Warren Buffett released his latest annual shareholder letter for Berkshire Hathaway on Saturday. The chairman and CEO of Berkshire Hathaway said he will continue to bet on America, even after reporting operating profits that fell during the fourth quarter. Greater inflationary pressures weighed on the firm’s various businesses. Meanwhile, buyback activity slowed for the year after Berkshire made several notable deals in 2022, such as its purchase of property-casualty insurer Alleghany for $11.6 billion, its largest since 2016. The billionaire investor maintained an upbeat outlook for future investment activities, highlighting stakes in US firms such as American Express, Coca-Cola and Paramount Global – each of which Berkshire is the largest owner. “I’ve been investing for 80 years—more than a third of our country’s life. Despite our citizens’ penchant—almost enthusiasm—for self-criticism and self-doubt, I’ve yet to see a time when it made sense to make a long-term bet against America,” Buffett wrote in his letter. “And I doubt very much that any reader of this letter will have a different experience in the future.” Here are more highlights from the long-awaited letter. ‘Business voters,’ no stock pickers “Our goal in both forms of ownership is to make meaningful investments in businesses with favorable long-term economic characteristics and reliable managers. Please note in particular that we own publicly traded stocks based on our expectations regarding their long-term business performance, not because we see them as vehicles for smart buying and selling. This point is crucial: Charlie and I are not stock pickers; we’re business collectors.” On its acquisition of Alleghany Insurer “A second positive development for Berkshire last year was our acquisition of Alleghany Corporation, a property-casualty insurer captained by Joe Brandon. I have worked with Joe in the past and he understands Berkshire and insurance. Alleghany provides us with particular value because Berkshire’s unmatched financial strength allows its insurance subsidiaries to pursue valuable and sustainable investment strategies unavailable to nearly all competitors. Helped by Alleghany, our insurance turnover increased during 2022 from $147 billion to $164 billion. With these disciplined signatures, funds have a good chance of being cost-free over time. Since the acquisition of our first casualty-property insurer in 1967, Berkshire’s turnover has grown 8,000 times through acquisitions, operations and innovations.” Largest owner of eight US firms – including Paramount “At the end of 2022, Berkshire was the largest owner of eight of these giants: American Express, Bank of America, Chevron, Coca-Cola, HP Inc., Moody’s, Occidental Petroleum and Paramount Global. ” There is no reason to make a long-term bet against America “I have been investing for 80 years – more than a third of our country’s life. Despite our citizens’ penchant—almost enthusiasm—for self-criticism and self-doubt, I have yet to see a time when it would make sense to bet long-term against America. And I highly doubt that any reader of this letter will have a different experience in the future.” Buffett’s Willingness to Pay Taxes “At Berkshire we hope and expect to pay a lot more taxes over the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved – a contribution that Berkshire will always need. , its driving force has always returned.” Manipulating ‘disgusting’ results “Finally, an important caveat: even the operating income figure we favor can easily be manipulated by managers who wish to do so. Such harassment is often thought of as sophisticated by CEOs, directors and their advisors. Journalists and their advisors. analysts also embrace its existence. Defeating ‘expectations’ has been heralded as a managerial triumph. This activity is disgusting. It doesn’t take talent to manipulate numbers: All it takes is a deep desire to cheat. ‘Accounting with bold imagination’, as the CEO once described his fraud to me, has become one of the shames of capitalism”. Buffett Defends Stock Buybacks “Profits from value-enhancing buybacks, it should be noted, benefit all owners—in every way. Imagine, if you will, three fully informed shareholders of a local car dealership, one of whom manages the business. Imagine, further, that one of the passive owners wants to sell his interest in the company at a price attractive to the two continuing shareholders. When completed, has this transaction hurt anyone? Is the manager somehow favored over the continuing passive owners? Was the public hurt? When you’re told that all buybacks are bad for shareholders or the country, or particularly beneficial for CEOs, you’re listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive -the other). Buffett: “Nothing can have a great partner.” more clearly reasoned and also skillfully – some might add bluntly – said. Here are some of the his sentiments, much taken from a very recent podcast: • The world is full of stupid gamblers and they won’t do as well as the patient investor. • If you don’t see the world as it is, it’s like judging something through a distorted lens. • All I want to know is where I’m going to die, so I’ll never go there. And a related Thought: First, write your desired obituary – and then act accordingly. • If you don’t care if you’re rational or not, you won’t work with it. Then you will remain unreasonable and get bad results. • Patience Can be learned. Having a long attention span and the ability to focus on one thing for a long time is a huge advantage. You can learn a lot from dead people. Read about the deceased you admire and hate. • Don’t bail on a sinking boat if you can float in one that is seaworthy. • A large company continues to work after you are gone; a mediocre company won’t do that. • Warren and I do not focus on market foam. We look for good long-term investments and hold them stubbornly for a long time. • Ben Graham said: “Day by day, the stock market is a voting machine; in the long run it is a weighing machine.” If you keep making something more valuable, then a wise person will notice it and start buying. • There is no such thing as a 100% sure thing when investing. Thus, using leverage is dangerous. A string of odd numbers multiples of zero will always equal zero. Don’t count on getting rich twice. • However, you don’t need to own a lot to get rich. • You must keep learning if you want to become a great investor. When the world changes, you must change. • Warren and I hated railroad stocks for decades, but the world changed and the country finally had four major railroads vital to the American economy. We were slow to recognize the change, but better late than never. • Finally, I’ll add two short sentences from Charlie that have been his decision makers for decades: “Warren, think about it more. You’re smart and I’m right.” And so it goes. I never have a call with Charlie without learning something. And while it makes me think, it also makes me laugh. * * * * * * * * * * * * I’ll add a rule of my own to Charlie’s list: Find a very smart partner—preferably a little older than you—and then listen very carefully to what he has to say. says.” America ‘would have done just fine’ without Berkshire “In 1965, Berkshire was a lone pony, owner of a venerable—but doomed—textile operation in New England. With that business on a death march, Berkshire needed an immediate fresh start. Looking back, I was slow to recognize the severity of her problems. And then good fortune came: National Compensation became available in 1967 and we shifted our resources to insurance and other non-textile operations. So began our journey to 2023, a bumpy road involving a combination of continued savings from our owners (ie, from their retained earnings), the power of compounding, our avoidance of big mistakes and – most importantly of all – American Tailwind. America would have done well without Berkshire. The opposite is not true.”
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