On the evening of February 24th Beijing time, the official website of Berkshire Hathaway, a subsidiary of renowned American investor Warren Buffett, released its 2023 annual report and an annual letter to shareholders personally written by Buffett.
This is Buffett's first shareholder letter after losing his "business soul mate" Charlie Munger. Completely different from past conventions, he used a page at the beginning to pay tribute and honor Munger, while placing Berkshire's transcript at the end.
The following are the eight key points summarized by Shanghai Securities Journal.
Munger, who is both a brother and a father, is the founder of Berkshire
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 has a brother father relationship with me.
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.
2. Abel is ready to take over Berkshire at any time
Buffett once again emphasized that Vice Chairman Greg Abel is prepared in all aspects to take on the role of Berkshire CEO tomorrow.
Regarding the issue of inheritance, Munger wrote in a letter 9 years ago that as long as most of Berkshire's systems remain stable, they will almost certainly maintain a better state than ordinary companies for a long period of time.
3. Two "indefinite" investments held by the top five Japanese companies and Western Petroleum
Berkshire's investments in the top five Japanese companies and Western oil companies are "indefinite", similar to Coca Cola and American Express.
Berkshire will continue to hold long-term equity in five large Japanese companies (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo). At present, Berkshire's investment cost in these five companies is a total of 1.6 trillion yen, and the year-end market value of the five companies is 2.9 trillion yen. The unrealized profit (in US dollars) of this investment at the end of 2023 is approximately 8 billion US dollars.
Meanwhile, as of the end of the year, Berkshire held 27.8% of the common shares of Western Oil Company and also held warrants. "Although we really enjoy our ownership and options, Berkshire is not interested in purchasing or managing Western oil companies," Buffett emphasized.
4. The performance of the railway and energy pillar businesses did not meet expectations
BNSF (Burlington Northern Santa Fe Railroad Transport Company) and BHE (Berkshire Hathaway Energy Company) performed poorly in 2023. Buffett admitted that the situation of the two companies deviated from his expectations.
Specifically, railway companies face wage increases and maintenance costs increase as their income decreases, while energy companies are plagued by wildfire lawsuits and stricter regulatory environments. But Buffett firmly believes that a century later, BNSF will still be an important asset for the United States and Berkshire.
5. Never take the risk of permanent loss of capital
Buffett said, "For whatever reason, the market is now showing more like a casino than when I was young." "Wall Street wants its clients to make money, but what really drives their blood boil is the market frenzy. One of Berkshire's investment rules has never changed and will never change: never take the risk of permanent capital loss."
Buffett emphasized, "When you discover a truly outstanding company, keep investing. Patience always pays off, and choosing an excellent company can help offset many inevitable bad decisions."
6. Berkshire is unlikely to achieve astonishing performance in the future
Berkshire currently holds nearly 6% of the S&P 500 index, with year-end net assets of $561 billion, the highest among all US companies.
Buffett said, "It is impossible to double our massive base within five years, especially when we are very opposed to issuing stocks." "In the United States, only a few companies can attract Berkshire's investment interest. Outside the United States, there are basically no candidate companies that can enable Berkshire to make meaningful capital deployments. Overall, we cannot achieve impressive performance in the future."
Buffett also mentioned that, given Berkshire's current size, establishing positions through open market purchases requires great patience and a longer "friendly" price period. This process is like making a battleship turn, which was a significant disadvantage that Berkshire did not encounter in its early days.
7. Believe that Berkshire can cope with financial disasters
As of the end of last year, Berkshire's cash holdings reached a record breaking $167.6 billion. Buffett said, "We believe Berkshire can cope with unprecedented financial disasters, and we will not give up this ability."
When economic turmoil occurs, Berkshire's goal will be to function as a national asset - just as it did in a very small way from 2008 to 2009- to help extinguish the financial fire, rather than becoming a member of the many companies that ignited it, whether unintentionally or in other ways.
8. The 2024 shareholders' meeting will be held on May 4th
On May 4, 2024 local time, Berkshire's annual shareholder meeting will be held in Omaha. Greg Abel, who is responsible for all non insurance businesses at Berkshire, Agit Jahn, who is responsible for insurance, and Buffett himself will jointly attend this shareholder meeting.
Buffett welcomes investors from all walks of life to Omaha in May in his letter. "Maintain an open mind and come to Omaha in May to breathe the air here." "Most importantly, we will launch a new fourth edition of 'Poor Charlie Almanack'. Take a book with you and let Charlie's wisdom improve your life, just like me."