2023-05-06 19:17:54
«Our satisfying results are the result of a dozen really good decisions. This represents approximately one decision every five years.92-year-old Warren Buffett wrote to shareholders of his company Berkshire Hathaway on February 26, 2022.
The annual letter from Warren Buffett, one of the most successful investors of all time, is an event eagerly awaited by Berkshire Hathaway shareholders but also by financial market analysts.
«His legendary letters to investors are insightful, wise, simple and yet somewhat once morest the grain. They are also modest,” writes the Wall Street Journal. While most market-superforming investors would rather forget the decisions they’ve made, Warren Buffett often seems more comfortable reminding his followers of his mistakes and reflecting on his failures.
The latest, available from this link, was sent by Buffett on February 25. In this letter, he looks back on the journey of Berkshire Hathaway, the company he has run for more than half a century, and offers some thoughts on the future of the market.
When Warren Buffett explains his extraordinary achievement, he makes it look ordinary. He looks for reasonably priced opportunities at great companies with honest employees, competitive advantages, and a great “understandable, sustainable, and enticing economy.” He then attributes his success to the magic of compound interest. [intérêts capitalisés]the chance to live in the United States, the implementation of fundamental ideas, the avoidance of glaring mistakes and a generous dose of luck.
A good decision every five years
“A tiny number of decisions can produce an enormous amount of value,” writes Warren Buffett.
The fifth richest man in the world suggests that all major success isn’t regarding making the right decisions all the time. He says most of his investments have been marginal or mediocre at best. His average of one truly good decision every five years was still enough to earn this incredible return from 3 787 464 %.
« At this point, a balance sheet on my part is in order: In 58 years of managing Berkshire, most of my capital allocation decisions have been mediocre at best. » confesses Warren Buffet to his clients. In some cases, the bad decisions I made were saved by very high doses of luck. (Remember our near-disaster escapes at USAir and Salomon? I certainly remember), he pointed out.
And to add:Our satisfying results are the result of a dozen really good decisions – that’s regarding one every five years.»
He also tells his sidekicks to imagine they are holding a punch card with 20 boxes corresponding to the total number of investments they can make in their lifetime. If you knew you were only allowed 20 moves, you would maximize your chances of making each one work. You would be patient. You would be picky. You would only act on your strongest beliefs. It is a useful model for thinking regarding how to make any type of decision.
«Weeds wilt as flowers bloom,” wrote the Berkshire CEO. «Over time, it only takes a few winners to do wonders. And, yes, it pays to start early and live to be 90».
Invest in people
Many of the best investing decisions in Warren Buffett’s career were not in companies, but in people. In 1985, he hired Ajit Jain, an insurance ace, whom he met by chance on a Saturday. He considers it the best investment Berkshire has ever made.
It was not the idea of either of the two nonagenarians, Warren Buffett and his sidekick Charlie Munger, when Berkshire bought in 2016 and at a discount Apple.
Buffett is notorious for his aversion to investing in tech companies, and he has specifically ruled out investing in Apple. It was one of his assistants who bet on the long-term value and the juicy economy of the richest company in the world. He was quick to follow their lead, buy more stocks and swap his flip phone for an iPhone. Berkshire’s initial stake of $1 billion has grown to more than $150 billion, making it by far the biggest position in Buffett’s portfolio.
He invested in the right people. They made a brilliant investment that he wouldn’t have made himself.
«This is one of the best capital allocation decisions in historysaid Lawrence Cunningham to the WSJ, author of “The Essays of Warren Buffett.” And this is the very embodiment of Buffett.
Read success stories de Warren Buffett
It is difficult to put an exact figure on the value of Warren Buffett’s key acquisitions. The most emblematic are the following:
There were returns from Amex (a $1.3 billion investment now worth $23 billion), CocaCola (also $1.3 billion, now $25 billion), and of Mr. Munger (incalculable).
