Berkshire Hathaway, the conglomerate led by legendary investor Warren Buffet, has reported record profits for the year 2023. In his annual letter to shareholders, Buffet provided a comprehensive overview of the company’s performance and shared his insights on various topics, including stock-market speculations and the late Charlie Munger.
Record Profits and Key Contributors
Berkshire Hathaway achieved an all-time high annual profit in 2023, with operating earnings reaching an impressive $37.35 billion. This marked a 21% increase from the previous year. The company’s insurance underwriting operations played a significant role in its profitability, generating $5.4 billion in operating earnings compared to a loss in the previous year. Berkshire benefited from higher underwriting premiums and lower payouts from claims.
Another factor contributing to Berkshire Hathaway’s record profits was its high levels of cash on its balance sheet. The company had $163.3 billion in cash at the end of the year, which allowed it to generate $9.6 billion in insurance investment income. This emphasis on maintaining high liquidity levels has been a hallmark of Berkshire Hathaway’s financial strategy, providing it with the flexibility to seize growth opportunities and weather market downturns.
Concerns over Stock-Market Speculations
Buffet expressed concerns over the surge in stock-market speculations, attributing it to the accessibility of stock-trading apps. He cautioned investors against speculating on “hot stocks” and “lottery tickets,” emphasizing the importance of long-term investing. This long-term investment philosophy has been a cornerstone of Berkshire Hathaway’s success.
Tribute to Charlie Munger
Buffet dedicated a portion of his letter to pay tribute to Charlie Munger, his longtime business partner and Berkshire Hathaway’s vice chairman until his passing in November 2023. Buffet hailed Munger as the “architect” of Berkshire Hathaway, crediting his vision and leadership for the company’s transformation into a world-leading conglomerate.
Stock Performance and Market Correlation
Despite Buffet’s caution about future performance, Berkshire Hathaway’s stock has outperformed the S&P 500 by 25% over the past five years. In 2024 alone, the stock is up 17%, outperforming the S&P 500 by more than 10%. This strong performance is a testament to the company’s robust financial health, strategic investments, and effective management.
Looking Ahead: Future Plans
Berkshire Hathaway plans to stay the course, focusing on its core businesses and continuing its long-term investment strategy. However, Buffet noted that the company does not anticipate making any significant acquisitions in the next few years unless there is a significant drop in the stock market. He also highlighted the possibility of partnering with Japanese conglomerates in the future, as Berkshire Hathaway currently owns a 9% stake in five Japanese companies.
Buffet indicated that Berkshire Hathaway will continue its share repurchases, having spent $9.2 billion on buybacks in 2023. However, he emphasized that stock repurchases should be price-dependent and sensible from a business-value perspective.
In conclusion, Warren Buffet’s annual letter to shareholders provides valuable insights into Berkshire Hathaway’s performance, investment philosophy, and future plans. The company’s focus on long-term value creation, financial strength, and strategic investments will continue to drive its success in the evolving market landscape.