Buffett 2023 Juju Han I Hidden Ball Berkshire Investment Tips

3월 13, 2023 admin 0 댓글

Berkshire Hathaway Chairman Warren Buffett, “The Wise Man of Omaha,” announced a shareholder letter on February 25, 2023.

The letter, released annually by Buffett, is considered to provide good insights not only to Berkshire Hathaway shareholders but also to numerous investors. Let’s take a look at what it contains this year and how major investment media responded to it.

01.
Buffett’s secret sauce, summarized in one sentence.

In this letter, Buffett briefly revealed the secret of Berkshire. Investment media <Mottlepool> noted that Buffett said, “Weeds also wither when flowers bloom.” Here, weed refers to the stock that Buffett has bought over the years but has not produced any significant profits. The brilliant career of Omaha’s wise man wasn’t without much stain.

On the contrary, Buffett has also discovered numerous flowers, or exceptionally performing stocks. Over time, the share of these stocks in Berkshire’s portfolio has grown, while the share of “miscellaneous plants” has become much smaller. Of course, there were times when Buffett had to intentionally weed the garden.

Buffett mentioned in the letter that he bought 400 million shares of Coca-Cola over a seven-year period from the late 1980s to 1994 and similarly bought American Express in 1995. Coincidentally, the acquisition cost of both companies was $1.3 billion, which was quite large at the time. Coca-Cola’s annual dividend increased steadily from $75 million in 1994 to $740 million in 2022, and Amex’s dividend increased from $41 million to $302 million.

In addition, rising stock prices have increased the value of Coca-Cola’s stake in Berkshire to $25 billion and Amex to $22 billion, accounting for about 5% of Berkshire’s net assets.

Another secret to Buffett’s investment success was “value investment.” Buffett explained that Berkshire’s goal is to “make meaningful investments in companies with long-lasting economic advantages and reliable managers.” Rather than trading stocks based on short-term price fluctuations, hold the best-performing stocks in the long term to make steady profits.

He and Berkshire Vice Chairman Charlie Munger also stressed that they are not stock-pickers, but business-pickers.

Impressive in the letter was Buffett’s admission that he had “made numerous mistakes,” stating that Berkshire had “satisfactory results because of about a dozen really good decisions and the benefits of long-term investors like Berkshire, but sometimes forgotten.”

02.
Buffett’s continued defense of treasury stock buybacks

Buffett is known as a leading stock buyback enthusiast on Wall Street in the U.S. In the letter, he said, “It may be an economic illiterate or eloquent demagogue, or both, who say that all treasury stock purchases are detrimental to shareholders or the country and are particularly beneficial to the CEO.”

This is interpreted as a criticism of the Joe Biden administration, which is pushing to tax treasury stock purchases. As the Inflation Reduction Act (IRA) takes effect this year, you will have to pay 1% of taxes if you buy back your shares. In addition, President Biden proposed to quadruple the tax rate in his State of the Union address on February 6.

Buffett launched his Berkshire share buyback program in 2011 and has been buying back in recent years, especially during the pandemic, to respond to competitive trading environments and high-priced stock markets. In 2021, he bought $27 billion worth of Berkshire shares, the largest ever, saying he did not find a good opportunity externally. However, last year, Buffett sold stocks and bought them, resulting in a significant decrease in treasury stock purchases, reaching only $8 billion. Berkshire also acquired insurance company Ellegaini last year for $11.6 billion, the largest M&A since 2016.

According to the economic media CNBC, U.S. politicians, especially Democratic lawmakers, are generally critical of companies’ use of funds for long-term growth such as employee benefits and capital spending instead of buying back their shares. Buffett argued that “buying treasury stocks helps shareholders by raising the intrinsic value of each share.”

Buffett said in the letter, “If the number of shares decreases, our stakes in many companies increase,” and emphasized, “No matter how small it is, it helps if treasury stocks are purchased at a high value price.”

He also cited Apple and Amex as examples and says it has benefited shareholders by buying back its shares. In a shareholder letter last year, Buffett praised Berkshire for benefiting from Apple CEO Tim Cook’s share buyback program.

03.
Things not mentioned in Buffett’s shareholder letter.

Some media outlets reacted critically to the letter. Barrence, an investment media outlet, said investors wait excitedly for shareholder letters reflecting Buffett’s insights and skills every year, but this year was disappointing. Barrence notes that Buffett spent two pages of his relatively short 11-page letter recounting last year’s events and that there was not much insight.

Barrence first criticized Buffett for not commenting on Berkshire’s slowing share buyback. As mentioned earlier, Berkshire’s share buybacks fell from $25 billion in 2020 to $27 billion in 2021 and $8 billion last year. It is pointed out that Buffett actively defended the practice of treasury stock purchases, but did not explain the sudden decrease in the size of treasury stock purchases last year.

And Barrence argued that Buffett should have given a more concrete blueprint for the future, as he is 92 and his business partner, Berkshire Vice Chairman Charlie Munger, 99. Buffett previously chose Canadian Vice Chairman Greg Abel, 60, as his successor in 2021. Barrence said he would have liked Buffett to explain why he is confident in Berkshire’s future management team, which includes Abel and Ajit Zain, vice chairman of Berkshire Insurance.

The letter didn’t mention “Geico,” Berkshire’s largest single insurer. Keiko suffered losses last year due to an increase in insurance claims. “Buckshire’s annual report to the U.S. Securities and Exchange Commission said it expects Keiko to make a profit in 2023, but the letter did not contain any information on the progress and difficulties of one of Berkshire’s major businesses, estimated at $75 billion,” Barrence said.

Furthermore, the media pointed out that Buffett praised Berkshire’s investment in Coca-Cola 30 years ago, but did not explain why it was a good investment considering the problem that the Coca-Cola business relied heavily on sugar-rich soda and the low return on the S&P 500 over the past 20 years.