As a legendary figure in the investment industry, Buffett's open letter to shareholders has always been highly regarded by global investors.
At 9pm Beijing time on February 24th, Berkshire Hathaway, a subsidiary of Buffett, released its financial reports for the fourth quarter and full year of 2023. At the same time, Buffett's letter to shareholders was also publicly announced, which was the 46th shareholder letter in the life of 93 year old Buffett.
According to Caixin and Interface News, on February 24th, Warren Buffett mentioned in his annual letter to Berkshire shareholders that Charlie Munger, who passed away in November last year, should always be hailed as the "architect" of Berkshire Hathaway, while he himself acts like the company's general contractor, putting Munger's vision into action every day. In a sense, Munger is both like an older brother and sometimes like a loving father. Buffett also stated in the letter that Greg Abel is prepared in all aspects to assume the position of CEO of Berkshire Hathaway starting tomorrow.
In addition, when it comes to investment strategies, Buffett stated that he expects to indefinitely maintain investments in five Japanese companies: Itochu, Marubeni, Mitsubishi, Mitsui Industries, and Sumitomo Corporation.
Buffett's letter to shareholders: I made a costly mistake
According to Caixin on February 24th, Berkshire Hathaway released its 2023 annual report and Buffett's annual shareholder letter. Unlike previous years, Buffett's old partner Charlie Munger passed away in November last year at the age of 99. So this year's annual report starts with a letter from Buffett commemorating his old friend.
The following is the original text of Buffett's handwritten letter:
Charlie Munger - Architect of Berkshire Hathaway
Charlie Munger passed away on November 28th, just 33 days after his 100th birthday.
Although he was born and raised in Omaha, Nebraska, he lived 80% of his life elsewhere. Therefore, it was not until 1959, when he was 35 years old, that I first met him. In 1962, he decided to start working in the fund management industry.
Three years later, he told me - this was a very correct thing - that my decision to buy Berkshire was foolish. However, he assured me that since I had taken action, he would tell me how to correct my mistake.
In the following narrative, please remember that Charlie and his family did not invest a single penny in the small investment partnership I managed at the time, and it was with these funds that I purchased Berkshire. Moreover, we never expected Charlie to own shares in Berkshire at the time.
However, Charlie immediately advised me in 1965, "Warren, forget about buying other companies like Berkshire. But since you now control Berkshire, increase the number of excellent businesses that buy at fair prices and abandon the practice of buying ordinary businesses at good prices. In other words, abandon everything you learned from your hero Ben Graham.". This method is effective, but only works for small-scale operations After looking back multiple times, I finally followed his guidance.
Many years later, Charlie became my partner in running Berkshire and repeatedly pulled me back to rationality when I fell into old habits. Until his death, he continued to play this role, and together with those who had invested with us in the early days, our ultimate achievements far exceeded the possibilities that Charlie and I had imagined.
In fact, Charlie is now the "architect" of Berkshire, and I play the role of the "general contractor", fulfilling his vision day after day.
Charlie never attempted to take credit for his role as a creator, but instead asked me to accept applause and honor. In a sense, the relationship between him and me is both like a brother and a loving father. Even when he knew he was right, he gave control to me, and when I (eventually realized) made a mistake, he never - never - repeated my mistake.
In the material world, great buildings are associated with their architects, and those who pour concrete or install windows are quickly forgotten. Berkshire has grown into a great company. Although I have been in charge of the construction team for a long time, Charlie should always be considered an architect.
After Buffy extensively recounted his past with his deceased partner Charlie Munger, the main text of the letter began. Buffett once again emphasized the misleading nature of the financial indicator "net income", as it includes daily and even annual fluctuations in the stock market. At the same time, he places greater emphasis on the importance of operating earnings.
