On the evening of February 25, as a legend in the investment world, Buffett's annual public letter to shareholders was publicly disclosed. This is also Buffett's 45th shareholder letter. Berkshire Hathaway's 2022 financial report was also announced simultaneously. In the context of the changing international situation and the epic interest rate increase of the Federal Reserve, the content of this shareholder letter this year has attracted special attention, and Jingtai interprets the essence for you.
|Greatly outperformed the S&P 500, with a cumulative return of 37900 times
According to the convention, at the beginning of the shareholders' letter in 2023, the performance of Berkshire was compared with the performance of the S&P 500 Index, the "wind vane of American stocks".
The S&P 500 index in 2022 recorded the worst year since the financial crisis under the impact of multiple adverse factors such as the concern of economic recession, soaring inflation, geopolitical turbulence and so on caused by the Federal Reserve's continued interest rate increase. Against this background, the S&P 500 index fell 18.1% (including dividends), while Berkshire gained a positive return of 4%, significantly outperforming the S&P 500 index by 22.1 percentage points.
In the long run, from 1965 to 2022, the compound annual growth rate of Berkshire's market value per share, commonly known as the annualized rate of return, was 19.8%, significantly higher than 9.5% of the S&P 500 index. The growth rate of Berkshire's market value from 1964 to 2022 was an astonishing 3787464%, or nearly 37900 times, compared with 24708% of the S&P 500 index in the same per
|Berkshire Hathaway performance exposure
On February 25, Berkshire Hathaway released its 2022 financial report, which showed that the company's annual revenue in 2022 was $302.089 billion, up from $276.094 billion last year; In 2022, the net loss was US $22.819 billion, equivalent to 158.7 billion yuan, and the net profit of the previous year was US $89.795 billion. In a single quarter, Berkshire's net profit in the fourth quarter of last year was $18.164 billion, and its profit in the same period of last year was $39.646 billion, but compared with a loss of $43.7 billion in the second quarter of last year and a loss of $2.688 billion in the third quarter of last year, Berkshire's situation is improving.
At the same time, Berkshire's share repurchases in the fourth quarter of last year were $2.855 billion, lower than the total share repurchases of more than $6 billion in the same period of last year, but higher than the total share repurchases of about $1 billion in the third quarter. In the whole year of 2022, Berkshire's repurchase amount reached $8 billion. Berkshire's cash reserves increased to $128651 million in the fourth quarter of 2022. This figure is higher than nearly US $109 billion in the third quarter
|Investment sorting in 2022: crazy purchase of oil stocks, reduction of holdings in BYD, and short-term operation of TSMC
By the end of 2022, Berkshire was the largest shareholder of eight giants: American Express, Bank of America, Chevron, Coca-Cola, HP, Moody's, Western Petroleum and Paramount Global.
In 2022, Buffett's Berkshire significantly increased its investment in energy stocks. According to the recently disclosed data, the share of energy shares in the total market value of Berkshire's positions has soared from 1% at the end of 2021 to 13.88% at the end of 2022.
As of December 31, 2022, the market value of Berkshire's shareholding in Chevron was US $29.253 billion, which was the third largest heavy position stock, accounting for 9.78% of the total position; Western Petroleum is Berkshire's seventh largest heavy stock, with a market value of more than $12.2 billion, accounting for 4.09% of the total position. Among them, Western Oil is the target of Buffett's continued substantial increase in positions since January 2022. Chevron began to increase its position in 2021, and Buffett sold some shares in the fourth quarter of 2022. Throughout 2022, the share price of Western Oil rose by 119% and Chevron rose by 52%. Buffett made a lot of money on these two stocks.
At the same time, another move of Buffett also attracted market attention. Buffett's Berkshire invested in TSMC for the first time in the third quarter of 2022, and its holdings reached $4.1 billion by the end of September. However, in the fourth quarter of 2022, Berkshire reduced its holdings by 86%.
Berkshire also adjusted its position in some Chinese stocks last year, and the market has been paying close attention to the continuous reduction of its holdings in BYD, the leader of new energy vehicles. Buffett did not explain why such operation occurred in Berkshire's annual report.
In addition, by the end of 2022, Apple was still the largest heavy stock in Berkshire's portfolio, with a market value of 116.305 billion US dollars, accounting for 38.9% of the total position. In the fourth quarter of 2022, the number of Apple shares held by Berkshire increased by 333900 shares to 895 million shares compared with the previous quarter.
|Criticism of stock repurchase is "economic illiteracy"
"If someone tells you that all buy-backs are bad for shareholders or the country, or especially good for the CEO, the person is either economically illiterate or a skilful demagogue (the two roles are not contradictory)", Buffett said.
