1 min read

Buffett drizzles the sauce 🤟

Warren Buffett has served shareholders his secret sauce to investing. In his annual shareholder letter, he roasts President Biden, calls out creative accounting as the scourge of capitalism, and sweetens the long-term investing story by comparing the benefits of dividends and compounding returns to bonds.
Published on
February 28, 2023

We may never really know ‘FC’s 11 secret herbs and spices, but Colonel Buffett’s keen for everyone to be in on his secret sauce to investing. In his hotly anticipated annual shareholder letter, posted on Saturday, Warren Buffett dropped his recipe for long term success. Here are our takeaways. 🍟

Trimming the fat: The Berkshire Hathaway (BRK.A, BRK.B) CEO’s slimmest-in-decades annual tome had a side of earnings losses, 8% down on the company’s third quarter. But he emphasised ‘Berkshire had a good year in 2022’, urging investors to focus on their ‘record’ US$30.8 billion operating earnings - a climb of 12.2% from US$27.5 billion in 2021. 💸

A little salty: The 92-year-old investing GOAT roasted Biden, who’s aiming to raise the new 1% tax on share buybacks to 4%. Saying, ‘When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue’. 👹

Sweet as: Adding flavour, Buffett reminded shareholders of understanding the business you’re buying. That, as ‘the largest owner of American giants’, American Express (AXP), Bank of America (BAC), Chevron, Coca-Cola (COKE), HP Inc. (HPQ), Moody’s (MCO), Occidental Petroleum (OXY) and Paramount Global (PARA, PARAA), ‘we own publicly-traded stocks based on our expectations about their long-term business performance, not because we view them as vehicles for adroit purchases and sales. That point is crucial: Charlie (Munger) and I are not stock-pickers; we are business-pickers.’ 🏭

Spicing it up: Buffett laid out his menu comparing 30 years of owning bonds against their purchase of Coca-Cola and Amex shares, each costing US$1.3 billion in the 1990s. Coke’s dividend grew from US$75 million in 1994 to US$704 million in 2022, while Amex’s grew from US$41 million in 1995 to US$302 million. Not ‘spectacular’, says Buffett. But by year end ‘our Coke investment was valued at US$25 billion while Amex was recorded at US$22 billion. Each holding now accounts for roughly 5% of Berkshire’s net worth, akin to its weighting long ago.’ By comparison, a 30-year bond ‘would now represent an insignificant 0.3% of Berkshire’s net worth and would be delivering to us an unchanged US$80 million or so of annual income’. The lesson in compounding returns: ‘Over time, it takes just a few winners to work wonders.’ 📈

No cooking the books: He called out ‘sophisticated tampering’ by company leaders as ‘disgusting’. ‘It requires no talent to manipulate numbers: Only a deep desire to deceive is required. “Bold imaginative accounting,” as a CEO once described his deception to me, has become one of the shames of capitalism.’ Preach. 🙌

The cherry on top: Ever the patriot, Buffett credited his country’s ability to weather the storms for Berkshire’s success. ‘We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.’ 🇺🇸

Weekly news from Wall St
Subscribe to Hatch Weekly and get our latest stories straight to your inbox. Read by 10,000+ customers weekly, we help you stay in the know.
Free Getting Started Course
Take your first, or next, step to becoming a confident investor with Hatch's free online course – just 10 minutes a day, for 10 days.

We’re not financial advisors and Hatch news is for your information only. However dazzling our writing, none of it is a recommendation to invest in any of the companies or funds mentioned. If you want support before making any investment decisions, consider seeking financial advice from a licensed provider. We’ve done our best to ensure all information is current when we pushed ‘publish’ on this article. And of course, with investing, your money isn’t guaranteed to grow and there’s always a risk you might lose money.

More recent news articles

More recent learn articles

1 min read
Mar 21, 2023

School’s out for Silicon Valley Bank 🎒

Hindsight is a wonderful thing. How can investors turn Silicon Valley Bank’s ‘what were you thinking?’ moments and incremental failures into life long lessons about how and where to spend and store money? School up on SVB’s lessons learned.
Read more
1 min read
Mar 21, 2023

T-Mobile’s Hollywood hustle buy 💸

Ryan Reynolds got minted with T-Mobile’s purchase of Mint Mobile but that’s not his only Hollywood side hustle. The Wrexham Footie Club owner also sold his Aviation Gin brand for big bucks. And he’s not the only A Lister hoping for return on investment. Who else could be hoping for a big payday?
Read more
1 min read
Mar 13, 2023

The fat cats of weight loss 😼

And the Oscar goes to… Ozempic? The slim-down secret is out and TikTok influencers are dancing their way to their doctor for a script. But what is this ‘new’ wave of injectable treatments really designed to treat and how is Oprah weighing in?
Read more