Buffett mentioned in his shareholder letter, "I made a costly mistake of not anticipating or considering unfavorable developments in regulatory returns in the utility industry." Buffett stated that his predictions for the 2023 performance of BNSF Railroad and Berkshire Hathaway Energy were incorrect. But Buffett emphasized that Berkshire's ability to cope with unprecedented financial disasters will not be given up. When economic turmoil occurs, Berkshire's goal will be to function as a national asset - just like in 2008-2009- and help extinguish the financial fire, rather than becoming one of the many companies that inadvertently or otherwise ignited the fire.
Regarding the successor, in the letter, Buffett emphasized that Vice Chairman Greg Abel is prepared in all aspects to serve as the CEO of Berkshire Hathaway. Currently, Abel operates all non insurance businesses for Berkshire. In addition, Ajit Jain, who is responsible for insurance business, will also appear at this year's Berkshire shareholders meeting.
In the letter, Buffett discussed his views on the continuous increase in holdings of Western oil. As of the end of 2023, Berkshire owns 27.8% of the common stock of Western Oil Company and also holds stock warrants. Over the past five years, Berkshire has had the option to significantly increase ownership at a fixed price. Although Buffett is very fond of this company, he has no interest in acquiring or managing Western oil companies. He particularly enjoys its abundance of oil and natural gas in the United States, as well as its leadership position in carbon emission initiatives, although the economic feasibility of this technology has not yet been proven. Both of these activities are highly in line with the interests of the country.
Regarding the current market, Buffett stated that although the stock market is much larger than in earlier years, today's active participants are neither emotionally stable nor have they received better education than when they were in school. For whatever reason, the current market is showing more casino like behavior than when he was young. Casino now exists in many households, tempting residents every day.
In this year's shareholder letter, Buffett did not, as usual, provide a comparison between Berkshire Hathaway's performance and the performance of the US stock market benchmark S&P 500 index at the beginning of the letter, but instead placed it at the end. In 2023, Berkshire Hathaway's market value per share increased by 15.8%, while the S&P 500 index increased by 26.3 percentage points. In the long run, from 1965 to 2023, the compound annual growth rate of Berkshire Hathaway's market value per share was 19.8%, significantly exceeding the 10.2% of the S&P 500 index. However, from 1964 to 2023, Berkshire Hathaway's market value growth rate was a surprising 4384748%, which is more than 43847 times, while the S&P 500 index was 31223%, which is more than 312 times.
Last year, it grossed 692.4 billion yuan
On the evening of February 24th Beijing time, Berkshire Hathaway released its Q4 and full year financial reports for 2023. Data shows that in 2023, Berkshire Hathaway's Q4 net profit was $37.574 billion, a year-on-year increase of 107.8%. The net profit for the entire year of 2023 was $96.223 billion (approximately RMB 692.4 billion), and the net loss for the same period last year was $22.819 billion. The EPS (earnings per share) for 2023 was $66412, compared to $-15494 in the same period last year.
In terms of revenue, Berkshire Hathaway's revenue in 2023 was $364.482 billion, compared to $302.089 billion in the same period last year. In addition, Berkshire Hathaway's cash reserves rose to a record high of $167.6 billion in the fourth quarter, equivalent to approximately RMB 1.2 trillion.
Berkshire Hathaway stated that approximately $9.2 billion was used to repurchase stocks in 2023. By the end of 2023, the fair value of fixed income securities investment held by Berkshire Hathaway had reached $23.758 billion, including $10.269 billion, $11.805 billion and $1.449 billion in US bonds, foreign bonds and corporate bonds, respectively.
According to the annual report released by Berkshire Hathaway, as of December 31, 2023, approximately 79% of the total fair value of Berkshire Hathaway equity investments were concentrated in American Express, Apple, Bank of America, Coca Cola, and Chevron.
In his annual letter to Berkshire shareholders, Warren Buffett mentioned BNSF, Western Oil, and the top five Japanese companies for future investment directions. Buffett stated that BNSF Railroad will become an important asset for Berkshire Hathaway and the United States. In addition, we will maintain long-term investments in the five major Japanese companies, Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui Corporation and Sumitomo Corporation, as well as Western Oil.