Warren Buffett lays out his thoughts in his 2023 letter to investors.

It has been a long-standing tradition for investors and the media alike to eagerly wait for Berkshire’s annual letter with the hope of getting a heads-up.

With Buffett’s long-time investing partner, Charlie Munger, having recently passed away just shy of his 100th birthday, Buffett, now 93, devoted much of the letter praising Munger’s role in creating the sprawling firm. Warren Buffett called the late Charlie Munger the “architect” of the company and referred to himself as in charge of the construction crew. Together, the two senior managers of Berkshire would hold annual meetings in a packed Omaha sports arena, discussing topics ranging from stock to life events. 

“It has been a long-standing tradition for investors and the media alike to eagerly wait for Berkshire’s annual letter with the hope of getting a heads-up”

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Warren Buffett lays out his thoughts as Berkshire’s share price closes at a new all-time high

Warren Buffett doesn’t see the “possibility of eye-popping performance” in the years ahead.

Perhaps that is why the company’s cash pile hit a new record high of $167.6 billion. Warren Buffett believes there are few deals offering the kind of Stellar returns of the takeovers of the past. He then noted such profitable purchases of insurers Geico and National Indemnity or the BNSF railroad.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance”, wrote Warren Buffett. 

Warren Buffett’s Berkshire  $167.6 billion cash mountain was so large that interest income alone in 2023 is estimated to be $7.5 billion assuming the company earned a 5% interest on its $150 billion average cash hoard over the year.

Berkshire reported quarterly net income more than doubled to $37.574 billion, or $26,043 per Class A share, from $18.8 billion, or $12,355 per share, a year earlier. But an inflation-adjusted result would not be so stellar.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire”

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Warren Buffett lays out his thoughts on earnings

It is a well-known fact that he dislikes GAAP earnings and instead urges investors to look at operating earnings which strip away the quarterly fluctuations of the conglomerate’s public stock investments (i.e. unrealized gains/losses). “We, however, are left uncomfortable. At Berkshire, our view is that “earnings” should be a sensible concept that Bertie will find somewhat useful – but only as a starting point – in evaluating a business. Accordingly, Berkshire also reports to Bertie and you what we call “operating earnings,” wrote Buffett last year. 

Operating earnings for 2021 amounted to $27.6 billion; $30.9 billion for 2022 and $37.4 billion for 2023. 

Warren Buffett noted that operating earnings from its railroad operations fell to $1.36 billion for the quarter, versus $1.47 billion for the same period a year earlier. Operating earnings from utilities and energy also fell to $632 million from $739 million.

“At Berkshire, we particularly favour the rare enterprise that can deploy additional capital at high returns in the future” – Warren Buffett

“Our insurance business performed exceptionally well last year, setting records in sales, float and underwriting profits,” Buffett said in the shareholder letter. “We have much room to grow,” he wrote. 

Berkshire also repurchased $2.2 billion of its stock in Q4 and boosted full-year buybacks to $9.2 billion. “Indirect ownership of both Coke and AMEX increased a bit last year because of share repurchases we made at Berkshire. Such repurchases work to increase your participation in every asset that Berkshire owns. To this obvious but often overlooked truth, I add my usual caveat: All stock repurchases should be price-dependent. What is sensible at a discount to business value becomes stupid if done at a premium,” he said. 

Here are some highlights as Warren Buffett lays out his thoughts in his 2023 letter to investors

“Our goal at Berkshire is simple: We want to own either all or a portion of businesses that enjoy good economics that are fundamental and enduring. Within capitalism, some businesses will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict, which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen,” he said. 

“At Berkshire, we particularly favour the rare enterprise that can deploy additional capital at high returns in the future. Owning only one of these companies – and simply sitting tight – can deliver wealth almost beyond measure. Even heirs to such a holding can – ugh! – sometimes live a lifetime of leisure,” he added. 

Warren Buffett lays out his thoughts on seeking potentially profitable investments. 

I believe Berkshire can handle financial disasters of a magnitude beyond any heretofore experienced” – Warren Buffett

This combination of the two necessities I’ve described for acquiring businesses has long been our goal in purchases and, for a while, we had an abundance of candidates to evaluate. If I missed one – and I missed plenty – another always came along. Those days are long behind us; size did us in, though increased competition for purchases was also a factor.

Occasionally, markets and/or the economy will cause stocks and bonds of some large and fundamentally good businesses strikingly mispriced. Indeed, markets can – and will – unpredictably seize up or vanish as they did for four months in 1914 and a few days in 2001. If you believe American investors are now more stable than in the past, think back to September 2008. Speed of communication and the wonders of technology facilitate instant worldwide paralysis, and we have come a long way since smoke signals. Such instant panics won’t happen often – but they will happen,” he wrote. 

Warren Buffett lays out his thoughts on US investing

“America has been a terrific country for investors. All they need to do is sit quietly, listening to no one,” he said.

And on financial crises; 

“I believe Berkshire can handle financial disasters of a magnitude beyond any heretofore experienced,”

For more, see  Warren Buffett’s letter.