Warren Buffett's (Berkshire Hathaway) Shareholder Letter 2023 - Notes & Takeaways

Link to the letter: https://www.berkshirehathaway.com/2023ar/2023ar.pdf

Opens with a tribute to the recently deceased Charlie Munger

• Charlie, in 1965, promptly advised me: “Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices.
• Charlie was the “architect” of the present Berkshire, and I acted as the “general contractor” to carry out the day-by-day construction of his vision
• Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades. In a way his relationship with me was part older brother, part loving father. Even when he knew he was right, he gave me the reins, and when I blundered he never – never –reminded me of my mistake.

2023 Letter

• Over the years, Berkshire has attracted an unusual number of such “lifetime” shareholders and their heirs. We cherish their presence and believe they are entitled to hear every year both the good and bad news, delivered directly from their CEO and not from an investor-relations officer or communications consultant forever serving up optimism and syrupy mush.
• In visualizing the owners that Berkshire seeks, I am lucky to have the perfect mental model, my sister, Bertie
• Bertie, like most of you, understands many accounting terms, but she is not ready for a CPA exam. She follows business news – reading four newspapers daily – but doesn’t consider herself an economic expert. She is sensible – very sensible – instinctively knowing that pundits should always be ignored. After all, if she could reliably predict tomorrow’s winners, would she freely share her valuable insights and thereby increase competitive buying? That would be like finding gold and then handing a map to the neighbors showing its location.
• [on why net income isn’t the most important figure] We, however, are left uncomfortable. At Berkshire, our view is that “earnings” should be a sensible concept that Bertie will find somewhat useful – but only as a starting point – in evaluating a business. Accordingly, Berkshire also reports to Bertie and you what we call “operating earnings.” Here is the story they tell: $27.6 billion for 2021; $30.9 billion for 2022 and $37.4 billion for 2023.
• I can’t remember a period since March 11, 1942 – the date of my first stock purchase – that I have not had a majority of my net worth in equities, U.S.-based equities. And so far, so good. The Dow Jones Industrial Average fell below 100 on that fateful day in 1942 when I “pulled the trigger.” I was down about $5 by the time school was out. Soon, things turned around and now that index hovers around 38,000. America has been a terrific country for investors. All they have needed to do is sit quietly, listening to no one.
• Our goal at Berkshire is simple: We want to own either all or a portion of businesses that enjoy good economics that are fundamental and enduring. Within capitalism, some businesses will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict which will be the winners and losers. And those who tell you they know the answer are usually either self-delusional or snake-oil salesmen.
• [on growing so large that there are only a small handful of US companies that could be meaningful to moving the stock price of Berkshire] 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.
• 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.
• Companies Berkshire plans to hold indefinitely: Coca Cola, American Express, and Occidental Petroleum.
• the US was dependent on foreign oil until 2011 and now produces 13 BOEPD
• BNSF is the largest of six major rail systems that blanket North America. Our railroad carries its 23,759 miles of main track, 99 tunnels, 13,495 bridges, 7,521 locomotives and assorted other fixed assets at $70 billion on its balance sheet. But my guess is that it would cost at least $500 billion to replicate those assets and decades to complete the job.
• Engineers must deal with the fact that among an American population of 335 million, some forlorn or mentally-disturbed Americans are going to elect suicide by lying in front of a 100-car, extraordinarily heavy train that can’t be stopped in less than a mile or more. Would you like to be the helpless engineer? This trauma happens about once a day in North America; it is far more common in Europe and will always be with us.
• At this years Berkshire gathering (May 4, 2024), Warren, Greg Abel, and Amit Jain will be on stage this year. Charlie Will be missing

2023 performance:

• Berkshire up 15.8%
• S & P 500 up 26.3%
• Berkshire performance since 1965: up 4,384,748%
• S & P 500 since 1965: up 31,223%

P/C Insurance

• P/C has been the main engine fueling Berkshire’s growth since 1967, the year they bought National Indemnity
• Float, the amount of money insurers hold between receiving a premium and paying out claims later, is what has allowed Berkshire to have so much capital to invest in Other businesses
• In 2023, berkshire’s float is over $169 billion

End notes from Warren, 10-k Begins