There was the 1967 acquisition of insurer National Indemnity, which gave Berkshire a fresh start and continues to make money. Five years later, there was the acquisition of See’s Candies, which cost $25 million and brought in more than $2 billion, thanks in part to the 22,000 pounds of peanuts and chocolate sold at the meeting of Berkshire from last year.
There was also the 1999 deal for the company now called Berkshire Hathaway Energy, which came with an influx of revenue and the appointment of Buffett’s successor, Greg Abel.
Other iconic acquisitions tend to be overlooked such as Railroads (Burlington Northern) to Shavers (Gillette). But also the first deal signed in 15 minutes on a Saturday morning in 1951, that of the insurance company Geico.
«His massive bet on Bank of America in 2011 is another classic Buffett play that reveals how his mind works and how his business operates.“recalls the WSJ. By showing ardor when others were afraid, he secured a lucrative deal on extremely favorable terms.
His decision to buy $5 billion in preferred stock came with warrants to buy 700 million common shares at any time over the next decade at the bargain price of $7.14. When he exercised them to become the bank’s largest shareholder, the stock was trading at $24.32, and it still trades around $28 today. “His opportunism paid off,” says the WSJ.
Key takeaways from Buffett’s letter
Berkshire Hathaway’s 2022 Letter to Shareholders was released on February 26, 2023 and was authored by Warren Buffett, Chairman and CEO of Berkshire Hathaway, and Charlie Munger, Vice Chairman of Berkshire Hathaway. The letter begins with a discussion of the company’s performance in 2022 and then touches on a wide range of topics, including company investments, the state of the economy and the future of Berkshire Hathaway.
Today, Berkshire Hathaway holds significant stakes in an unparalleled collection of massive and diverse businesses.
At the end of 2022, Berkshire was the principal owner of eight of these giants: Apple, American Express, Bank of America, Chevron, Coca-Cola, HP Inc, Moody’s, Occidental Petroleum and Paramount Global. In addition, Berkshire owns 100% of BNSF and 92% of BH Energy, whose profits exceed the $3 billion mentioned above ($5.9 billion for BNSF and $4.3 billion for BHE).
Here are the main ideas and highlights of the letter published by Warrent Buffett:
- Performances de Berkshire Hathaway : Although the company’s results were affected by the pandemic in 2020, Berkshire Hathaway posted a strong recovery in 2021, with a 34% rise in the value of its shares, which significantly exceeds the return of the S&P 500 .
- Wallet : Berkshire Hathaway’s stock portfolio reached a value of $370.5 billion at the end of 2022, an increase of 10.5% over the previous year. Buffett and Munger discuss several of the company’s major investments, including Apple, American Express and Bank of America.
- Investment strategy : Buffett reaffirms his belief in Berkshire Hathaway’s long-term investment strategy. He points out that the company prefers to invest in solid companies rather than seeking to speculate on the financial markets.
- Acquisitions : Berkshire Hathaway made several significant acquisitions in 2021, including the takeover of energy distribution company Dominion Energy and the purchase of Marsh & McLennan Agency. Buffett stresses that the company will continue to seek attractive acquisitions.
- Cash management : Berkshire Hathaway saw strong cash growth in 2021, hitting nearly $150 billion. Buffett explains how he manages this cash, including why he didn’t buy Bitcoin.
- Economy and inflation : The letter also discusses the state of the economy and the potential impact of inflation. Buffett and Munger acknowledge that inflation is a concern for many investors, but emphasize that they have confidence in the long-term prospects for the US economy. They note that the country has faced challenges in the past and has always emerged stronger, and they are confident that the same will be true in the future.
- Business risks : Buffett also discusses potential risks to the business, including the effects of climate change, cyberattacks and geopolitical uncertainty.
In conclusion, Buffett’s 2022 letter to shareholders shows that Berkshire Hathaway’s success is the result of a combination of luck, hard work and smart investment decisions. Although there may be challenges ahead, Berkshire Hathaway is well positioned to meet them and continue to deliver value to its shareholders.
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