Warren Buffett, the most famous investor in the world, has always said that the biggest mistake of his career was buying Berkshire Hathaway, the company that ended up taking him to the top.
He let himself be carried away by his impulses and got into a textile business without much future.
If he was able to straighten it out, it was thanks to the help of Charlie Munger, his partner, friend and faithful squire, who died at the end of November at the age of 99.
This year's Berkshire Hathaway annual report, released this Saturday, begins with a tribute to Munger, who Buffett says is the true architect of the company, "architect," he calls him.
Now without his partner, Buffett expresses in his letter to shareholders his commitment to Japanese conglomerates and Occidental Petroleum.
However, he is still not finding many opportunities and has accumulated a record cash position of $168 billion.
Buffett gives his investment lessons in two ways: with words and with actions.
Sometimes he sends messages, like when in the middle of the cryptocurrency bubble he disdained them as useless.
Other times, it is his quarterly or annual reports or his statements of holdings that send the signals: he takes positions in this company, reduces them in this other... And sometimes, both things coincide.
Berkshire Hathaway has recently bet on a group of highly diversified Japanese conglomerates, in some ways similar to Buffett's own firm.
Now, in his letter to shareholders, he assures that his bet is for the very long term.
Berkshire Hathaway has taken positions in Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo.
“Last year we increased our holdings in all five after Greg Abel [named by Buffett as his successor] and I took a trip to Tokyo to speak with his management,” he notes in the letter.
“In some important respects, the five companies follow shareholder-friendly policies far superior to those typically practiced in the United States,” he says.
“Meanwhile, managers at all five companies have been much less aggressive with their own compensation than is typical in the United States.
Note also that each of the five only allocates approximately 1⁄3 of its profits to dividends.
The large sums that the five retain are used both to develop their numerous businesses and, to a lesser extent, to buy back shares.
Like Berkshire, all five companies are reluctant to issue shares,” he adds.
Berkshire now owns about 9% of each of the five and has pledged not to exceed 9.9%.
In a short time, the value of their investment in yen in these companies has skyrocketed by 81%, although the depreciation of the yen has reduced the latent profit in dollars to 61%, about 8,000 million.
Buffett is committed to making them long-term investments of Berkshire, buying them with his historical investments in Coca-Cola and American Express.
The other big bet of the firm to which he commits to the long term in his letter to shareholders is Occidental Petroleum.
“At the end of the year, Berkshire owned 27.8% of Occidental Petroleum's common stock and also
warrants
that, for more than five years, give us the option to materially increase our stake at a fixed price,” says Buffett in his letter.
“While we very much like our stake, as well as the option, Berkshire has no interest in purchasing or managing Occidental.
We especially like its vast oil and gas developments in the United States, as well as its leadership in carbon capture initiatives, although the economic viability of this technique has yet to be demonstrated.
Both activities are of great interest to our country,” he adds.
“Under the leadership of Vicki Hollub, Occidental is doing the right thing for both its country and its owners.
Nobody knows what oil prices will do in the next month, year or decade.
But Vicki does know how to separate the oil from the rock, and that is a rare talent, valuable for her shareholders and for her country,” he explains in reference to shale oil, obtained by hydraulic fragmentation, in which Occidental is very strong.
Profits skyrocketed
Berkshire Hathaway has reported that it closed 2023 with a net profit of 96,223 million dollars (88,800 million euros at the current exchange rate), compared to losses of 22,759 million the previous year.
These abrupt variations are due to the oscillation of the values in your portfolio and especially those of Apple, your main investment.
Buffett prefers not to give excessive value to that figure in terms of the result of the exercise, although he considers it important to the extent that it reflects how his portfolio evolves.
Given the lack of investment opportunities that it finds attractive, the group accumulated a liquidity position of 168,000 million at the end of the year, breaking the record of 157,000 million from the previous quarter.
Most of that money was invested in US Treasury securities.
Approximately 79% of the value of Berkshire's portfolio was concentrated in five companies at the end of the year: Apple ($174.3 billion);
Bank of America ($34.8 billion);
American Express ($28.4 billion);
Coca-Cola ($23.6 billion) and Chevron Corporation ($18.8 billion).
In total, with these and other participations, its portfolio investments total a cost of 109,416 million dollars and accumulate capital gains of 244,426 million.
The company insists in its results that accounting standards require these changes in value to be recorded in the income statement even if it is a stable investment and detracts from its value: “The amount of profits/losses on investments in a given quarter “It is often irrelevant and provides net earnings (loss) per share figures that can be very misleading to investors with little or no knowledge of accounting standards,” he notes.
For this reason, the company prefers to look at the evolution of its businesses.
Operating income improved 28% in the fourth quarter, to $8,481 million.
In 2023, it reaches $37.35 billion, 21% more than in 2022. Much of the improvement is due to the recovery of the insurance business, which suffered losses of $30 million in 2022 due to the accumulation of catastrophes. and that has now contributed 5,428 million in operating income.
The investment insurance part also improves its accounts strongly, 47.5%, up to 9,567 million.
On the other hand, the operating results of the electricity and energy businesses worsened (by 40%, to 2,331 million dollars) and the railways (14%, to 5,087 million).
Munger, the "architect" of Berkshire Hathaway
Warren Buffett has preferred to separate his letter to shareholders from his tribute to his partner and friend Charlie Munger.
As a preface to the letter, Berkshire Hathaway's annual report includes a tribute page signed by Buffett himself.
In it he insists on his thesis that investing in Berkshire was his biggest mistake and that if everything ended up working out well it was thanks to his friend, whom he calls the company's "architect."
"In reality, Charlie was the 'architect' of the current Berkshire, and I acted as the 'general contractor' to carry out the day-to-day construction of his vision. Charlie never tried to take credit for his role as creator, but instead left I wanted to take the laurels and the praise. In a way, his relationship with me was part big brother, part loving father. Even when he knew I was right, he gave me the reins. And when I made a mistake, he never let me know. I remembered it," Buffett writes.
"In the physical world, great buildings are tied to their architect, while those who poured the concrete or installed the windows are soon forgotten. Berkshire has become a large company. Although I have long been in charge of the construction team of construction, Charlie should always be the architect," concludes his tribute.
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