The Berkshire Hathaway shareholder’s letter: 2022

Today we are going to look at five lessons from the Berkshire Hathaway 2022 shareholder’s letter.

The topics covered are:

• Investment characteristics

• The benefit of public stocks

• The benefit of share buybacks

• The benefit of personal integrity

• The USA advantage

Warren Buffett’s business partner, Charlie Munger, is known for his artful and often blunt comments. These comments are usually hilarious and intelligent. So we will end this edition with some Charlie Munger quotes.

Investment characteristics

Berkshire Hathaway’s goal with investing is to make meaningful investments in businesses that have long-lasting favourable economic characteristics and trustworthy managers. Berkshire owns publicly-traded stocks based on expectations about business performance, not market performance. As Warren puts it “Charlie and I are not stock-pickers; we are business-pickers”.

In the hustle and bustle of stocks going up and down, the lesson we can learn is that ultimately, investing is about buying good companies, not focussing on stock prices.

The benefit of public stocks

One of the advantages that stocks have over investing directly in businesses is that from time to time, it becomes possible to buy “pieces of wonderful business at wonderful prices”. Privately owned business are never available at bargain valuations.

The largest and most successful companies in the world are publicly traded companies. If one keeps their cool in times of market turmoil, there are opportunities to invest in these companies at bargain prices.

The benefit of share buybacks

Share buybacks refer to publicly traded companies buying back their own shares in the stock market. When a company buys back its own shares, these shares are cancelled and the remaining owners end up owning a large percentage of the company. However, buybacks have to be done correctly to be beneficial to the remaining shareholders.

As Warren puts it “the math isn’t complicated, when the share count goes down, your interest in our many businesses goes up”. However, it only helps if the repurchases are made at reasonable prices. If this does not happen, the gains flow to the selling shareholders.

The benefit of personal integrity

In my opinion, there is only one public company in the world where I would hand over my investment money, not give it a second thought and trust that management will look after me. Berkshire Hathaway is that company.

As Warren puts it, the financials of Berkshire are not required reading for shareholders. “There are many Berkshire centimillionaires and, yes, billionaires who have never studied our financial figures. They simply know that Charlie and I – along with our families and close friends – continue to have very significant investments in Berkshire, and they trust us to treat their money as we do our own. And that is a promise we can make”.

The USA advantage

A lot of people dream of making it big. But it’s worth remembering that business success requires tailwinds.

As Warren describes, Berkshire’s journey from a doomed textile mill in 1965 to the ninth largest company (by market capitalisation) in the world in 2023 required a few things. It required continuous investment of retained earnings, the power of compounding, the avoidance of mistakes and – most important of all – the American Tailwind. As Warren says “America would have done fine without Berkshire. The reverse is not true”.

Charlie Munger Quotes

• The world is full of foolish gamblers, and they will not do as well as the patient investor.

• If you don’t see the world the way it is, it’s like judging something through a distorted lens.

• All I want to know is where I’m going to die, so I’ll never go there. And a related thought: Early on, write your desired obituary – and then behave accordingly.

• If you don’t care whether you are rational or not, you won’t work on it. Then you will stay irrational and get lousy results.

• Patience can be learned. Having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage.

• You can learn a lot from dead people. Read of the deceased you admire and detest.

• Don’t bail away in a sinking boat if you can swim to one that is seaworthy.

• A great company keeps working after you are not; a mediocre company won’t do that.

• Warren and I don’t focus on the froth of the market. We seek out good long-term investments and stubbornly hold them for a long time.

• Ben Graham said, “Day to day, the stock market is a voting machine; in the long term it’s a weighing machine.” If you keep making something more valuable, then some wise person is going to notice it and start buying.

• There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count on getting rich twice.

• You don’t, however, need to own a lot of things in order to get rich.

• You have to keep learning if you want to become a great investor. When the world changes, you must change.

• Warren and I hated railroad stocks for decades, but the world changed and finally the country had four huge railroads of vital importance to the American economy. We were slow to recognize the change, but better late than never.

• “Warren, think more about it. You’re smart and I’m right.”

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