He calls out a number of wasteful, misleading, and downright greedy corporate practices in the 2019 letter. At times he sounds like Bernie Sanders. While finance analysts are spinning Berkshire’s recent moves as bullish, Buffett continues to prefer letting a fortune slowly evaporate to inflation than invest in the stock market.
Information technology continues to spawn titanic digital platforms that unlock vast stores of value by fueling increased productive possibilities, and saving money in all kinds of ways we could not have expected even just years ago.
But leave it to corporate America to take good opportunities and push them beyond their limits. Warren Buffett points out a number of ways corporate greed is killing the goose that lays the golden eggs. He paints a bleak picture of corporate corruption…
Buffett Says Corporate Earnings Are Fake
Buffett’s 2019 letter is soaked through with his conviction that much of corporate America’s numbers are fake. He begins with the same admonition in his 2018 letter against the new Generally Accepted Accounting Principles (GAAP) rule for reporting unrealized capital gains and losses. He thinks this causes companies to report faulty numbers:
The adoption of the rule by the accounting profession, in fact, was a monumental shift in its own thinking… Now, Berkshire must enshrine in each quarter’s bottom line… every up and down movement of the stocks it owns, however capricious those fluctuations may be.
Further, Buffett goes on to say many CEOs fudge their company’s numbers, and that audit committees are powerless to stop them:
Audit committees now work much harder than they once did and almost always view the job with appropriate seriousness. Nevertheless, these committees remain no match for managers who wish to game numbers, an offense that has been encouraged by the scourge of earnings ‘guidance’ and the desire of CEOs to ‘hit the number.’
Remember Warren Buffett’s classic advice to be fearful when others are greedy.
Buffett Slams Corporate Corruption
He goes on to state that executive compensation is shrouded in complicated payment schemes. And that corporate communications to shareholders are “mind-numbing” to read. To add insult to injury, companies shell out massive consultant fees to weave these webs of opacity and concealment:
Compensation committees now rely much more heavily on consultants than they used to. Consequently, compensation arrangements have become more complicated – what committee member wants to explain paying large fees year after year for a simple plan? – and the reading of proxy material has become a mind-numbing experience.
Buffett also says corporate mergers often enrich executives at the expense of shareholders. He says “don’t hold your breath” waiting for this to change:
But I have yet to see a CEO who craves an acquisition bring in an informed and articulate critic to argue against it… Overall, the deck is stacked in favor of the deal that’s coveted by the CEO and his/her obliging staff… The current system, whatever its shortcomings for shareholders, works magnificently for CEOs and the many advisors and other professionals who feast on deals.
Finally, Buffett outlines how CEOs select corporate board directors who won’t challenge their compensation plan. They essentially bribe directors with exorbitant pay to keep them docile:
Think, for a moment, of the director earning $250,000-300,000 for board meetings consuming a pleasant couple of days six or so times a year. Frequently, the possession of one such directorship bestows on its holder three to four times the annual median income of U.S. households.
Buffett says a CEO looking for a director will ask the director’s current CEO if they’re a “good” director. And “good” is “a code word” for someone who has not “seriously challenged his/her present CEO’s compensation or acquisition dreams.”
Buffett Spells Doom for Stock Market
Some analysts are spinning Berkshire Hathaway’s position and Warren Buffett’s letter as bullish on the American economy. This couldn’t be further from the truth.
For example, Yahoo Finance published an analysis by GuruFocus claiming “Buffett Bets on America Again.” This article interprets Berkshire’s unprecedented decision to purchase ETFs that track the S&P 500 as “still bullish on the American economy.” But Berkshire has hardly taken a big bite out of index funds.
Nowhere in the analysis does it mention how much of Vanguard S&P 500 ETF (VOO) and SPDR S&P 500 ETF (SPY) Berkshire actually bought.
The reality is Warren Buffett stuck one toe in the water. His 2019 report shows the $128 billion cash pile hasn’t moved. Berkshire is still clutching its cash pile, cash equivalents and short term Treasury bills. (See page 86 of the report.)
Warren Buffett remains terrifyingly bearish on the stock market. He’d rather keep $128 billion in cash that nets zero long-term returns than invest in the stock market. That’s a fortune slowly rotting away to inflation like so much cabbage on the shelf. Buffett would rather hold $128 billion in rotting leafy green back cabbage than go for a swim in the stock market. “The Oracle” clearly predicts the tide is about to go out.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
