This weekend, the most sought-after and analyzed shareholder letter in the world, Warren Buffet’s Berkshire Hathaway letter (2023), was published. Buffett’s core message remained the same — discipline-oriented investing will prevail regardless of the uncertain investing landscape we face. However, there were a few surprises that caught even the most avid Buffett fans off guard. Let’s cover the five main points of Warren Buffett’s 2023 annual letter.
1. Berkshire Hathaway Had a Lukewarm Fourth Quarter
Not bad, not great — that was the earnings picture for Berkshire Hathaway. While Berkshire’s earnings weren’t the key focus of Buffett’s annual shareholder letter, it offered a preface on the message that Buffett was going to send.
In this case, that backdrop was a decrease in most metrics for Berkshire.
- Operating earnings fell by 7.9% year-over-year, from $7.285B to $6.7B.
- Earnings from the industrials and energy sectors — including the railroads (a famous staple of Buffett’s portfolio) fell to $2.2B.
- Earnings from Berkshire’s insurance-underwriting business fell dramatically year-over-year $244M in Q4 (compared to $372M the year before).
- Total earnings dropped a whopping 54% relative to Q4 of the previous year.
- Worse yet, full year earnings in 2022 came in at a loss of $22.8B, compared to a gain of $89.8B in 2021. However, that figure largely had to do with the poor market environment.
As a result, shares of BRK.B are trading flat on the day, relative to an S&P 500 that is up roughly half a percent at the time of writing.
However, did Buffett care?
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2. Same Old Buffett — “Quarterly Gains & Losses Are Meaningless”
As a 92 year-old career investor, Warren Buffett has truly seen it all when it comes to stock market environments. So it makes sense that Buffett is largely unphased by the minor ebbs and flows of the market. Warren Buffett has always preached discipline and strategy in the face of market uncertainty.
After all, who could forget the famous adage,
“Be fearful when others are greedy, and greedy when others are fearful.”
Source: CNBC Fear and Greed Index
But where does that leave Buffett and Berkshire?
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3. Berkshire Hathaway is Hoarding Cash.
$128.651 billion dollars. That’s the current size of Berkshire Hathaway’s warchest. That’s up roughly 18% from the third quarter.
Like a dragon, Berkshire Hathaway’s Q4 strategy was to collect and protect treasure while overlooking the chaos of the environment from a safe, high place.
This has proven to be a powerful and effective strategy over the long term.
Shares of Berkshire in 2022 remained positive despite a raging bear market.
It isn’t just true of 2022 — from 1965 through 2022, shares of Berkshire Hathaway have gained 3,787,464% — more than 153X the returns of the S&P 500 during the same period.
So what was Buffett’s advice to the individual investor?
Whether you have a small or large savings account, with the treasury over 4% and bound to head higher, now is a great time to save money.
If the letter stopped here, it would have been an average annual letter from the Oracle of Omaha. “Don’t pay any mind to minor market moves, save money, invest wisely.”
However, Buffett had one final piece of strong language that strayed far from his previous path.
4. Buybacks: Buffett Separates Himself From Political Allies
Buffett in no uncertain terms took aim at the now-common political position that buybacks are somehow inherently bad for the economy, or the working class, or are somehow only good for CEO’s. On the topic, Buffett said,
“Critics of buybacks are either an economic illiterate or a silver-tongued demagogue.”
“The math isn’t complicated. When the share count down, your interest in our many businesses goes up. benefit all owners in every respect.”
This pushes back on the 1% buyback tax imposed by President Biden this year. Buffett had previously campaigned with Hillary Clinton and publicly threw his support behind Biden in the last presidential election.
When a highly respected heavyweight (with big pockets) takes issue with the main rallying cry of a politician that he previously supported, one has to imagine that it’s hard not to notice.
Regardless of whether Biden hears Buffett’s battle on the buyback tax, it’s not likely to change Buffett’s strategy. He’s a straight shooter, with a simple portfolio — more than 75% of Berkshire Hathaway’s portfolio comprises just 5 stocks.
Berkshire Hathaway’s 2023 Portfolio: Top 5 Stocks
- AAPL – Apple ($119B)
- BAC – Bank of America ($34.2)
- CVX – Chevron ($30.0)
- KO – Coca-Cola ($25.4)
- AXP – American Express ($22.4)