Not even Warren E. Buffett, one of the world’s most successful investors, was immune to the swings of the markets last year.
But as his conglomerate, Berkshire Hathaway, reported a big lossThe billionaire executive urged shareholders to focus on the long term and the underlying health of his empire, which includes insurance, railroads, energy and equity stakes in companies like Coca-Cola, American Express and more.
Berkshire reported Saturday that it lost $22.8 billion last year, buoyed by $53.6 billion in unrealized losses on its investments. That mirrored the experience of other investors, who were hit by market volatility as inflation rose rapidly and central banks responded by rapidly raising interest rates.
but in your annual letter to shareholders, Mr. Buffett pointed to the company’s operating earnings, which are drawn from its underlying businesses and exclude those paper investment securities. On that basis, Berkshire earned a record $30.8 billion last year.
And his holdings of cash and cash equivalents have grown to $125 billion, giving Buffett more power to invest in stocks and potentially buy new companies.
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The decline in the stock and bond markets this year has been painful, and it remains difficult to predict what lies ahead.
Factoring the performance of Berkshire’s investments into its overall returns is “100 percent misleading,” Buffett wrote, since those results are likely to change easily from quarter to quarter.
Berkshire’s vast business empire is often seen as a microcosm of American industry. And many of its subsidiaries reported being affected by the broader economic forces affecting the country.
Weaknesses included Berkshire’s consumer products businesses, which reported a 23 percent drop in profit last year from 2021, hurt by lower demand and higher costs for raw materials and shipping. In its annual report, Berkshire said it expected continued soft demand in 2023 and that it planned to “right-size” its operations and reduce product inventories.
The conglomerate’s main insurance businesses, which generate the cash that drives Buffett’s vast investments, also reported technical losses from catastrophic events, such as hurricanes, and an increase in auto claims at Geico.
And BNSF Railway reported a slight drop in profit, largely due to rising fuel costs and declining shipment volumes.
Still, in his annual letter to shareholders, a must-read for dozens of investors eager to hear his thoughts on the global state of affairs, Buffett professed continued faith in America’s resilience.
“We count in the American Tailwind and although it has subsided from time to time, its propulsive force has always returned,” he wrote. “I have yet to see a time when it makes sense to make a long-term bet against the United States.”
Much of the letter was devoted to defending Berkshire’s practices.
That included share buybacks, which the company spent $7.9 billion on last year. The practice has drawn criticism from lawmakers, including Senator Elizabeth WarrenDemocrat from Massachusetts, who argues it siphons money to Wall Street investors rather than to employee pay raises or new investments.
“When they tell you that everything buybacks are detrimental to shareholders or to the country, or particularly beneficial to CEOs, you are listening to an economic illiterate or a silver-tongued demagogue (characters who are not mutually exclusive),” Buffett wrote.
He also defended Berkshire’s federal tax bill, amid constant criticism that he himself pay little in taxes in relation to his total assets, which Forbes estimates at $106 billion. In his letter, Buffett said that Berkshire had paid $32 billion in federal taxes over the past decade, representing one-tenth of 1 percent of all taxes the government collected during that time.
“If there had been approximately 1,000 taxpayers in the US who matched Berkshire’s payments, no other company or any of the 131 million households in the country would have had to pay anything. taxes to the federal government,” he wrote. Not a cent.
Buffett added a criticism of the federal government for spending significantly more than it takes in in taxes, and pointed to a fight now raging in Washington over the debt ceiling. “Huge and entrenched fiscal deficits have consequences,” he wrote.