What can we learn from Mr. Buffett’s 2022 annual letter

Berkshire Hathaway annual letter came out on Saturday February 25th, 2023. Most of us in the Investment world know that when the Oracle of Omaha (Warren Buffett – Chairman of Berkshire Hathaway) speaks; the world listens. Here we will include the main key points from the Berkshire Hathaway 2022 Annual Report which included the 9-page letter.

The letter compromises of a few subsections, in one of the sub-section titled “What we do”, Buffett talks about two form of ownerships-

  1. Berkshire invests in businesses where they have total control of the management or majority share holdings.
  2. Berkshire has equity ownership but does not have full ownership or control over the management.

For this article, our focus will be on bullet 2, as it educates us on how Warren Buffett makes his investment decisions and chooses the companies where he allocates capital.

The highlights:

  • Mr. Buffett mentions that there are times when the public market presents opportunities to buy wonderful businesses at a bargain price and below the market valuations which are harder to come by in the private market. An investor just has to be patient to buy into these opportunities that can produce tremendous long-term gains. His famous saying is, “be greedy when others are fearful and be fearful when others are greedy”.
  • In the subsection of “Secret Sauce” Mr. Buffett discusses his long-term investments in Coca Cola and American Express. One of key take-aways from here, is besides the growth in these stocks over the long term, one cannot ignore the returns of the cash dividends from these businesses that generated a lot of cash and then distributed it back to the share-holders in the form of dividends or stock buy-back. In fact, research shows that in the overall returns cash dividends have a higher percentage than capital gains.
  • As for stock buy-back in the letter, Mr. Buffett mentions that it can be the best move by company management to buy its stock at the right valuation to boost the shareholder value. Right valuation is the key word here as overvalued buybacks can be capital destruction.
  • One of the key traits of Mr. Buffett is to hold a large amount of Cash and US treasury bills on his balance sheet- according to the letter, Berkshire held about $128.6 Billion in cash by the end of 2022. This is mainly done to avoid crises situations and to pick up bargains when the opportunity presents itself – Mr. Buffett’s use of liquid capital was evident during the financial crises of 2008. This is an important lesson for an investor to keep cash and invest when the opportunity presents itself.
  • Finally, he talks about the long partnership and friendship with Charlie Munger, who is the Vice Chairman of Berkshire and his partner for over 60 years. Both gentlemen are in their 90’s and their intellect, honesty and Investment acumen has produced tremendous value for Berkshire shareholders.
  • Warren Buffett and Charlie Munger are the Icons of the world of Finance and Investments, many books and articles have been written on them. They have been interviewed many times and Berkshire annual meeting is a must listen if you are interested in Investments with brilliant and candid advise given by these two giants of Finance. I encourage you to read more about these two gentlemen and legendary investors.

Disclaimer- I don’t have personal investments in Berkshire Hathaway and this article is my opinion and should not be taken as Investing advice. You can read the full annual report at

https://berkshirehathaway.com/2022ar/2022ar.pdf

Should you have any questions or you want to learn more then please reach out to us at www.bluearis.com – we offer free initial consultation.