Warren Buffett, in annual letter, stays upbeat and preaches patience

by mcardinal

Billionaire investor Warren Buffett on Saturday signaled he has lost none of his enduring confidence in the U.S. economy and his company Berkshire Hathaway Inc.

In his annual letter to Berkshire shareholders, the 92-year-old Buffett urged investors to focus on the big picture over the long term, rather than higher inflation and other factors that in 2022 dampened stock prices, though not Berkshire’s.

He also urged Americans not to be convulsed by “self-criticism and self-doubt,” saying the country’s dynamism has benefited Berkshire in his 58 years running the company from Omaha, Nebraska, and will do so after he passes the reins.

“We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned,” Buffett wrote.

“I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”

The letter was accompanied by Berkshire’s year-end results, which Buffett said reflected a “good” year for Berkshire despite supply chain disruptions and rising inflation, including a record $30.8 billion operating profit.

Berkshire owns dozens of operating businesses including the Geico car insurer, BNSF railroad, and many well-known consumer brands such as Dairy Queen and Fruit of the Loom.

It also posted a $22.8 billion annual net loss, as the prices of Apple Inc and many other stocks in its vast investment portfolio declined. Buffett downplays net results because they are volatile and affected by accounting rules.

Multiple observers said, however, that Buffett appeared cautious, almost apologetic, about his own difficulties in navigating markets, though he is arguably the most famous living American investor.

“Buffett is very humble in assessing his own investment prowess, and unnecessarily so,” said Thomas Russo, a partner at Gardner Russo & Quinn and longtime Berkshire investor. “Investors have profited from him over decades.”

Anyone who stuck with Berkshire from 1965 to 2022 saw their shares gain 3,787,464% in value. The Standard & Poor’s 500 rose 24,708% including dividends over that period.

MUNGER ‘MAKES ME LAUGH’

Buffett said most of his capital allocation decisions have been merely “so-so,” and Berkshire’s “satisfactory” results over time resulted from only about one dozen “truly good” decisions.

“‘Efficient’ markets exist only in textbooks,” Buffett said. “In truth, marketable stocks and bonds are baffling, their behavior usually understandable only in retrospect.”

Buffett also said “trust and rules are essential” in running large businesses, even amid the inevitable disappointments.

Cathy Seifert, an analyst at CFRA Research, said Buffett took a “subtle swipe” at critics who wished he would disclose more than a few paragraphs about Berkshire’s largest businesses, and invest more aggressively.

“The current market climate has been, for a lack of a better word, very schizophrenic,” Seifert said. “Buffett is expressing that frustration.”

Despite paying $11.5 billion in October for the insurance company Alleghany Corp, Berkshire ended the year with $128.6 billion of cash.

It also became a big seller of stocks including Taiwanese semiconductor maker TSMC late in the year, while stepping up repurchases of its own stock.

Buffett, a Democrat, appeared to indirectly criticize President Joe Biden, who this month urged a quadrupling of a 1% on corporate stock buybacks he signed into law last year.

While Biden didn’t call for an end to buybacks, Buffett said those who do are “either an economic illiterate or a silver-tongued demagogue.”

Buffett also urged investors not to dwell on near-term market conditions – he said Berkshire offers “modest protection from runaway inflation, but this attribute is far from perfect.”

He also tried to remind them how much Berkshire gives back to the U.S. Treasury, saying it paid $32 billion of corporate taxes in the last decade.

“At Berkshire, we hope and expect to pay much more in taxes during the next decade,” Buffett wrote. “We owe the country no less.”

Buffett also demonstrated effusive affection for his friend and business partner Charlie Munger, the 99-year-old Berkshire vice chairman.

He said both plan in early May to attend Berkshire’s annual meeting, which is known as “Woodstock for Capitalists” and draws tens of thousands of people to Omaha.

“I never have a phone call with Charlie without learning something,” Buffett said. “And, while he makes me think, he also makes me laugh.”

Copyright 2023 Thomson/Reuters

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