market item on the asset side of the balance sheet. "Berkshire's goal is to substantially increase the earnings of its non-insurance group".

The problem is scant details have been disclosed, leaving Wall Street to wonder if the goal is to band together to negotiate lower drug and medical care prices or "more drastically disrupt" the employee benefits market.

Here are five wonderful wisdoms from Buffett's annual letter for 2017. Berkshire is the company's largest investor, holding about 26 percent of shares outstanding, according to FactSet.