Warren Buffett released his latest annual shareholder letter for Berkshire Hathaway on Saturday. The Berkshire Hathaway chairman and CEO said he will continue to bet on America even after reporting softer operating profits in the fourth quarter. Greater inflationary pressures weighed on the company’s various businesses. Meanwhile, buyback activity for the year slowed as Berkshire completed some notable deals in 2022, such as acquiring property-casualty insurer Alleghany for $11.6 billion in stakes in American firms like American Express, Coca-Cola and Paramount Global — some of which Berkshire is the largest owner in each case. “I’ve been investing for 80 years – more than a third of our country’s lifetime. Despite our citizens’ penchant for — almost enthusiasm — for self-criticism and self-doubt, I have never seen a time when it made sense to make a long-term bet against America,” Buffett wrote in his letter. “And I very much doubt that any reader of this letter will have a different experience in the future.” Here are additional highlights from the much-anticipated letter. “Business Pickers, Not Stock Pickers “Our goal with both ownership forms is to make meaningful investments in companies that are both cost-effective over the long term economic characteristics as well as trustworthy managers. In particular, please note that we hold listed stocks based on our expectations about their long-term business performance, not because we view them as vehicles for skillful buying and selling. This point is crucial: Charlie and I are not stock pickers; we are business pickers.” About its acquisition of insurer Alleghany “A second positive development for Berkshire over the past year was our purchase of Alleghany Corporation, a property and casualty insurer led by Joe Brandon. I’ve worked with Joe in the past and he understands both Berkshire and insurance. Alleghany offers us special value because Berkshire’s unmatched financial strength enables its insurance subsidiaries to pursue valuable and enduring investment strategies unavailable to virtually all competitors. With the help of Alleghany, our insurance float increased from 147 during 2022 $1 billion to $164 billion funds have a good chance of being free over time. Since we bought our first P&C insurer in 1967, Berkshire’s float has grown 8,000 times through acquisitions, operations and innovation.” Largest owner of eight American firms – including Paramount “Berkshire was the largest owner at the end of 2022 by eight of these giants: American Express, Bank of America, Chevron, Coca-Cola, HP Inc., Moody’s, Occidental Petroleum and Paramount Global.” No reason to bet against America in the long term “I’ve been an investor for 80 years – more than a third of our country’s lifetime I’ve never seen a time when it made sense to bet against America in the long run. And I very much doubt that every 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 momentum has contributed enormously to the success that Berkshire has achieved — a contribution that Berkshire will always need. We’re counting on the American tailwind, and although it’s weakened from time to time, its momentum has always returned.” “Disgusting” earnings manipulation “Finally, an important warning: Even our favorite operating profit number can easily be manipulated by managers, who wish this. Such manipulations are often considered sophisticated by CEOs, directors and their advisors. Reporters and analysts also applaud its existence. Exceeding “expectations” is heralded as managerial triumph. This activity is sickening. It requires no talent for manipulating numbers: it only requires a deep desire to deceive. “Bold imaginative accounting,” as a CEO once described his deception to me , has become one of the embarrassments of capitalism.” Buffett Defends Stock Buybacks “Profits from value-added buybacks, it should be emphasized, benefit all owners — in every way. Imagine, if you will, three fully informed shareholders at a local auto dealership , one of whom runs the business. Imagine , further, that one of the passive owners wants to sell their stake back to the company at a price attractive to the two remaining shareholders. After the closing, did anyone harm this transaction? When you are told, that all buybacks are detrimental to shareholders, the country, or particularly beneficial to CEOs utes, listen to either an economically illiterate or a silver-tongued demagogue (characters that are not mutually exclusive). Buffett: “Nothing beats having a great partner” “Nothing beats having a great partner. Charlie and I think pretty much the same way. But what it takes a page to explain, he sums up in one sentence with clearer reasoning and also more artful – some might add bluntly – Here are some of his thoughts, many of them from a very recent podcast: • The world is full of foolish ones players, 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 am I’m going to die, so I’ll never go there Related thought: Write a wish obituary early – and then act accordingly • If you don’t care if you’re rational or not, if you don’t work at it, you’ll remain irrational and get miserable Outcomes • Patience can be learned Having a long attention span and being able to focus on one thing for a long time is a major asset. You can learn a lot from the dead. Read about the dead you admire and loathe. • Do not disembark in a sinking boat if you can swim to a seaworthy boat. • A great company keeps going when you’re not; A mediocre company will not do that. • Warren and I don’t focus on the froth of the market. We look for good long-term investments and are persistent in holding them over the long term. • Ben Graham said: “The stock market is an everyday voting machine; in the long run he is a Libra.” If you make something more valuable, a wise man will notice and start buying. • There is no such thing as 100% security when investing. Therefore, using leverage is dangerous. A set of wonderful numbers times zero will always equal zero. Don’t expect to get rich twice. • However, you don’t need to own many things to become rich. • You have to keep learning if you want to be a great investor. When the world changes, you have to change. • Warren and I hated railroad stocks for decades, but the world changed and eventually the country had four huge railroads that were vital to the American economy. We have been slow to recognize the change, but better late than never. • Finally, I add two short sentences from Charlie, which have been his decision-making tools for decades: “Warren, think about this more. You’re smart and I’m right.” And so it goes. I never phone Charlie without finding out 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, high-quality partner – preferably a little older than you – and then listen very carefully to what he says.” America would be without Berkshire ‘Did Well’ “In 1965, Berkshire was a one-trick pony, the owner of a venerable – but doomed – textile company in New England. With this business on the death march, Berkshire needed an immediate fresh start. Looking back, I was slow to appreciate the seriousness of his problems. And then came a stroke of luck: National Indemnity became available in 1967 and we shifted our resources to insurance and other non-cloth businesses. Thus began our journey to 2023, a bumpy road that has involved a combination of continued savings from our owners (ie, through their retained earnings), the power of compounding, our avoidance of major mistakes, and—most importantly—the American tailwind. America would have done well without Berkshire. It’s not the other way around.”
