On the evening of February 24th Beijing time, Berkshire Hathaway, a subsidiary of renowned American investor Warren Buffett, released its financial report, stating that Berkshire's net profit for the fourth quarter of 2023 was $37.574 billion; For the full year of 2023, Berkshire's net profit was $96.223 billion, exceeding market expectations, with a net loss of $22.759 billion in the same period last year.
In his 2023 financial report, Buffett specially released an article in memory of his old partner Charlie Munger, titled "Charlie Munger - The Architect of Berkshire Hathaway".
In 2023, Charlie Munger, Vice Chairman of Berkshire's Board of Directors and former partner of Buffett, passed away at the age of 99. Munger's death has once again brought the issue of succession to the forefront of the company. Buffett previously stated that he was playing in extra time. In this year's shareholder letter, Buffett also responded to a series of issues such as succession, investment in Japan, and investment in Western oil companies.
Berkshire's net profit for 2023 was $96.223 billion
Exceeding market expectations
Specifically, the report shows that Berkshire's net profit for the fourth quarter of 2023 was $37.574 billion; For the full year of 2023, Berkshire's net profit was $96.223 billion, significantly exceeding market expectations (previously around $40 billion), and a net loss of $22.759 billion was recorded in the same period last year.
The report shows that record breaking revenue and strong stock market led to Berkshire's year-end net assets reaching $561 billion. So far, Berkshire's Generally Accepted Accounting Principles (GAAP) net assets are the highest among American companies.
The financial report shows that Berkshire's net profit for the fourth quarter of 2023 was $37.574 billion, doubling from $18.08 billion in the same period last year. This includes approximately $350 billion in equity investment portfolio returns (i.e. unrealized returns) of $29.09 billion for Buffet, with stock returns mainly coming from the largest holdings of Apple, accounting for approximately half of the investment portfolio.
Based on Berkshire's disclosed stock holdings, approximately 79% of the portfolio's fair value is concentrated in five companies, namely Apple ($174.3 billion), Bank of America ($34.8 billion), American Express ($28.4 billion), Coca Cola ($23.6 billion), and Chevron ($18.8 billion).
However, Berkshire has always placed greater emphasis on operating profit indicators. Excluding investment and derivative gains and losses, in the fourth quarter of 2023, the operating profit reflecting the performance of Berkshire's physical businesses such as railways and energy reached $8.481 billion; The annual operating profit was 37.35 billion yuan.
Meanwhile, Berkshire's cash reserves rose to a record high of $167.6 billion in the fourth quarter of last year. Previously, by the end of the third quarter of 2023, Berkshire had held about $157.2 billion in cash and cash equivalents, which had reached a record high. At that time, this huge cash reserve was mainly stored in short-term treasury bond bonds.
Letter to shareholders in response to succession issues
On November 28, 2023 local time, Charlie Munger, Vice Chairman of Berkshire's Board of Directors and former partner of Warren Buffett, passed away at the age of 99. Munger's death has once again brought the issue of succession to the forefront of the company. Buffett previously stated that he was playing in extra time.
Greg Abel, currently born in Canada, is responsible for Berkshire's non insurance business and is considered a clear successor to Buffett. In this letter to shareholders, Buffett once again emphasized that Vice Chairman Greg Abel is prepared in all aspects to assume the position of CEO of Berkshire Hathaway tomorrow.
Will continue to hold long-term equity in five large Japanese companies
Buffett stated in his letter to shareholders that Berkshire will continue to hold long-term equity in five large Japanese companies (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo). Each company has a highly diversified business model, which is somewhat similar to Berkshire's own business model.
He said that last year he went to Tokyo with Greg Abel and had discussions with the management of these five companies. Currently, Berkshire holds approximately 9% of the shares in each of these five companies. Berkshire also promised each company not to purchase more than 9.9% of its shares.
At present, Berkshire has invested a total of 1.6 trillion yen in these five companies, with a year-end market value of 2.9 trillion yen. However, in recent years, the Japanese yen exchange rate has weakened, and Berkshire's year-end unrealized US dollar earnings were 61% or $8 billion.
"Greg and I both believe that we cannot predict the market prices of major currencies. We also do not believe that we can hire people with this ability. Therefore, Berkshire has funded most of its positions in Japan with a bond yield of 1.3 trillion yen. These bonds are very popular in Japan."
"I believe Berkshire has more outstanding Japanese yen debt than any other US company. At the same time, the depreciation of the yen brought Berkshire $1.9 billion in year-end earnings. According to US GAAP, this earnings will be regularly recognized in revenue for the years 2020-2023."
Maintain investment in Western oil indefinitely
As of the end of the year, Berkshire held 27.8% of the common shares of Western Oil Company and also held warrants. For over five years, Berkshire had the option to significantly increase its holdings at a fixed price. "Although we really enjoy our ownership and options, Berkshire is not interested in purchasing or managing Western oil companies," Buffett emphasized.
He expressed particular optimism about the large amount of oil and gas assets held by Western oil companies in the United States, as well as their leading position in carbon capture projects, although the economic feasibility of this technology is not yet clear.
Charlie Munger——
The founder of Berkshire Hathaway Company
In his 2023 financial report, Buffett specifically released an article in memory of Charlie Munger titled "Charlie Munger - The Architect of Berkshire Hathaway".
The following is the original translation of the article:
Charlie Munger passed away on November 28th, just 33 days before his 100th birthday.
Although he was born and raised in Omaha, he spent 80% of his life living elsewhere. Therefore, it was not until he was 35 years old in 1959 that I first met him. In 1962, he decided to work in financial management.
Three years later, he told me (yes! I made a foolish decision) that buying control of Berkshire was a foolish decision. However, he assured me that since I had made this decision, he would tell me how to correct the mistake.
In what I will talk about next, please remember that Charlie and his family did not invest a penny in the small investment partnership I was managing at the time.
I did not use their funds when I acquired Berkshire. Furthermore, we never expected Charlie to own stocks in Berkshire.
Nevertheless, Charlie timely suggested to me in 1965, "Warren, forget to buy another company like Berkshire. Now that you have control of Berkshire, buy an excellent business at a reasonable price based on it, and give up buying a reasonable business at a good price. In other words, give up everything you learned from your hero Ben Graham. This trick works well, but can only be implemented on a small scale." In the subsequent relapse, I followed his instructions.
Many years later, Charlie became my partner in running Berkshire, and when my old habits surfaced, he repeatedly helped me regain my sanity. Until his death, he continued to play such a role, and together with those who had invested with us in the early days, we achieved even better results than Charlie and I had dreamed of.
In fact, Charlie is now the "architect" of Berkshire, while I am the "general contractor", working day after day to fulfill his vision.
Charlie never attempted to attribute his role as a creator to me, but instead made me take responsibility and receive praise. To some extent, he is both like my elder brother and like my loving father. Even if he knew he was right, he would give me the reins and never blame me when I made a foolish mistake.
In the physical world, great architecture is closely related to architects, but those who pour concrete or install windows are quickly forgotten. Berkshire has become a great company. Although I have been in charge of the construction team for a long time, Charlie should always be remembered as the founder of Berkshire.