Yang Delong | Cube Talk Column Author
The annual letter from Buffett to shareholders was announced, which is known as the "investment Bible" by global investors. As value investors, we are all eager to learn about Buffett's philosophy of value investing and his perspectives through his annual letter to shareholders, in order to gain inspiration. On February 24th, the stock god Buffett, Berkshire Hathaway, released its 2023 financial report, along with a letter from Buffett to shareholders. The financial report shows that Berkshire Hathaway had a net profit of $37.574 billion for the fourth quarter of 2023, a net profit of $96.223 billion for the full year of 2023, and a net loss of $22.759 billion for 2022. In 2023, Berkshire Hathaway achieved an annual return of 15.8%, although it did not outperform the S&P 500 index, it still achieved stable growth.
In this year's letter to shareholders, Buffett mentioned Munger at the beginning. As Buffett's closest partner, Munger passed away on November 28 last year, only 33 days before his 100th birthday. Munger was referred to by Buffett as the architect of Berkshire Hathaway, while Buffett humbly said that I was just the general contractor. When Charlie passed away, Buffett highly affirmed Munger's wisdom and contribution to Berkshire Hathaway. He said that without Charlie, Berkshire Hathaway would not have been as successful as it is now. At the beginning, Buffett reviewed his past with Munger, from acquaintance to intimate collaboration. Although Buffett and Munger were both born in Omaha, they did not know each other in the early days. Munger spent 80% of his life living in other parts of the United States, and it wasn't until he was 35 years old in 1959 that Buffett first met him. In 1962, Munger decided to work in fund management.
Munger's influence on Buffett mainly changed his previous investment philosophy, and Buffett followed his teacher Graham in value investing. In the early days, I liked to buy some cheap and ordinary companies, that is, buying companies whose prices were significantly lower than their value. But Charlie said that if you only buy these mediocre companies, it's difficult to achieve long-term great success. You need to acquire excellent companies at a reasonable price, in other words, abandon everything you learned from Graham. Later, Buffett listened to Munger's words and created a miracle in investment from then on. For a long time, Buffett has held stocks that are basically great companies and have grown together with them. This is much more clever than buying mediocre companies at a cheaper price. So later, Buffett vividly said that it was only after meeting Munger that I truly transformed from an ape to a human.
So Buffett made a very interesting analogy in his letter: he said that in the real world, great buildings are associated with their architects, and those who pour concrete or install windows are quickly forgotten. Berkshire has become a great company, and I have been responsible for the construction team for a long time. Charlie should always be considered an architect, and he highly recognized Munger's tremendous contribution to Berkshire's development.
We can also see from the financial report that Berkshire Hathaway's current position has not changed much compared to before. At the end of 2023, the top ten major holdings of Berkshire Hathaway were Apple, Bank of America, American Express, Coca Cola, Chevron, Western Oil, Kraft Heinz, Moody's, Davita Sword, and Citigroup. The largest heavily invested stock among them is Apple, accounting for 50% of the position, indicating that Buffett has a special fondness for Apple. Apple is also the company that brings the most profit to Buffett. Because Apple is the world's largest company by market value, Buffett dares to invest heavily. Although Apple's absolute increase is not very large, it has contributed billions of dollars in profits to Buffett due to its heavy investment.
In the letter, Buffett mentioned that Berkshire Hathaway has over three million shareholders, and I am responsible for writing a letter every year. This letter will be useful to this diverse and constantly changing shareholder group, many of whom hope to learn more about their investments. So Buffett's letter to shareholders is an explanation to the majority of shareholders and also reflects Buffett's investment experience over the past year. Buffett mentioned in his letter that judging Berkshire's investment value based on returns, considering that these returns involve unpredictable day and night, and even year after year of stock market fluctuations, is far from rational. As Graham taught me, market behavior is like a voting machine in the short term, but in the long run, it will become a weighing machine. He suggests that investors should consider the investment value of the company from a long-term perspective. Buffett mentioned in his letter that our goal at Berkshire Hathaway is very simple. We hope to have a company that enjoys good basic and sustainable economic benefits, either fully owned or partially owned. Some companies will thrive in the long term, while others will prove to be bottomless. It is much more difficult than you imagine to predict which companies will become winners and which will become losers, Those who claim to know the answer are usually either self deceiving or quacks. In Berkshire Hathaway, we particularly favor rare companies that can invest additional capital with high returns in the future. Owning such a company and sitting quietly can create almost immeasurable wealth. Even the heirs of such holders can live a leisurely life for life. We also hope that these favored enterprises have capable and trustworthy managers to operate, although this is a more difficult judgment to make. So Buffett once again emphasized in his letter that the true essence of value investing is to grow together with great companies, rather than chasing gains and losses, and trying to make money in the market.
