Buffett drizzles the sauce 🤟

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. 🍟

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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.’ 🇺🇸

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