Berkshire Hathaway posts big loss and racks up cash

Warren Buffett’s Berkshire Hathaway (BRK.A, BRK.B) posted a net loss of $22.8 billion in 2022, due to market volatility. However, Berkshire’s “operating profit”, which excludes certain capital gains and losses, hit a record $30.8 billion. In his highly anticipated letter to shareholders, Buffett reiterated his confidence in the US economy and aimed for overpriced stock buybacks.

Rocky Q4 2022, but stocks outperform

Berkshire Hathaway posted a loss of $22.8 billion in 2022 compared to a profit of more than $90 billion the previous year. Market volatility and investment losses on derivative contracts totaling over $67 billion played a significant role in this.

The company’s operating profit, excluding capital gains or losses, for the fourth quarter of 2022 fell to $6.7 billion, down 14% from the prior quarter.

Despite the pullback due to market volatility, Berkshire stock posted a 4% gain for 2022, significantly outperforming the S&P, which fell 18.1% including dividends.

Berkshire is the largest shareholder in eight of America’s biggest companies – American Express, Bank of America, Chevron, Coca-Cola, HP Inc., Moody’s, Occidental Petroleum and Paramount Global – and some of them write big dividend checks .

“Looking ahead, Berkshire will still hold a boatload of cash and US Treasuries as well as a wide range of businesses. We will also avoid behavior that could lead to uncomfortable cash needs at inopportune times. , including unprecedented financial panics and insurance losses,” Buffett wrote.

Buffett hopes to pay more taxes

According to Buffett, Berkshire was responsible for paying about 1% of all taxes collected by the US government over the past decade.

“At Berkshire, we hope and expect to pay many more taxes over the next decade. We owe the country no less: America’s dynamism has contributed enormously to Berkshire’s success – a contribution Berkshire will always have needed,” Buffett wrote, betting that the growing US economy would push the company to pay more through corporate taxes.

Buffett targets stock buybacks

Not all stock buybacks are equal in Buffett’s eyes. While he mentioned that the buyouts by Apple (AAPL) and American Express (AXP) have been beneficial to Berkshire, the price of this takeover is essential. Shares repurchased at “accelerative prices” benefit all shareholders, but if the company overpays to repurchase shares, shareholders lose, he said.

“When you are told that all takeovers are harmful to shareholders or the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters who are not mutually exclusive) “, he writes.

Granted, Berkshire itself has spent a fair amount of money on buyouts in 2021.

Long-awaited letter from Buffett on the economic outlook

THE Oracle of Omaha may have disappointed many investors with its latest annual letter to shareholders, which did not provide an update on the economy. Buffett, now 92, has limited his public appearances in recent years and the letter marks his first major communication with shareholders since the company’s annual meeting last April. Investors were hoping for an update on the US economy and Buffett’s thoughts on inflation and a potential recession but were left to read between the lines. With the company’s record operating profit return, Buffett reminded investors that he and his longtime partner Charlie Munger, 99, were ‘business pickers’, ‘not stock pickers’. .

Treasury yields hit their highest level since the 2008 financial crisis after an aggressive rate hike cycle by the Federal Reserve. Six-month and one-year yields topped 5% for the first time since 2007, while the benchmark 10-year Treasury yield sits near 4%.

“Interest rates are to asset prices, you know, kind of like gravity is to the apple,” Buffett previously said at Berkshire’s annual meeting in 2013. His comments highlighted “the gravitational pull “that higher rates can have on equity, especially after years. interest rates close to zero. However, Buffett has made no significant changes to the company’s portfolio that would suggest a scary outlook.

But one thing is certain, and that is that Buffett remains optimistic about the long-term expectations for the US economy.

“Despite the penchant – almost the enthusiasm – of our fellow citizens for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. And I highly doubt that any reader of this letter will have a different experience in the future,” he wrote.

Berkshire a seller in the fourth quarter, but the main titles remain

Berkshire Hathaway’s 13F filing in mid-February shows the conglomerate was a net seller of shares in the fourth quarter. The company sold a significant portion of its stake in Taiwan Semiconductor (TSM) while reducing its stakes in Bank of New York Mellon and US Bancorp. The conglomerate also shifted much of its cash into short-term Treasuries, growing its position from $9.6 billion to $17.6 billion.

Investors can use this record to gauge Buffett’s sentiments about the US economy for the rest of the year. Berkshire’s investments in bank stocks have been reduced as the Federal Reserve slows its pace of rate hikes, which will add a headwind to the banking sector. Taiwan Semiconductor’s stake was only bought in the third quarter and may hint at geopolitical fears over US-China diplomatic tensions. Despite selling off those holdings, Berkshire Hathaway hasn’t significantly increased its cash position, and Buffett is happy to hold on to his valuable assets.

The essential

Investors hoping for an update on Warren Buffett and Charlie Munger’s thoughts on the US economy will have to wait for the annual shareholder pilgrimage on May 6. Until then, the company’s willingness to hold on to its current stock will reassure celebrity investors that no storm clouds are building in the near term.