From Warren Buffett – Berkshire Hathaway 2022, Letter to Shareholders, Feb 26th 2022, these are my take outs.

If you are interested in investing, see what he invests in. You may have your own take aways’ for your own investment portfolio.

 

Share Market Returns for 2021

The market returns for year ended 31st December 2021 saw Berkshire’s performance 29.60% compared to S&P 500 28.70% – giving a compound annual gain 1965-2021 20.10%, compared to S&P 500 @ 10.50%.
Don’t get me wrong, 10.50% is nothing to be sneezed at.

As a shareholder, I was lucky enough to go to their last ‘live’ shareholder meeting in 2019 before the world went into a little craziness. At that shareholder meeting, Warren and Charlie said, as they have many times before, “They are not stock pickers they are business pickers“, hence they own stocks based upon expectations about their long term business performance and not because they view them as vehicles for timely market moves.

 

Berkshire Hathaway now owns and operates more US based infrastructure assets than any other American corporation valued at some $158 Billion in property, plant and equipment.

 

The Four Giants of Berkshire…

No 1. Berkshire’s cluster of Insurers of which they own 100% which has become a world leader in Insurance float money ‘money we hold and can invest but does not belong to us’ which has some $147 Billion.

No 2. Runner Up Giant is Apple. They own 5.55% of Apple which doesn’t sound like much but consider that each 0.1% of Apple’s 2021 earnings amounted to $100 Million, which means Berkshire Hathaway’s share of earnings amounted to a staggering $5.6Billion.

No 3. BNSF the third Giant being the number 1 artery of American commerce via Rail Roads. Had record earnings of $6 Billion this last calendar year.

No 4. Lastly, BHE the final Giant earned a record $4 Billion in 2021 which they own 91.1% of the company. BHE has become a Utility powerhouse and a leading force in Wind, Solar and transmission throughout much of the US.

Berkshire also has investments like Apple that they don’t control whether it be 19.9% of American Express and 9.2% in Coca Cola just to name two.

The Value of Holding Cash is, sleeping well.

Warren Buffet (92yrs) expressed whilst Charlie Munger (98yrs – his business partner) and him pledged that Berkshire Hathaway will always hold more than $30 Billion of cash and equivalents. As Warren always said…’We want your company to be financially impregnable and never dependent on the kindness of strangers (or even that of friends). Both of us like to sleep soundly, and we want our creditors, insurance claimants and you to do so as well’.

Unfortunately, OR fortunately, they have $144 Billion sitting in cash not that Charlie and Warren had lost their overwhelming preference for business ownership.

80 years ago

Buffett shares that 80 years ago on March 11, 1942 when he purchased three shares of Cities Services preferred stock it’s cost was $114.75 and required all his savings.

Fun Fact; the Dow Jones Industrial Average that day closed at .99. Today that’s 33,277.22. As Warren always said, “Never bet against America”.

Warren shares that after that initial plunge he always kept 80% of his net worth in equities. His favoured status throughout that period was 100% and still is. Berkshire’s current 80% or so position in business is a consequence of his failure to find entire companies OR small portions thereof (that is, marketable stocks) which meet their criteria for long-term holding.

Whilst Charlie and Warren have endured similar cash heavy positions from time to time in the past and these periods are never pleasant but they are also never permanent. Fortunately, they had a mildly attractive alternative during 2020 and 2021 for deploying capital namely, share repurchases.

 

 

Share Repurchases

There are three ways that we can increase the value of your investment.

The first is always front and centre in their minds and that is to increase the long-term earning power of Berkshire’s controlled businesses through internal growth or making acquisitions. Whilst internal opportunities deliver far better returns than acquisitions, the size of those opportunities however, is small compared to Berkshire’s resources.

The second choice is to buy non-controlling part-interests in the many good or great businesses that are publicly traded. From time to time, such possibilities are both numerous and blatantly attractive. Today unfortunately they find little that excites them.

Their final path to value creation, is to re-purchase Berkshire shares. Through that simple act, they increase the share of the many controlled and non-controlled businesses Berkshire owns. When the price/value equation is right, this path is the easiest and most certain way for us to increase your wealth.

Repurchasing of shares makes good sense for Berkshire owners when alternate paths become unattractive. During the last 2 years, 9% of shares have been repurchased costing $51.7 billion. That expenditure left continuing shareholders owning about 10% more of all Berkshire businesses.

Buffett wants to underscore that for Berkshire Hathaway’s repurchases to make sense, our shares must offer appropriate value. We don’t want to overpay for the shares of other companies, and it would be value destroying if we were to overpay when we are buying Berkshire.

A Word of Thanks
 

Warren Buffett taught his first investing class 70 years ago and has enjoyed working almost every year with students of all ages, finally retiring from that pursuit in 2018. Whilst the toughest audience was his grandson’s fifth grade class, whom got their attention when mentioning Coca Cola and its famous secret formula, and as such, learnt that ‘secrets’ are catnip to kids.

Talking to university students is far superior. Warren has urged that they seek employment in (1) the field and (2) with the kind of people they would select, if they had no need for money. Economic realities, he acknowledges, may interfere with that kind of search. Even so, he urge the students never to give up the quest, for when they find that sort of job, they will no longer be ‘working’.

 

Work with whom you trust and Like

 At Berkshire Hathaway, both Warren and Charlie finally found what they loved to do after a few early stumbles. With very few exceptions, they have now ‘worked’ for many decades with people whom they like and trust. At their home office, in Omaha Nebraska, they employ decent and talented people with no jerks. Turnover averages, perhaps, once person per year.

Warren however, would like to emphasize a further item that turns their jobs into fun and satisfaction, and that is, working for you! “There is nothing more rewarding to Charlie and me than enjoying the trust of individual long-term shareholders who, for many decades, have joined us with the expectation that we would be reliable custodians of their funds”.   

Reliable Custodians

To a truly unusual degree however, Berkshire Hathaway has, as the owners of very large corporations, the trust of individuals and families that have elected to join them with an intent approaching ‘till death do us part’, “For they have trusted us with a large, some might say excessive, portion of their savings”.

 

Long term investing and partnerships

They are both long term individual owners and are both the ‘partners’ of Berkshire Hathaway. “Charlie and I have always sought and constantly considered, to have our shareholders in mind as we make decisions at Berkshire. To them we say, it feels good to ‘work’ for you, and you have our thanks for your trust”.

What a great company, with great values! I feel they are our true leaders and their principles could apply to so many aspects of our lives. Pity our elected leaders hadn’t been to the school of ‘Berkshire Hathaway’. The world might be a different place. However, we can all have those values and aspire to their well-intentioned principles – because we all have choice.

Inspirational in so many ways 🙏 😊

If you need help clarifying, actioning and automating your financial goals and making your money work for you, (or to book a ‘Whole of Wealth’ strategy session), call us on 08 7111 0022. Book online here, or email us.

Remember, Action is power!

Until next time,
Make the rest of your life the best of your life.

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Disclaimer: This article is factual information only. It is not intended to imply any recommendation about any financial product(s) or to constitute tax advice. The information in the article is reliable at the time of distribution, but may not be complete or accurate in the future.

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