Every year in May, global investors have a pilgrimage, and the annual Buffett shareholder meeting is held at this time. On May 4, 2024, Berkshire Hathaway's annual shareholder meeting will be held again in Omaha, USA.
At that time, the two "successors" Greg Abel, who is in charge of the non-insurance business, and Ajit Jain, who is in charge of the insurance business, and Buffett himself will attend the shareholders' meeting.
Warren Buffett took the helm of Berkshire in 1965 and built the textile mill on the verge of collapse into a legend in the investment world.
Statistics show that in the 59 years from 1965 to 2023, Berkshire has risen by more than 40,000 times, equivalent to an annualized return of 19.8%, far exceeding the performance of the S&P 100 index over the same period.
On February 24, 2024, Warren Buffett's Berkshire Hathaway announced its 2023 financial report with the "Buffett's Letter to Shareholders".
Berkshire's financial report shows that the company's net profit in the fourth quarter of 2023 will be 37.574 billion US dollars, the net profit for the whole year of 2023 will be 96.223 billion US dollars, and the net loss in 2022 will be 22.759 billion US dollars, turning losses into profits year-on-year.
Berkshire Hathaway achieved an annual return of 15.8% in 2023, not outperforming the S&P 500, but still achieving steady growth.
Nostalgia for the old partner, "Architect" Munger
In Warren Buffett's letter to shareholders in 2024, Munger was mentioned at the beginning. As Buffett's closest partner, Munger passed away on November 28, 2023, just 33 days before his 100th birthday.
Buffett called Munger the "architect" of Berkshire Hathaway and himself just a "contractor". When Munger died, Buffett highly praised Munger's wisdom and contribution to Berkshire Hathaway, saying that without Munger, Berkshire Hathaway would not be as successful as it is now.
As we all know, Munger is very interested in architecture, and has donated and designed university dormitories himself, Buffett has a very high evaluation, affirming Munger's contribution, and the deep friendship between the two investment masters is enviable.
In the shareholder letter, Buffett looks back on his past with Munger, from acquaintance to intimate cooperation. Although Buffett and Munger were both born in Omaha, they did not know each other in the early days, and it was not until 1959, when Munger was 35 years old, that Buffett met him for the first time, and in 1962, Munger decided to pursue a career in asset management.
Munger's influence on Buffett was mainly to change Buffett's previous investment philosophy. Warren Buffett followed his teacher Graham to do value investing, and in the early days he liked to buy some cheap and ordinary companies, that is, some companies whose prices were seriously below their value. But Munger says that if you only buy these mediocre companies, you will have a hard time achieving great things in the long run, and you have to buy good companies at a reasonable price, in other words, throw away everything you learned from Graham.
For a long time, Warren Buffett's stocks were basically great companies, and then they grew with great companies. This is much smarter than buying a mediocre company at a bargain price. So later Buffett figuratively said that since I met Munger, I really changed from an ape to a man.
Warren Buffett made a very interesting analogy in his letter: he said that in the real world, great buildings are associated with their architects, and those who pour concrete or install windows are quickly forgotten. Berkshire has become a great company, I've been in charge of the construction team for a long time, and Munger should always be considered an architect.
What is the origin of the two "successors"?
Munger's death also reminds people that Warren Buffett, who was in the same era as him, is not too young, and it has become imperative to select a qualified successor for Berkshire in the future.
In this letter to shareholders, Buffett clearly mentioned Greg Abel and Ajit Jain's two successors. The two will also join Warren Buffett at Berkshire's annual shareholder meeting on May 4.
As we all know, Berkshire's business model is to use the platform of insurance companies, obtain a lot of cheap money, and then invest in excellent assets around the world, so the division of labor between the two successors is also different.
Among them, Ajit Jain is the one in charge of "financing", as the CEO of Berkshire's insurance business, in charge of the foundation business of this business empire.
Born in 1951 in the Indian coastal state of Odisha, Ajit Jain graduated from the Indian Institute of Technology in 1972 with a bachelor's degree in engineering. After graduating from university, Jain worked for IBM (International Business Machines Corporation) in India for 4 years before moving to the United States.
Jain received his MBA from Harvard Business School in 1978 and joined McKinsey, a leading management consulting firm.
In 1986, Jain joined Warren Buffett's insurance business. Jain's insurance business unit has brought huge profits to Buffett.
At the end of 2010, Warren Buffett said in his annual open letter to investors that Jain had brought in $30 billion since joining the company, and that "no insurance company CEO has been able to match him."
Jain is in charge of financing, so Greg Abel is in charge of "stock trading".
