Trump tax cut fuels record profit for Buffett's Berkshire

Warren Buffett’s optimism may get tested this year

Warren Buffett’s optimism may get tested this year

Warren Buffett's Berkshire Hathaway Inc. was a big victor from the recent tax overhaul.

Berkshire attributed roughly $29.11 billion of its net income to the reduction of the corporate tax rate, to 21 percent from 35 percent, that Trump signed into law in December.

"Though markets are generally rational, they occasionally do insane things", said Buffett, adding that investors need "an ability to both disregard mob fears or enthusiasms and to focus on a few simple fundamentals" even if makes them "look foolish".

Berkshire's cash pile swelled to $116 billion from $109 billion in the third quarter.

Warren Buffett said in his annual letter the practice of managing portfolio risk using a specified ratio of bonds-to-stocks is flawed.

"Our smiles will broaden when we have redeployed Berkshire's excess funds into more productive assets", Buffett wrote.

Buffett often invests in stocks when he can not find whole companies to buy.

Berkshire's (BRK.A, BRK.B) book value rose $65B in 2017, or 23%.

It has been more than two years since Berkshire made a major purchase, the $32.1bn takeover of aircraft parts maker Precision Castparts.

"Buffett has been quick to say that he thinks that the tax policy changes were going to help Berkshire and be positive overall", said Bill Smead, chief executive of Smead Capital Management in Seattle, a Berkshire shareholder.

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 the energy executive Gregory Abel, while the insurance specialist Ajit Jain added supervision of insurance operations such as the Geico auto insurer.

The investor shared the data which revealed Berkshire Hathaway's stock declined by a range of 37 percent to 59 percent multiple times over the last five decades.

Buffett also warned long-term investors including pension funds, college endowments and "savings-minded individuals" that even with US stock prices near record highs, it would be a "terrible mistake" to assume bonds are safer.

Back in May 2017 at the most recent Berkshire Hathaway annual meeting, Buffett had hinted at how a potential tax cut could impact the bottom line of the company.

"Often, high-grade bonds in an investment portfolio increase its risk", he wrote.

Operating profit fell 18 per cent to $14.5bn due to a $2.2bn loss from the group's insurance underwriting unit as a string of natural disasters hit the US.

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