In Berkshire Hathaway Inc (NYSE:BRK.A) chief Warren Buffett’s annual shareholder letter, the Oracle of Omaha focused on the good instead of the bad, while coming out to bat for share buybacks, which have been the subject of tax reforms in the US in recent weeks.
First the bad: Berkshire’s stock portfolio suffered US$22.8bn (£19bn) in losses in 2022, in what was an all-around terrible year for the stock market.
But these capital losses only tell one side of the story, Buffett stressed.
Operating earnings, being the income generated from Berkshire’s wholly owned subsidiaries (including BNSF Railway, Duracel, See’s Candy and Business Wire) and excluding capital gains/losses on equities holdings, painted a different picture.
Put together, these companies generated a record US$30.8bn for the group. Naturally, Buffett urged shareholders to focus on this figure, stating that “the GAAP figure, absent our adjustment, fluctuates wildly and capriciously at every reporting date”.
With that out of the way, the letter turned to the pressing issue of share buybacks, of which Berkshire Hathaway was a keen proponent in 2022.
In total, Buffett instructed share repurchases, or he calls them “value-accretive repurchases”, totalling 1.2% of outstanding shares of Berkshire’s portfolio companies.
“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 (characters that are not mutually exclusive),” Buffett wrote.
His defence of buybacks came a few weeks after a new tax on stock buybacks went into effect in the US via president Joe Biden’s Inflation Reduction Act.
Berkshire’s tax contribution
Buffett put his US$32bn tax contribution to the State in typically illustrative terms.
If you convert US$1mln into newly-printed 100-dollar bills, you will have a stack that reaches
your chest, he explained.
That same exercise with a billion? That stack reaches three-quarters of a mile into the sky, Buffett asserted.
32 billion? That’s a 21-mile stack of Franklins, “about three times the level at which commercial airplanes usually cruise”.
Unfortunately, this reporter will have to wait till payday to do the experiment himself.
Buffett wasn’t necessarily complaining, stating: “We hope and expect to pay much more in taxes during the next decade. We owe the country no less”.
That said, it appears that Berkshire Hathaway recouped some of these tax headwinds at the firm’s first shareholder get-together in three years, when eleven tonnes of “nourishing peanut brittle and chocolates” supplied by See’s Candies were sold to attendees.
Crunching the numbers, that makes over US$400,000 in the till during the two-day conference.