Warren Buffett, CEO of
Berkshire Hathaway,
reiterated in his annual letter to shareholders that the company “has no interest in purchasing or managing”
Occidental Petroleum,
in which it held a 27.8% stake at year end.
He also expressed disappointment with the recent performance of Berkshire’s BNSF railroad unit and Berkshire Hathaway Energy utility business. Both businesses have faced adverse operating conditions and a challenging regulatory environment.
“Berkshire is built to last,” Buffett wrote in the annual letter, published Saturday morning. The CEO, 93, highlighted Berkshire’s businesses and investments, and the challenges of investing at scale, and said farewell to Charlie Munger.
Buffett began his 2023 annual letter with a well-deserved send-off to his longtime business partner and friend Munger, who died in November at 99. He credited Munger with being the “architect” of Berkshire’s approach to buying undervalued business, while calling himself merely the “general contractor” implementing Munger’s vision.
“In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten,” Buffett wrote. “Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect.”
The letter repeated some of Buffett’s greatest hits: emphasizing the value of patience in investing, highlighting qualities of a good management team, and laying out the difference between net income and operating earnings.
Buffett wrote about how Berkshire’s massive scale—the conglomerate has a roughly $900 billion market value—makes it harder today to find attractive investments that are large enough to make a difference.
“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” Buffett wrote. “Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.”
Instead, Buffett aspires to do “slightly better” than the average American corporation, he wrote, while taking less risk. Berkshire’s large cash balance and businesses that generate ample profits enable the company to withstand an economic downturn, Buffett wrote, when more attractive investment opportunities may present themselves, as they did during the financial crisis in 2008.
Buffett walked through two longtime Berkshire holdings—
Coca-Cola
and
American Express
—whose value has compounded for decades. He then turned to a discussion of Berkshire’s stake in Occidental Petroleum, paying tribute to Occidental CEO Vicki Hollub and hailing America’s energy independence.
Buffett next described Berkshire’s holdings in five Japanese trading companies—
Itochu,
Marubeni,
Mitsubishi,
Mitsui,
and
Sumitomo
—which the conglomerate started acquiring in 2019. It now owns about 9% of each. Japan’s stock market rally has benefited Berkshire, which has an average unrealized return of about 55% on the five stocks.
Buffett expressed disappointment in the performance of Berkshire’s BNSF railroad and the Berkshire Hathaway Energy utility business. BNSF’s operating earnings were down 14% in 2023, to $5.1 billion.
“Though BNSF carries more freight and spends more on capital expenditures than any of the five other major North American railroads, its profit margins have slipped relative to all five since our purchase,” Buffett wrote. “I believe that our vast service territory is second to none and that therefore our margin comparisons can and should improve.”
Performance at BHE was worse, with operating earnings down 40%, to $2.3 billion, last year. Buffett noted that regulations in several states and the need to invest in capital expenditures to climate-change-proof utilities were weighing on returns.
Berkshire’s sprawling insurance operations, which include Geico, had a strong year in 2023. Insurance operating earnings from underwriting swung to a $5.4 billion profit, from a loss of $30 million in 2022.
Overall operating earnings were $37.4 billion, up 21% from 2022. Berkshire’s cash on hand reached $168 billion at the end of 2023.
Berkshire’s annual shareholders’ meeting will be held in Omaha, Neb., on May 4. Buffett wrote that he will be joined onstage by Greg Abel, his anointed successor, and Ajit Jain, who runs Berkshire’s insurance operations.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com
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