Warren Buffett remains optimistic and preaches patience in an annual letter

Feb. 25 (Reuters) – Billionaire investor Warren Buffett indicated on Saturday that he has not yet lost his continued faith in the US economy and his company Berkshire Hathaway Inc (BRKa.N).

In his annual letter to Berkshire shareholders, the 92-year-old Buffett urged investors to focus on the long-term big picture, rather than higher inflation and other factors that will weigh on stock prices in 2022, but not those from Berkshire.

He also urged Americans not to be convulsed by “self-criticism and self-doubt,” saying that the country’s dynamism has benefited Berkshire in his 58 years leading the company from Omaha, Nebraska, and he will do so after he takes over the reins.

“We count on the American Tailwind and although it has been calm from time to time, the propulsion has always returned,” Buffett wrote.

“I have yet to see a time when it made sense to make a long-term bet against America. And I highly doubt that any reader of this letter will have a different experience in the future.”

Berkshire also repurchased $7.9 billion of its own stock in 2022, indicating that confidence was undervalued. Buffett defended buybacks, a target of Washington politicians.

The letter was accompanied by Berkshire’s year-end results, which included a record operating profit of $30.8 billion.

Buffett called 2022 a “good year” for Berkshire, with many of its strongest companies resisting the pressures of high inflation, rising interest rates and supply chain disruptions.

Berkshire also posted an annual net loss of $22.8 billion, compared to a profit of $89.8 billion in 2021, as the prices of Apple Inc (AAPL.O) and many other stocks in its massive investment portfolio fell.

Buffett downplays net results because they are volatile and influenced by accounting rules.

Berkshire owns dozens of operating companies, including the auto insurance company Geico, BNSF Railroad, and well-known consumer brands such as Dairy Queen, Duracell, and Fruit of the Loom. More than 382,000 people work there.

‘VERY HUMBLE’

Multiple observers said Buffett seemed cautious, almost apologetic, about his struggles navigating markets, even though he is arguably the most famous American investor alive. His net worth of $106 billion ranks fifth worldwide, according to Forbes magazine.

“Buffett is very modest in judging his own investment prowess, which is unnecessary,” said Thomas Russo, a partner at Gardner Russo & Quinn and a longtime investor in Berkshire. “Investors have benefited from him for decades.”

Anyone who stayed with Berkshire from 1965 to 2022 saw their shares increase in value by 3,787,464%. The Standard & Poor’s 500 (.SPX) rose 24,708% including dividends during that period.

Buffett said most of his capital allocation decisions were only “so-so” and that Berkshire’s “satisfactory” results over time were the result of only about a dozen “really good” decisions.

“‘Efficient’ markets only exist in textbooks,” Buffett said. “In reality, tradable stocks and bonds are mind-boggling, their behavior can usually only be understood in hindsight.”

Buffett also said that “trust and rules are essential” in running big companies, even amid the inevitable disappointments, and urged investors not to dwell on near-term market conditions.

Cathy Seifert, an analyst at CFRA Research, said Buffett took a “subtle swipe” at critics who wished he would reveal more than a few paragraphs about Berkshire’s largest companies and invest more aggressively.

“The current market environment is, for lack of a better word, very schizophrenic,” Seifert said. “Buffett expresses that frustration.”

MUNGER ‘MAKES ME LAUGH’

Despite paying $11.5 billion in October for insurance company Alleghany Corp, Berkshire finished 2022 with $128.6 billion in cash as it became a big seller of stocks late in the year, including Taiwanese semiconductor maker TSMC (2330. TW).

Buffett, a Democrat, appeared in his letter to indirectly criticize President Joe Biden, who this month pushed for a quadrupling of a 1% tax on company stock repurchases, which became law last August in his Inflation Reduction Act.

While Biden has not demanded an end to buybacks, Buffett said those who argue that all buybacks are “detrimental to shareholders or the country, or particularly beneficial to CEOs” are “either an economically illiterate or a silver-tongued demagogue.”

Bill Smead, a longtime Berkshire investor at Smead Capital Management, said, “He pokes fun at people who try to add money without adding value.”

Buffett also reminded investors how much Berkshire gives back to the U.S. Treasury, paying $32 billion in federal income taxes over a decade.

“At Berkshire, we hope and expect to pay a lot more taxes over the next decade,” Buffett wrote. “We owe the country no less.”

While Berkshire vice chairman Greg Abel, 60, has tapped as Buffett’s eventual successor as CEO, Buffett used his letter to renew his affection for his friend and business partner Charlie Munger, Berkshire’s vice chairman, 99.

He said both will attend Berkshire’s annual shareholder weekend in early May, known as “Woodstock for Capitalists,” which draws tens of thousands of people to Omaha.

“I never have a phone call with Charlie without learning something,” Buffett said. “And while he makes me think, he also makes me laugh.”

Reporting by Jonathan Stempel in New York; edited by Ira Iosebashvili, Megan Davies and Diane Craft

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