Investing.com — Berkshire Hathaway (NYSE:) (NYSE:), the Warren Buffett-led insurance and industrial conglomerate, reported record operating earnings in 2022 even as its net income line showed deep losses due to the bear market on Wall Street last year.
Berkshire Hathaway’s operating earnings, which is Buffett’s preferred figure to measure the company’s growth as it is adjusted to remove net capital gains or losses during the year, was $30.79B, 12.2% above 2021’s figure. GAAP net income came in as a loss of $22.8B. In his annual letter to shareholders that came out Saturday, Buffett reiterated his preference to focus on operating earnings, saying that capital gains’ “quarter-by-quarter gyrations, regularly and mindlessly headlined by media, totally misinform investors.”
Indeed, Berkshire Hathaway’s book value also dropped in 2022, with the drop in Berkshire’s equity securities’ value amounting to more than the book value drop.
Berkshire Hathaway’s annual report, Buffett’s annual letter, and Berkshire’s annual shareholder meeting in May are all hotly followed as indicators of the state of the economy, both given Buffett’s accumulated insight into the state of the economy – with his partner and Berkshire Hathaway vice chairman Charlie Munger – and Berkshire Hathaway’s conglomerate nature, which offers read-throughs to the wider economy.
Here are some highlights from Buffett’s letter and the report:
In defense of capitalism, the U.S., and Berkshire’s corporate citizenship
Buffett’s letter was short on comments about his portfolio, the post-Buffett future of Berkshire Hathaway, or whether the market is more fairly valued after saying ‘little excites us’ a year ago.
Instead, he seemed to make a philosophical and political argument. Buffett made clear the value of share buybacks, noting that Berkshire Hathaway reduced the share count 1.2% from the 2021 annual report to the 2022 annual report (buying back $7.85 billion in shares in 2022) to the benefit of shareholders. But he also stated that, “When you are told that allrepurchases are harmful to shareholdersorto the country,or particularly beneficialtoCEOs,youarelisteningtoeitheraneconomicilliterateora silver-tongued demagogue (characters that are notmutually exclusive),” pushing back on criticism but also perhaps the calls for .
Buffett also spent a section of the letter pointing out that Berkshire paid $32 billion in corporate taxes in the decade ending 2021, amounting to .1% of all federal taxes collected in that period, as a reminder that Berkshire is doing its part. This, combined with his praise of Berkshire Hathaway shareholders who tend to donate their wealth to charity, amounted to defense of Berkshire’s position in the U.S. social fabric.
He coupled that with his continued defense of America, however, saying, “I have yet to see a time when it made sense to make a long-term bet against America. And I doubt very much that any reader of this letter will have a different experience in the future.”
A turning point for GEICO?
Berkshire’s insurance businesses ended up posting a $90 million loss for the year, but Q4 marked a gain of $234 million. GEICO has been the main cause of the loss as compared to past years, struggling with pricing amidst increased claims severity (in part related to used car price inflation).
The auto insurer still lost $440M in Q4, but this was a narrowing compared to Q3. The report cited a reduction in underwriting expenses related to less advertising, an 8.9% drop in policies in force for the year, and an 11.3% increase in average premium pricing for the year. This suggests GEICO is competing less for less-profitable business and adjusting to the increased severity. Throw in any moderation for used car inflation – claims severities were up 14-16% for collision and 21-22% for property damage – and GEICO may have a stronger 2023.
Berkshire at least thinks so, saying it expects an underwriting profit for the year from the unit.
Inflation Vs. Recession
Berkshire’s various businesses struggled with cost inflation and lessening volumes while also benefiting from price inflation. The question is whether those dynamics continue, or whether a recession or conversely a soft landing plays out.
Berkshire’s railroad segment grew revenues 11.9% but operating earnings drop 2.4% and net earnings drop .7% due to this prices up but costs up and volumes down dynamic. The energy and utilities business grew earnings by 9.3%, and the manufacturing segment grew earnings 12.5%. But in regard to the latter, the firm wrote that, “demand began to weaken in the second half of the year at certain of our businesses.”
The importance of long-term investing
While Buffett didn’t comment much on Berkshire Hathaway’s portfolio positions, he talked about the secret sauce to their investment strategy: long-term thinking, and focus.
Buffett cited Berkshire’s positions in Coca-Cola (NYSE:) and American Express (NYSE:), where the buying was mostly done in 1994 and 1995 for $1.3 billion each, and which now return dividends to Berkshire of a combined $1 billion (a 38.5% yield on cost). Pleasing, but “far from spectacular”, Buffett wrote. The key is the capital appreciation, as he noted that each position amounts to 5% of Berkshire’s current net worth, at $25 billion (Coke) and $22 billion (Amex) respectively.
Buffett’s conclusion: “The lesson for investors: The weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s as well.”
This might explain why the firm’s most recent form 13F filing didn’t contain : not everything happens in a given quarter.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
