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Warren Buffett published his annual letter to Berkshire Hathaway (BRK-A, BRK-B) shareholders on Saturday morning, marking the first time since the death of his longtime right-hand man Charlie Munger in November ( His first letter to investors since his death at the age of 99.
Buffett began his letter to Berkshire shareholders by reminding readers of Munger’s role in creating what is now the largest conglomerate in the United States. Buffett wrote on Saturday that the conglomerate “so far…Largest GAAP net worth ever for a U.S. company. “
“In effect, Charlie is the ‘architect’ of what is now Berkshire Hathaway, and I serve as the ‘general contractor’ executing the day-to-day construction of his vision,” Buffett wrote.
“Charlie never tried to take credit for his role as a creator, but rather asked me to take a bow and accept the credit. In a way, his relationship with me was half brother, half father. Even though he knew he was Yeah, he helped me a lot, too.” I was in charge, and when I made mistakes, he never—never—reminded me of my mistakes. “
“In the real world, great buildings are as close to their architects as they are to those who poured the concrete or installed the windows,” Buffett wrote.
“Berkshire has become a great company. While I have long been responsible for the construction team, Charlie should always be considered the architect.”
“I made a stupid decision”
Both Buffett and Munger grew up in Omaha, where Berkshire Hathaway is still headquartered. However, the two did not meet until 1959, when Buffett was 29 and Munger was 35.
Munger, an attorney by profession and a founding partner of the eponymous law firm Munger, Tolles & Olson, was named an associate director of Berkshire Hathaway in the late 1970s. long.
But Munger and Buffett’s investment relationship began long before this official engagement, and Buffett wrote Saturday that it was Munger who told him in 1962, “I made a decision in buying control of Berkshire Hathaway.” Stupid decision.”
At the time, Berkshire Hathaway was a struggling New England textile manufacturer. The textile business later ended, but today’s Berkshire Hathaway still retains the company’s name.
Buffett wrote on Saturday, “Charlie immediately advised me in 1965: ‘Warren, stop buying companies like Berkshire. But now that you control Berkshire, add to it purchases at fair prices. Good businesses, and give up buying fair businesses at fair prices. “The price is fantastic. In other words, give up everything you learned from your hero Ben Graham. It works, but only when practiced on a small scale It works.” After much flinching, I then followed his instructions. “
“Our goal at Berkshire is simple: We want to own, in whole or in part, durable businesses that have sound economic fundamentals,” Buffett wrote in a letter to shareholders.
But Buffett noted that Munger’s advice nearly 60 years ago to buy only “good businesses at fair prices” meant that Buffett and Berkshire Hathaway had a wealth of investment opportunities to choose from in those days.” Gone forever”.
“The combination of what I have described as the two necessary conditions for acquiring a business has long been our acquisition target, and for some time we have had a large number of candidates to evaluate,” Buffett wrote.
“If I miss one – and I miss a lot – another always follows. Those days are long gone; size Although increased competition for purchases was also a factor, we were successful. “
Berkshire Hathaway acquired insurance company Alleghany for $11.6 billion in 2022 and took full control of rest stop operator Pilot earlier this year. Prior to these transactions, the company had not made a major acquisition since its $37 billion purchase of Precision Castparts in 2015.
Buffett continued: “There are only a handful of companies in this country that can truly drive Berkshire’s growth, and we and others continue to select them.”
“Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the United States, there are essentially no candidates. meaningful Capital allocation options for Berkshire Hathaway.In summary, we have No The possibilities for jaw-dropping performances. “
“Seriously” disappointed
Buffett also talked about the difficulties in 2023 for Berkshire Hathaway’s railroad and utility businesses, which “earned severely disappointing last year.”
In Buffett’s view, the changing regulatory landscape in some states “breaks” the pattern of relying on private investment, and Buffett calls the returns from these players “fixed but satisfactory returns.” Agreements are reached on a state-by-state basis.
“Whatever happens to Berkshire, the end result for the utility industry may be ominous: Some utilities may no longer attract the savings of American citizens and will be forced to adopt a public power model,” Buffett wrote. The state of Nebraska made this choice in the 1930s, and there are many public power operations across the country. Ultimately, voters, taxpayers, and users will decide which model they prefer.
“When the dust settles, U.S. power demand and the accompanying capital expenditures will be staggering. I did not anticipate or even account for adverse developments in regulatory returns, and, Berkshire and I at BHE Together, the two partners made a costly mistake: they failed to do so.”
“Berkshire is built to last”
As in previous years, Buffett spent a lot of time in this year’s letter laying out his overall investing philosophy and how it affects Berkshire Hathaway’s current iteration.
These passages are a major draw for aspiring investors seeking Buffett’s insights on how to manage their own portfolios.
In Buffett’s view, modern Berkshire Hathaway was built to guard against and exploit the inevitable seizures and panics that have and will once again engulf markets.
“In fact, markets can – and will – unpredictably stall or even disappear, as they did for four months in 1914 and a few days in 2001,” Buffett wrote. “If you think American investors are now more The past was more stable, think back to September 2008. The speed of communication and the wonders of technology Promote The world immediately came to a standstill and we have come a long way since the smoke signals.Such momentary panics don’t happen often – but they will occur. “
Berkshire, in turn, holds large amounts of cash and highly liquid Treasury bills that Buffett said are “far more than conventional wisdom considers necessary.”
Berkshire also doesn’t pay dividends (predetermined cash outlays by the company) and makes no commitments about the size of future stock buybacks. The way Buffett runs Berkshire Hathaway is to preserve cash for the sake of preserving it, not to deploy it for some future project.
“During the panic of 2008, Berkshire produced “We are not dependent in any way on commercial paper, bank lines or the debt markets,” Buffett wrote. no Predicting the timing of economic collapse, but we always Ready One.
“Radical fiscal conservatism is our corporate commitment to those who join us in holding Berkshire.”
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