Due to few external opportunities in 2022, Berkshire repurchased nearly $2.6 billion of shares in the fourth quarter, and the repurchase slowed to about $7.9 billion in the whole year.
"In 2022, through Berkshire's share repurchase and similar measures of Apple and American Express, the intrinsic value per share increased only slightly. Berkshire directly increased the shareholders' equity in the unique business portfolio by repurchasing 1.2% of the company's outstanding shares. The share repurchase of Apple and American Express also increased Berkshire's shareholding ratio without increasing any costs."
Buffett mentioned that the calculation process is not complicated: when the number of share capital decreases, the equity of many enterprises held by shareholders will increase. If the repo is implemented at a value-added price, every increase will help. It is also certain that when a company pays too high a price for the repurchase, the shareholders who continue to hold will suffer losses. At this time, only shareholders who sell shares and investment bankers who enthusiastically recommend foolish buying behavior but charge high fees will benefit.
Buffett stressed that the gains from value-added repurchase can benefit all shareholders - in all aspects.
|Dividends are "secret weapons"
In this shareholder's letter, Buffett once again mentioned the importance of stock dividends.
In 1994, Berkshire completed the acquisition of Coca-Cola. The whole transaction took seven years, with a total cost of $1.3 billion. This was a very large amount for Berkshire at that time.
Buffett said: "In 1994, we received a cash dividend of $75 million from Coca-Cola. By 2022, the dividend will increase to $704 million. Growth will occur every year, just like the birthday. Charlie and I just need to cash Coca-Cola's quarterly dividend check. We expect that the dividend will probably continue to increase."
The situation of American Express is roughly the same. Berkshire's acquisition of American Express was basically completed in 1995 and also cost $1.3 billion. The annual dividend of this investment increased from $41 million to $302 million.
Buffett said that although these dividend returns are satisfactory, they are far from spectacular, but they bring important gains to the stock price. "By the end of the year, our Coca-Cola investment value was $25 billion, while American Express's investment value was $22 billion. Now, these two holdings account for about 5% of Berkshire's net assets respectively, similar to the weight of a long time ago."
|Always hold a large amount of cash and US treasury bond bonds
At the end of 2022, Berkshire's cash reserves were $128.6 billion (about 894.6 billion yuan), down from $144 billion at the end of 2021.
As for the future, Buffett said that Berkshire will always hold a large amount of cash, US treasury bond bonds and a series of businesses.
"We will also avoid any reckless behavior that will cause inconvenience to cash flow at critical moments, including at the time of financial panic and unprecedented insurance losses. Our CEO will always be the chief risk officer - although he (she) would not have to bear this responsibility." Buffett wrote, "In addition, our future CEOs will have a considerable portion of their net asset income obtained by purchasing Berkshire shares with their own money. Yes, our shareholders will ensure savings and prosperity through continuous earnings."
|What is the secret of investment?
Buffett listed the examples of Coca-Cola and American Express in his letter.
In 1994, Berkshire began to buy Coca-Cola. It took seven years to hold 400 million shares of the company, with a total cost of $1.3 billion. In 1994, Coca-Cola issued a cash dividend of $75 million. By 2022, the dividend will increase to $704 million, and it is expected that the dividend will continue to increase. The situation of American Express is roughly the same. Berkshire completed all its investment in American Express in 1995, which also cost nearly US $1.3 billion. Today, the annual dividend of American Express has increased from $41 million to $302 million, and is likely to continue to rise.
Although dividend income is satisfactory, what is more important is that they bring important gains to the stock price. By the end of 2022, Coca-Cola's investment value was $25 billion, while American Express was $22 billion. Now these two companies account for about 5% of Berkshire's net assets, which is similar to the previous weight.
As a comparison, Buffett wrote that if he made an investment mistake of similar scale at that time and maintained the value at $1.3 billion in 2022, for example, he would buy 30-year long-term bonds. So, this investment will now only account for 0.3% of Berkshire's net assets, and will provide a fixed monthly income of about $80 million each year. The lesson of this example is that over time, investment only needs a few successful choices to create miracles. Berkshire's long-term "satisfactory" performance only comes from about a dozen "really good" decisions.