Because of investing, it is difficult to predict short-term fluctuations and cannot change the macro environment. Munger once said, the macro is that the environment you are in cannot be changed, but you can strive to discover some great companies at the micro level. This is also particularly meaningful for us. We should not complain about the macro environment, but choose good companies that can cross the economic cycle and bear market under established conditions. In his letter, Buffett mentioned that Berkshire Hathaway's net assets are the highest among American companies, reaching $561 billion at the end of last year, while the net assets of 499 other S&P 500 index companies in 2022 were $8.9 trillion. Based on this measure, Berkshire Hathaway currently holds nearly 6% of the market share, indicating that Berkshire Hathaway's assets are already very large, So it is impossible to achieve a doubling within the next five years. However, the investment return of Berkshire Hathaway is very stable, with an annualized return of nearly 20% over the past 60 years, and a cumulative return of approximately 43000 times, creating unprecedented investment performance. Berkshire Hathaway has always been relatively firm in holding some cash, and in this financial report, it held a record $160 billion or even more in cash. This indicates that in the current stock market in the United States, the stock price has reached a historic high. Buffett has maintained a large amount of cash and also slightly reduced his holdings in Apple's stock in the fourth quarter. He is also more focused on risk control, holding a large amount of cash positions, so that he can handle market risks with ease. Buffett emphasized in his letter that he has long held two companies, American progesterone and Coca Cola, both of which have a long history and receive large dividends every year. He also mentioned Western oil companies that have increased their holdings in the past two years, which are companies that bring stable dividends to Berkshire Hathaway.
Later, Buffett mentioned five Japanese companies he had invested in in in recent years, and Berkshire Hathaway continued to hold these five companies, each holding approximately 9%. These five companies are also large enterprises with relatively stable profits. Buffett's investment in Japanese stocks in the past two years has also achieved relatively good returns, almost doubling the returns. Moreover, the Japanese stock market reached a new high in nearly 30 years last year. It also demonstrates once again that Buffett has unique advantages in stock selection and timing. Buffett's value investment philosophy is consistent: by selecting good industries and companies, and patiently holding them for ten years or even longer, one can achieve good returns. In fact, there are also great companies in the A-share market that have accumulated gains of over a hundred times, as well as a group of investors who have achieved thousands of times growth through long-term value investment. However, there are very few people who can persist in value investing in the A-share market, which is also related to the characteristics of the A-share market itself. When making value investments in the A-share market, it is necessary to combine the actual situation of the A-share market in order to select good companies that can grow in the long term in China.
The current A-share market is still at a historical bottom. Driven by the increased efforts of the national team to rescue the market and the entry of other bottom hunting funds, the A-share market has recently shown a trend of continued rebound, with an 8-day consecutive positive trend, boosting market confidence. These high-quality leading stocks that were wrongly killed in the the Year of the Loong may usher in the opportunity of valuation repair, which will be the main investment line of the whole year. Nowadays, many high-quality leading stocks only offer a 30% or 40% discount on their high points. At this time, it is a good opportunity to seek out these good companies or high-quality funds on dips and gain excess returns in the long run.
At the end of the letter, Buffett mentioned that the Buffett shareholders' meeting will be held on May 4th this year, but it is a great regret that we cannot see it again this year because Munger has passed away. But you will see Buffett and two fund managers, including Greg Abel and Agit Jain, answering shareholder questions together on stage. Greg is responsible for all of Berkshire's non insurance businesses, and from all aspects, he is ready to become Berkshire's CEO tomorrow. And Agit is mainly responsible for insurance business. In the past eight years, I have attended Buffett's shareholder meetings on-site in Omaha five times. During this year's May Day holiday, I will also go to the United States again to attend Buffett's shareholder meetings and listen to the insightful insights of stock gods Buffett and Munger on site with some entrepreneurs. After attending the Buffett Shareholders' Meeting, I also plan to visit several international financial institutions on Wall Street in New York to understand their views on the Chinese economy and stock market, and to learn about the latest operations of financial institutions on Wall Street. I hope that the annual Buffett Shareholders' Meeting can become an annual event for value investors, the most important event for us to firmly adhere to the value investment philosophy and follow Buffett's footsteps, I also hope that value investment can take root, sprout, and bear fruit in the A-share market. We once again deeply mourn the wise old man Charlie Munger. Although Munger has left us, his thoughts remain forever.