Record year for Warren Buffett’s Berkshire Hathaway

The listed industrial conglomerate Berkshire Hathaway, which is controlled by the legendary investor Warren Buffett, announced on Saturday a record profit of 30.8 billion dollars in 2022.

In the recent annual report, which comes at the same time as Buffett’s annual shareholder letter, it appears that Berkshire Hathaway had $128.6 billion in cash at the end of last year.

In the fourth quarter, the result was 6.7 billion dollars, down from 7.3 billion dollars in the same quarter in 2021.

Berkshire Hathaway consists of a number of companies across various industries, including insurance, industry, consumption and technology. The annual letter from Buffett is closely followed in the financial markets, and always comes ahead of Berkshire’s Capital Markets Day in Omaha, a gathering that has been dubbed the “Woodstock for capitalists.”

The Capital Markets Day is held in May.

Two iconic investments

In the letter, Buffett begins by referring to two investments that have become valuable for Berkshire Hathaway: Coca-Cola and American Express.

The investment in the former was completed in 1994, and then amounted to 1.3 billion dollars. A significant amount for Berkshire at the time, as Buffett writes in the letter.

In the 29 years since, annual dividends have increased from $75 million in 1994 to $704 million last year.

– There has been growth every year, as surely as birthdays. All me and Charlie (Munger) have had to do is pick up the dividend checks that come every quarter. We expect that these will very likely continue to grow, writes Buffett.

The story is much the same for the investment in American Express, where annual dividends have grown from $41 million in 1995 to $302 million in 2022.

The background for highlighting these two investments, however, is not because the dividends are particularly formidable, but because they have come at the same time as significant price rises, writes Buffett. At the end of 2022, Berkshire’s Coca-Cola stock was worth $25 billion, while its stake in Amex was valued at $22 billion. Together, they make up about five percent of Berkshire’s net worth, the same as it did over 20 years ago.

If Buffett had made what he himself describes as a mistake, and invested $1.3 billion in something that had only developed sideways, it would have only given Berkshire annual income of around $80 million and accounted for less than 0.5 percent of the company’s net worth .

– The lesson is: Over time, you only need a couple of winners to succeed. And then it helps to start early and live until you are over 90 years old.

Good year despite a troubled market

As is Berkshire’s habit, it states so-called “operating earnings”, where capital gains or losses have been excluded, in addition to the figures that are in accordance with rules. The reason for this is to adjust for large fluctuations in a number that will often vary greatly from quarter to quarter, depending on developments on the stock exchange.

Through a 2022 that was characterized by sky-high inflation, rising interest rates and the energy crisis, Berkshire still managed to increase the above-mentioned result by over 12 percent.

During the fourth quarter, Berkshire bought back its own shares for 2.85 billion dollars, a total of almost 8 billion dollars for the whole of last year. The buyback program was first launched in 2011, and Buffett has been an outspoken supporter of companies buying back their own shares.

– It is not complicated math. When the number of shares goes down, the value of your holdings in our many companies rises, Buffett writes in the shareholder letter.

Last year, Berkshire Hathaway bought insurer Alleghany for $11.6 billion, Buffett’s biggest acquisition since 2016, according to CNBC.