Berkshire Hathaway (NYSE: BRK.B) released its annual report for 2022. Like every year, the report gets attention for chairman Warren Buffett’s annual letter to shareholders. Here are the key takeaways from the letter.
Over the last many decades, Buffett’s annual letter which is usually released in February, and the company’s annual shareholder meeting in May have provided insights into the investment philosophy of the “Oracle of Omaha.”
In his annual letter this time, Buffett said that “Efficient markets exist only in textbooks.” He added, “In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.”
He said that at times companies trade at depressed valuations allowing him to buy them at “wonderful prices.” Notably, Berkshire invests in stocks of publicly traded companies and at times fully acquires the company, as was the case with Alleghany Corporation in 2022.
He added, “Our goal in both forms of ownership is to make meaningful investments in businesses with both long-lasting favorable economic characteristics and trustworthy managers.”
Proving examples of the investments he picked, Buffett said that “over time, it takes just a few winners to work wonders.”
Buffett Lashes Out at Those Criticizing Stock Buybacks
In 2022, Berkshire Hathaway repurchased around $8 billion of its shares. In 2021, the conglomerate had repurchased a record $27 billion and between 2020 and 2021 it repurchased over $50 billion worth of its shares.
Many have criticized share buybacks and beginning this year there is a 1% excise tax on stock buybacks, thanks to the Inflation Reduction Act of 2022. Buffett meanwhile lashed out at buyback critics in his annual letter.
He said, “When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive).”
He said that buybacks make perfect sense when the stocks trade below their fair value. He has also supported Apple’s stock buybacks in the past.
Apple is now the biggest holding for Berkshire Hathaway. Last year, the conglomerate bought more Apple shares in all the quarters barring Q3. There is a guide on how beginners can buy Apple stock.
Warren Buffett on the “American Tailwind”
While Berkshire Hathaway has invested globally in companies like China’s BYD and Japanese trading companies, most of its investments are in US companies. In the past also, Buffett has advised that one should not bet against America.
He once advocated buying S&P 500 ETFs which he said was like owning a “cross section of America.” Buffett echoed similar views in this year’s annual letter also.
He said, “I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”
Referring to what he called the “American tailwind” Buffett added, “America would have done fine without Berkshire. The reverse is not true.”
Berkshire Hathaway is Still Sitting on Loads of Cash
At the end of 2022, Berkshire Hathaway was sitting on $128.6 billion worth of cash. At its peak, the conglomerate held almost $150 billion in cash. However, Buffett invested massively in 2022 which help lower the cash pile.
Buffett emphasized that Berkshire “will always hold a boatload of cash” He added that the company’s CEOs would also play the role of “Chief Risk Officer” and would have a large chunk of their wealth in Berkshire shares. Greg Abel is widely seen as the successor to Buffett.
Buffett also lifted thoughts from vice chairman Charlie Munger. One of them is “You have to keep learning if you want to become a great investor. When the world changes, you must change.”
Indeed, the duo’s investment philosophy has evolved. Apple, for instance, did not come on Berkshire’s radar for decades. Now, the conglomerate is Apple’s second-largest stockholder. In another instance, Buffett invested in airline stocks after having previously called them a “death trap.”
Meanwhile, when it comes to cryptocurrencies, both Buffett and Munger have strongly negative opinions and see them as worthless.
Buffett has owned mistakes in the past and highlighted some of them in this year’s annual letter also. Could his opinion of digital assets be another “mistake?” Only time would tell.
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