Guess — February 25, 2023

Locator: 10001Buffett.

Updates

May 5, 2023: Paramount.

March 2, 2023: that cash horde.

February 27, 2023: the knives are out. 

February 26, 2023:  I came out hard / negative on Warren Buffett when I saw his 2023 annual letter (2022 earnings) but after re-considering ... I have much better thoughts about Buffett and 2022. I still think he's going to have a rough 2023, but even on that, I think I may be wrong. Buffett could have a great 2023.

February 26, 2023: the most important move that Buffett didn't make in 2022 -- he didn't sell any AAPL. 

February 26, 2023: I still don't see what Buffett sees in Paramount but long term it seems Buffett made some great moves in 2022. I'm particularly impressed with the Louisiana-Pacific Corp purchase. Until the Paramunt deal makes more sense to me, I'm reminded that a) PARA pays over 4%; and, b) some consider it a takeover target.

February 26, 2023: WSJ -- link here.

February 26, 2023: Barron's -- link here.

February 26, 2023: a reader wrote to tell me that only 1% of investors have the Warren Buffett timeline and the problem with buybacks -- many companies seem to buy them when share prices are high -- my reply: 

• those 1% sleep well at night.

Then a longer reply:

1. Share buybacks. The only thing most investors see with regard to buybacks is the headline when they are announced. The headline is always that a buyback is authorized. I don't think I've ever seen a headline on the day that a buyback has actually been executed and the price paid.

2. I was greatly disappointed in Buffett's letter when he started praising KO's dividends.

3. GEICO apparently is not doing well.

4. When his original business (textile) turned sour, he pivoted to insurance.

5. He has clearly pivoted to energy. (OXY -- high CAPEX write-off's; huge moat; nice dividends).

6. Not sure how he stumbled onto AAPL.

7. I would be hard-pressed to come up any other huge Buffett success stories other than pivoting from textile to insurance; buying BNSF; stumbling into AAPL; and, bailing out OXY.

8. I doubt See's Candy is moving the BRK needle.

Original Post

https://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2023/02/25/2022ar.pdf

https://www.cnbc.com/2023/02/25/berkshire-hathaway-brk-earnings-q4-2022.html

https://www.cnbc.com/quotes/BRK.B/

https://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2022/02/26/2021ltr.pdf

https://www.macrotrends.net/stocks/charts/BRK.B/berkshire-hathaway/cash-on-hand

[K-70; K-41]

$32.260 - cash

$92.774 - short-term T-bills

$25.128 - fixed maturity [$16.434]

$150.162 - total [2022: $111.814, 2021: $107.074]

Buried: 

Overall earnings dropped to $18.164 billion in the fourth quarter of 2022, a 54% decline from the same quarter in the year prior. These earnings reflect Berkshire’s fluctuating equity investments. [Yes, don't blame Warren; blame the underlying investments.]

For the full year, overall earnings tumbled 125% to a loss of $22.819 billion in 2022, down from earnings of $89.795 billion in 2021. 

That number is largely a byproduct of tumultuous 2022 market, with the company reporting a $53.6 billion loss from investments and derivatives. [K-55.]

https://www.macrotrends.net/stocks/charts/BRK.B/berkshire-hathaway/eps-earnings-per-share-diluted 

The secret sauce: dividends.

The other secret sauce: time. 

Buybacks and cash: https://ycharts.com/companies/BRK.A/stock_buyback

Meanwhile, Berkshire used $2.855 billion to buy back shares in the fourth quarter. That’s lower than the year-earlier period when share repurchases totaled more than $6 billion but more than the third quarter’s repurchase total of around $1 billion. 

For the year, 2022, Berkshire bought back nearly $8 billion in common stock.  

2021: $27 billion. 

Despite this, Berkshire’s cash hoard grew to $128.651 billion in the fourth quarter of 2022. That’s up from nearly $109 billion in the third quarter. [CNBC]

His letter’s three takeaways:

• BRK is a railroad company, at least to a great extent;
• dividends, dividends, dividends
• there’s always buybacks if everything else looks bleak

The single takeaway:

• BNSF and dividends kept BRK afloat in 2022.

Overheard in the coffee shop early this morning:

I can’t speak to the companies he owns outright, but Buffett’s investments this past year have been horrendous. 

Right now we’ve just seen CNBC’s reporting (and one knows the relationship between CNBC and Warren Buffett) but once the knives come out (other analysts) it may not be a pretty picture. 

It explains his buybacks and his comment in his letter re: buybacks. He sounds very, very defensive. 

It also explains his trading activity that was recently reported. This was not a good year for Buffett and 2023 could be much worse. 

His secret sauce explains why his bottom line does as well as it does, but it could take several tears for BRK to recover from 2022. 

I haven’t found his definition of operating earnings vs overall earnings and Investopedia was not helpful, at least on my first cursory search.

Not yet heard, but should be heard from analysts: 

• BRK should buy Norfolk Southern Railway, market cap $50 billion. [From a reader.] 

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Additional Comments

I'm disappointed in how little Buffett really has to say. Really, did any reader get much out of his letter?

He's blaming his poor returns in 2022 on inflationary spending. He's a huge Democrat / liberal and has supported the party of big spenders his entire life; he can't have it both ways. 

Blaming inflation for a lousy stock market is like blaming Covid for a poor economy. It was not Covid that resulted in a poor economy, it was the government's response to the Covid pandemic. 

I don't accept the argument that government spending causes inflation. (Forbes, August 25, 2022). Others:

• Krugman, 2021 on 2023.

One word: eggs.