Warren Buffett's Annual Letter -- Palindromic Sunday -- 2-27-22

Link here.

Three quick observations:

• the incredible amount of "value" in BRK that does not drop to the bottom line due to accounting rules;
• the huge connection with Ft Worth, TX (we live in a "suburb" north of Ft Worth);
• the value of Burlington Northern railroad.

From CNBC: Berkshire's operating earnings surge as Buffett repurchases record $27 billion in stock during 2021.  

• The company’s operating earnings — which encompass profits made from the myriad of businesses owned by the conglomerate — totaled $7.285 billion in the fourth quarter of 2021.
• That’s up roughly 45% from the year-earlier period’s profit of $5.021 billion.
• Berkshire used $6.9 billion to buy back shares in the fourth quarter, bringing the total in share repurchases to a record $27 billion for 2021.

From the linked article: 

However, Berkshire tends to downplay the importance quarterly changes in the company’s investment gains or losses. 

“The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules,” Berkshire said. 

Earnings from Berkshire’s railroad, utilities and energy business jumped 12.3% to $2.241 billion from $1.995 billion a year earlier. Meanwhile, Berkshire’s insurance-underwriting business earned $372 million after losing $299 million in the fourth quarter of 2020. 

The earnings report came as Berkshire’s B shares broke out to a record high this year, up nearly 7%. 

Full-year overall earnings came in at $89.795 billion, more than double 2020′s total of $42.521 billion.

Some astounding data points from Warren Buffett's annual letter this year: 

Many people perceive Berkshire as a large and somewhat strange collection of financial assets. 

In truth, Berkshire owns and operates more U.S.-based “infrastructure” assets – classified on our balance sheet as property, plant and equipment – than are owned and operated by any other American corporation. That supremacy has never been our goal. It has, however, become a fact. 

At yearend, those domestic infrastructure assets were carried on Berkshire’s balance sheet at $158 billion. 

That number increased last year and will continue to increase. Berkshire always will be building.

The float: 

From an $8.6 million purchase of National Indemnity in 1967, Berkshire has become the world leader in insurance “float” – money we hold and can invest but that does not belong to us. Including a relatively small sum derived from life insurance, Berkshire’s total float has grown from $19 million when we entered the insurance business to $147 billion. 

So far, this float has cost us less than nothing. Though we have experienced a number of years when insurance losses combined with operating expenses exceeded premiums, overall we have earned a modest 55-year profit from the underwriting activities that generated our float. 

Of equal importance, float is very sticky. Funds attributable to our insurance operations come and go daily, but their aggregate total is immune from precipitous decline. When it comes to investing float, we can therefore think long-term. 

To my surprise, our float increased $9 billion last year, a buildup of value that is important to Berkshire owners though is not reflected in our GAAP (“generally-accepted accounting principles”) presentation of earnings and net worth.

Berkshire's four giants:

#1: insurance
#2, runner-up: AAPL
#3: BNSF (and this is how I ended up owning so much BRK-B)
#4: BHE -- ENERGY -- Berkshire Hathaway Energy.

BNSF: 

BNSF, our third Giant, continues to be the number one artery of American commerce, which makes it an indispensable asset for America as well as for Berkshire. If the many essential products BNSF carries were instead hauled by truck, America’s carbon emissions would soar. 

Your railroad had record earnings of $6 billion in 2021. Here, it should be noted, we are talking about the old-fashioned sort of earnings that we favor: a figure calculated after interest, taxes, depreciation, amortization and all forms of compensation. 

(Our definition suggests a warning: Deceptive “adjustments” to earnings – to use a polite description – have become both more frequent and more fanciful as stocks have risen. Speaking less politely, I would say that bull markets breed bloviated bull . . ..) 

BNSF trains traveled 143 million miles last year and carried 535 million tons of cargo. Both accomplishments far exceed those of any other American carrier. You can be proud of your railroad. 

Fifteen largest equity holdings:

• AMEX
• AAPL
• BofA
• Bank of New York Mellon
• BYD: held by BHE; Berkshire shareholders have only a 91.1% interest in this position;
• Charter Communications
• CVX
• KO
• GM
• ITOCHU Corp
• Mitsubishi Corp
• Mitsui
• Moody's Corp
• US Bancorp
• Verizon
• others include a $10.7 billion investment in OXY
  

Cash: the company will always hold more than $30 billion in cash and cash equivalents

Interesting observation regarding buybacks: 

It should be noted that Berkshire’s buyback opportunities are limited because of its high-class investor base.

If our shares were heavily held by short-term speculators, both price volatility and transaction volumes would materially increase. That kind of reshaping would offer us far greater opportunities for creating value by making repurchases. 

Nevertheless, Charlie and I far prefer the owners we have, even though their admirable buy-and-keep attitudes limit the extent to which long-term shareholders can profit from opportunistic repurchases. 

Buy a pontoon boat: 

I will end this letter with a sales pitch. “Cousin” Jimmy Buffett has designed a pontoon “party” boat that is now being manufactured by Forest River, a Berkshire subsidiary. The boat will be introduced on April 29 at our Berkshire Bazaar of Bargains. And, for two days only, shareholders will be able to purchase Jimmy’s masterpiece at a 10% discount. Your bargain-hunting chairman will be buying a boat for his family’s use. Join me.