Berkshire Hathaway, the conglomerate that Warren E. Buffett has run for decades, posted its best annual profit on record last year. But the company's chief executive officer found reason to blame government regulations for hurting the performance of some of its biggest businesses.
In a letter to investors that traditionally accompanies annual reports, Buffett also paid tribute to Charlie Munger, his longtime vice chairman and Berkshire vice chairman until his death in November at age 99. expressed.
The company, whose divisions include insurance, BNSF Railway, large electric utilities, Brooks Running Shoes, Dairy Queen and See's Candy, disclosed net income of $97.1 billion last year, but a drop in investment will push it to $22 billion in 2022. significantly worsened from the loss of . .
Berkshire also reported operating income of $37.4 billion for the year, a financial measure favored by Buffett that excludes gains and losses on paper investments, a 21% increase over 2022. (Investors often view Berkshire as a bellwether of the American economy.) The breadth of its business. )
These profits came from Berkshire's powerful core engine: its vast insurance business, which includes Geico auto insurance and reinsurance. The division reported after-tax profits of $5.3 billion in 2023, rebounding from a year-ago deficit due to fewer major catastrophes, higher interest rates and lower claims at Geico.
Berkshire's insurance business, the business for which it is best known, also did well last year in investing in stocks, using the large amounts of cash it invests in stocks. Investment returns soared nearly 48% as market valuations rose. (About 79 percent of the conglomerate's investment income comes from just five companies: Apple, Bank of America, American Express, Coca-Cola, and Chevron.)
But two of the conglomerate's largest non-financial businesses performed worse than expected. BNSF, which operates the nation's largest freight railroad, reported operating profits of $5 billion that year, while Berkshire's utilities earned $2.3 billion. Profits for both companies were significantly lower than in 2022.
In his annual letter to investors, Buffett wrote about the challenges both sectors faced last year (BNSF was hit primarily by lower shipments and utilities were hit by frequent wildfires). However, he also pointed out government regulations as an issue.
This criticism is particularly relevant given Buffett's support for Democratic policy efforts, including efforts to raise taxes on the wealthy, which became known as the “Buffett Rule.” This is in contrast to what is supported by the government.
In the case of BNSF, Buffett wrote, “The wage increases promulgated in Washington far exceeded the nation's inflation target.” And when it comes to utilities, he spoke at length about tightening regulations in some states that are squeezing the profitability of power companies. “The regulatory environment in some states puts them at risk of zero profitability or even bankruptcy,” he wrote, alluding to Pacific Gas & Energy Co. in California and Hawaiian Electric Co. in Hawaii. Ta.
Buffett also warned that increased regulation of utilities could cause broader problems for the industry and suggested Berkshire Hathaway could reduce its operations in certain states. “We don't Deliberately Throw good money after bad,” he wrote.
In his annual letter — a must-read publication for his millions of followers, peppered with his customary profane digressions — Buffett writes about two of Berkshire's longest-held investments, American – Featured Express and Coke as solid financial performers. He also mentioned new equity positions that he said he would maintain “indefinitely.” The stakes in fossil fuel producer Occidental Petroleum, in which Berkshire owns about 28%, and five Japanese trading companies, are seen as a bet on Japan's recovery. An economy that has long been moribund.
In promoting investment from Japan, Buffett criticized the amount American companies pay their executives. “The management teams of all five companies far “They are less aggressive about their compensation than is typical in the United States,” he wrote.
Once again, Buffett spent little time talking about what Berkshire has long referred to as the “elephant gun” — the way Berkshire has used the vast amounts of cash it has amassed from its insurance business to make big deals. There wasn't. In recent years, the conglomerate has preferred to use its funds for share buybacks as a better way to generate higher returns for investors.
That pile grew to $163.3 billion by year's end, but Buffett said there were few opportunities to spend that cash profitably on a large scale. “There are only a handful of companies left in this country that can truly change Berkshire's course, and they continue to be singled out by us and others endlessly,” he wrote. “Overall, we no Possibilities for spectacular performance. ”
Instead, Buffett emphasized Berkshire's financial resilience. “I believe Berkshire is capable of handling a financial crisis of a scale unlike any we have experienced before,” he wrote. “This ability is something we cannot give up.”
As expected, Buffett paid a lengthy tribute to Munger, a fellow Omaha native who shared his love of investing. The two were Berkshire's greatest ambassadors, often appearing as comedic buddies. Mr. Buffett was a tenacious optimist, and Mr. Munger was a sharp-eyed cynic.
In a lengthy foreword, Buffett praised Munger as the “architect” of Berkshire's business model of investing in good companies at fair prices, an approach that made them billionaires and many of their longtime shareholders. made him a millionaire.
“Charlie never tried to take credit for his role as creator, but instead he let me bow down and take the credit,” he wrote. “Even though he knew he was right, he gave me the initiative. Even when I messed up, he never reminded me of my mistakes.”
