Warren Buffett still believes in American resilience, writing that “I have yet to see a time when it made sense to make a long-term bet against America” in a February letter to shareholders, reports an article in The Wall Street Journal. Indeed, Buffett and his conglomerate Berkshire Hathaway snapped up stocks during last year’s volatile market, taking up stakes in Paramount Global, Louisiana-Pacific Corp., and expanding its holdings in Occidental Petroleum. Berkshire’s insurance operations creates billions of dollars in float, allowing Berkshire to pour that money into the markets, and last year’s acquisition of insurance giant Alleghany Corp. only increased its access to insurance float, to $164 billion.
Buffett and his business partner Charlie Munger generally don’t use short-term factors such as oil prices or interest rates to decide how to spend Berkshire’s money. “Charlie and I…firmly believe that near-term economic and market forecasts are worse than useless,” Buffett wrote in the letter, according to the article. Rather, their attention is directed toward a strategy that will result in “an acceptable result over time,” and allow them to stay the course during downturns. At the end of 2021, Berkshire had an almost-record $146.7 billion in its cash reserves, which dropped to $128.6 billion over the following 12 months by the end of 2022. Much of the cash spent in 2021 was devoted to buybacks, which Buffett argues can benefit shareholders if the repurchase happens when a company’s stock price is trading under its value.
Along with the letter to shareholders, Berkshire posted its 2022 results, which show a $22.82 billion loss—a stark contrast from the previous year, when the company posted a $90.8 billion profit. However, total revenue for 2022 climbed 9.4% to $302.1 billion, and its operations earnings hit a record $30.8 billion. The latter is a gauge that Buffett has often said is a better measure of Berkshire’s overall health, since a volatile market can vary the company’s net income greatly from quarter to quarter. In his letter, he encouraged shareholders to focus on those operating earnings rather than getting caught up in the quarterly roller coaster of capital gains. He also wrote that Berkshire continues to deliver returns to its investors because of their attention on “the American tailwind,” telling shareholders that “America would have done fine without Berkshire. The reverse is not true.”
Validea runs stock and ETF models based on investment strategies with proven long-term track records. If you’re new to Validea, consider taking a look at our product overview or introductory videos.