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Berkshire Hathaway Chairman Warren Buffett opened his annual letter to investors Saturday with a moving tribute to his longtime business partner Charlie Munger, whom he described as the conglomerate’s “architect.” Ta.
Buffett also lamented the difficulty of choosing new investments for a company of Berkshire’s size, and said he plans to buy the remaining shares in Occidental Petroleum, which he owns about 28% at the end of 2023. He said no. Mr. Buffett also discusses Berkshire’s successful insurance business, investments in Coca-Cola, American Express, five Japanese trading companies, and detailed issues of energy and freight rail businesses.
Farewell to Berkshire’s ‘architect’ Munger
Buffett has always been Berkshire’s front man, but the 93-year-old investor says Munger was the real “architect” of the conglomerate.
In fact, Buffett first came up with Berkshire’s long-standing mission statement of buying “great companies at a fair price” after criticizing his acquisition of then-struggling New England textile company Berkshire Hathaway. It was Mr. Munger.
“In reality, Charlie was the ‘architect’ of Berkshire today, and I acted as the ‘general contractor’ who carried out the day-to-day construction of his vision,” Buffett said.
Munger passed away on November 28, 33 days shy of his 100th birthday.
Berkshire’s latest acquisition remains a mystery
The release of this year’s Berkshire annual report came with an unusual element of suspense. Investors were waiting to see if Buffett would reveal his latest purchase in the conglomerate, widely believed to be a financial stock.
Unfortunately, they have to keep waiting.
There was no mention of the mysterious company in letters to shareholders or in Berkshire’s annual report. Whatever the company is, it is widely believed to be a financial company, given the increased cost base of financial companies that was first revealed last year.
Buffett slams market’s increasingly ‘casino-like’ behavior
Financial news and information is now being transmitted around the world faster than ever before. However, Buffett pointed out that humans appear to be as prone to irrational behavior as ever, if not more so.
Although the modern U.S. stock market is larger than when Berkshire was founded, he said that investors today are “not mentally stable or better educated than when he was younger.” Not at all,” he said.
“For whatever reason, the market now behaves much more like a casino than it did when I was younger. Casinos are now installed in many homes, tempting residents every day.” Buffett said.
Investors would do well to remember that someone, somewhere, will always find an opportunity to promote the latest fad. In many cases, it’s Wall Street that benefits, leaving buyers even poorer and worse off.
‘Not interested’ in acquiring Occidental Petroleum
One of Berkshire’s biggest acquisitions in the past two years was a 27.8% stake in Occidental Petroleum.
Berkshire has the option of increasing its stake through its stock acquisition rights, but Buffett said he has “no interest in acquiring or managing” Occidental. However, the company particularly values its vast oil and gas assets in the United States. Leadership in carbon capture technology.
He praised Occidental CEO Vicki Holub, saying Occidental is doing the right thing for both the country and its owners.
Buffett cites ‘disappointing results’ from BNSF and Berkshire Energy
At last year’s annual meeting, Buffett told investors that rising earnings at Berkshire’s U.S. freight rail network BNSF and Berkshire Energy Holdings would help cushion declining earnings in Berkshire’s other businesses. He said it would be.
Instead, both produced lackluster profits, something Buffett felt obligated to explain to shareholders. Buffett attributed BNSF’s decline to higher wages after the White House intervened to avert a strike by American freight rail workers in late 2022.
“BNSF’s revenue fell more than I expected last year due to lower revenues. Fuel costs also fell, but the wage increases promulgated in Washington far exceeded the nation’s inflation target. “This difference could reoccur in future negotiations,” he said.
Meanwhile, the decline in Berkshire’s energy business was exacerbated by increased regulatory scrutiny of utilities in Western states such as California and Hawaii in the wake of the wildfires. He ended on an ominous note, suggesting that the energy business could suffer a major setback depending on how regulators react.
“It will be many years before the final tally of BHE’s bushfire losses is known and wise decisions can be made about the desirability of future investment in vulnerable western states. “It remains to be seen whether the regulatory environment will change elsewhere,” Buffett said.
Berkshire’s size is the biggest barrier to new deals
Berkshire once had a wealth of potential acquisition targets, but those days are long gone.
Berkshire’s sheer size makes it very difficult to find potential acquisition targets right now, Buffett said. Its net assets stood at nearly $561 billion at the end of 2022, or about 6% of the entire S&P 500 index, according to Generally Accepted Accounting Principles.
“There are only a handful of companies left in this country that can truly change the needle at Berkshire, and they continue to be chosen by us and others endlessly. “Some things can be done, and some things can be valuable. Some things can’t. And, if possible, it has to be at an attractive price,” Buffett said.
As a result, Berkshire’s ability to significantly outperform the broader market has diminished. Berkshire should be doing better than the average healthy American company, but anything more than “slightly better” would be “wishful thinking.”
Net profit is “worse than waste”
The past three years are a perfect example of why Buffett prefers operating profits to the “worse than useless” net profits that public companies are required to report.
Due to stock market volatility, Berkshire reported a net loss of $23 billion in 2022, reflecting a decline in the unrealized value of its stock portfolio. On either side of his $23 billion loss were two annual gains of more than $90 billion.
In comparison, operating profit shows a more stable situation. It shows Berkshire earned $27.6 billion in 2021. 30.9 billion dollars in 2022 and 37.4 billion dollars in 2023.
Ajit Jain and Greg Abel join Buffett on stage
Following the passing of Charlie Munger, Ajit Jain, head of Berkshire’s insurance business, and Greg Abel, head of Berkshire’s non-insurance business, will attend Berkshire Hathaway’s annual meeting in Omaha on May 4. He will be on stage with Charlie Munger.
Berkshire Hathaway’s after-tax operating income rose 28% to $8.5 billion in the fourth quarter of 2023, driven by strength in the company’s insurance business and strong investment income this year.
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