Warren Buffett’s Berkshire Hathaway Post Big Loss in 2022 in Rocky Market

“I have been investing for 80 years – more than a third of our country’s lifetime. Despite our citizens’ penchant—almost enthusiasm—for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America,” Buffett said in the letter.

Mr. Buffett, widely regarded as one of the world’s top investors, has been publishing the letters for more than half a century. In that time, he hasn’t just looked back on the past year for his company, Berkshire Hathaway Inc.,

BRK.B 0.31%

but also shared his thoughts on everything from esoteric accounting rules to his aversion to taking excessive risks.

Saturday’s letter offered readers a glimpse of how Mr. Buffett, aged 92, faced what eventually became a shaky trajectory for the markets. Mr. Buffett’s portfolio also took a hit, with Berkshire posting a loss for 2022, largely due to investment losses.

The volatility gave Berkshire a chance to jump in and buy stock. While Berkshire largely bought back its own shares in 2021, it focused more on investing in other companies in 2022 – opening new positions in media company Paramount Global and building materials maker Louisiana-Pacific Corp.

among other companies, quickly becoming Occidental Petroleum Corps

single largest shareholder.

At the end of 2022, Berkshire was the largest shareholder of eight companies: American Express Co., Bank of America Corp., Chevron Corp.

Coca-Cola Co.

PK Inc.,

Moody’s Corp.

Occidental and Paramount Global.

Berkshire can make large investments because its insurance business generates billions of dollars in float, or premiums that customers pay up front, which Berkshire can in turn use in the marketplace. Last year’s acquisition of non-life insurance company Alleghany Corp. contributed to the insurance market — what Buffett called an extraordinary asset for Berkshire — soaring to $164 billion last year, Buffett said.

How do Mr. Buffett and right-hand man Charlie Munger decide where to put that money? Both have said they are not basing their decisions on where they think interest rates, oil prices or other factors influencing markets will be a year from now.

“While economists, politicians and much of the public have opinions about the implications of that massive imbalance, Charlie and I advocate ignorance and firmly believe that short-term economic and market forecasts are worse than useless,” he said in the letter. from Saturday.

Instead, the two are focusing on investing Berkshire’s money in “a way that will produce acceptable returns over time and maintain the company’s unparalleled endurance when financial panic or severe global recessions strike,” said he. Berkshire reported having cash and cash equivalents of $128.6 billion at the end of 2022, down from the near-record $146.7 billion at the end of 2021, but up from the third quarter.

Although Berkshire’s original company, a New England textile company, no longer exists, Mr. Buffett said Berkshire has remained able to provide returns to shareholders because of its focus on what he called the US tailwind.

“America would have done just fine without Berkshire. The reverse is not true,” he said. In his letter, Mr. Buffett also defended the practice of stock buybacks. Berkshire spent nearly $8 billion buying back its stock in 2022, down from a record $27 billion last year.

While critics of buybacks argue that companies are better off investing that money in their business, proponents, such as Mr. Buffett, say they could provide benefits to shareholders if executed when a company’s stock price trades below value.

“If you are told that all buybacks are detrimental to shareholders or the country, or particularly beneficial to CEOs, you are listening to an economically illiterate or a silver-tongued demagogue,” he said.

Berkshire also released its 2022 results on Saturday.

The Omaha, Neb. company, which owns insurer Geico, railroad operator BNSF Railway and chocolatier See’s Candies, among others, reported a loss of $22.82 billion for the year, stabbed by $67.9 billion in losses on investments and derivatives contracts. . In 2021, as stocks rose, Berkshire posted a $90.8 billion profit.

Total sales increased 9.4% to $302.1 billion.

Berkshire’s operating income, excluding some investment results, rose to a record $30.8 billion. For the fourth quarter, operating income fell 8% to $6.7 billion, hurt by lower profits in the rail business.

Berkshire CEO Mr. Buffett has long believed that the company’s results are a better reflection of how Berkshire is doing, as accounting rules require the company to include unrealized gains and losses from its massive investment portfolio in its net income. Volatile markets can cause Berkshire’s net income to change significantly from quarter to quarter, regardless of how the underlying companies are doing.

“Capital gains have been hugely important to Berkshire over the past several decades, and we expect them to be meaningfully positive in the coming decades,” Mr. Buffett said in his letter. “But their quarter-on-quarter movements, which are regularly and mindlessly highlighted by the media, completely misinform investors,” he said, adding that he and Mr. Munger urging shareholders to focus instead on Berkshire’s bottom line.

Write to Akane Otani at akane.otani@wsj.com