In his 2024 letter to shareholders, Buffett made it clear that Greg Abel is responsible for all of Berkshire's non-insurance businesses and is ready to serve as Berkshire's CEO by all accounts.
Of course, Buffett also said that with the current large size of Berkshire's conglomerate, it is almost "impossible to achieve jaw-dropping results" in the next few years.
According to public information, Greg Abel was born in 1962, graduated from the University of Alberta in 1984 with a bachelor's degree in business, and joined PricewaterhouseCoopers as an accountant.
In 1992, Abel switched to CalEnergy, a geothermal power company, and in 1999, Berkshire acquired the company, and Abel joined Buffett's portfolio.
In 2008, Abel took the helm of the company, and under his diversified investment portfolio, the company has grown into an integrated energy group that combines natural gas, wind, solar and geothermal power generation.
It wasn't until 2018 that Abel stepped down, and that year he was officially given a seat on Berkshire Hathaway's board of directors and appointed vice chairman of Berkshire's non-insurance business.
In his current role as Vice Chairman of Berkshire Hathaway's Non-Insurance Business, Abel is responsible for all Berkshire Energy and all non-insurance operations.
In a 2014 letter to shareholders, Munger also praised Greg, saying that he was "outstanding", describing him as "world-class" is still insufficient, and should be "world-leading" and "in some important ways, even better than Warren Buffett's business executive".
Berkshire is in the top 20 holdings in 2023
As Berkshire's "contractor", let's take a look at the changes in Buffett's holdings in the past year. According to the 13F data platform, as of the end of the fourth quarter of 2023, Berkshire held a total of 45 listed companies in the U.S. market, with a total market value of $348.037 billion.
In terms of percentage of portfolio, Apple is still Berkshire's largest holding, with a total of 905 million shares, a decrease of 10 million shares from the previous quarter, accounting for 50% of Berkshire's U.S. stock portfolio, and Bank of America is second with a total of 1.033 billion shares, unchanged from the previous quarter.
For the two major energy companies Chevron and Occidental Petroleum, Buffett has increased his holdings by nearly 16 million shares and 4.3 million shares respectively, and Buffett has also increased his holdings of Liberty Media by more than 20 million shares.
(Note: According to SEC regulations, fund managers with assets under management of more than $100 million must publish a document called "Form 13F" within 45 days after the end of each quarter to disclose their holdings of U.S. equity assets.) )
Reduced stake in Apple
In 2016, Berkshire began buying Apple shares in large quantities, a move seen as an important sign of Buffett's change in attitude towards technology stocks. Although he emphasized that the reason for buying Apple was its attributes as a consumer product, the market generally saw it as a recognition of the future potential of the technology industry.
As for Warren Buffett's reduction in Apple in the fourth quarter of last year, according to Jiemian News, there are market rumors that this decision may be made by two investment managers of Berkshire, mainly because Apple needs to make position adjustments because of Apple's excessive proportion in Berkshire's portfolio.
It's no news that Apple's market capitalization has continued to soar in recent years. As the world's first publicly traded company with a market capitalization of more than $3 trillion, Apple's stock price has risen more than threefold since the end of 2018, the S&P 500 index has nearly doubled over the same period, and in 2023, Apple's stock price has risen by nearly 50%.
From the perspective of the whole year of 2023, Berkshire's annual profit totaled $96.223 billion, of which it held 906 million shares of Apple, worth about $174 billion, an increase of nearly 50%, which means that Apple contributed most of Berkshire's profits.
In recent years, Buffett's investment in technology stocks has gradually increased, involving not only Apple, but also technology companies such as Amazon and Snowflake (a cloud service company). But he remains cautious about tech stocks, believing that high-tech companies are changing too fast to predict their long-term competitive advantage.
Warren Buffett has made it clear that he does not believe that AI will cause disruptive changes in asset allocation and investment. This more conservative stance coincides with what he said in his shareholder letter.
Add the five major trading companies
In this year's shareholder letter, Buffett did not say much about Apple, the largest heavy stock, but focused on Japan's five major trading companies and Occidental Petroleum.
In terms of overseas investment, Warren Buffett's most eye-catching move in recent years has been his investment in Japan's five major trading companies. In a February 2024 shareholder letter, Buffett revealed that Berkshire holds about 9% of the shares of Japan's five major trading companies (including Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo), and the total cost of investing in these five companies is 1.6 trillion yen, and the value of its position in these companies by the end of 2023 is 2.9 trillion yen, and Berkshire's year-end unrealized dollar gains are 61%, reaching 8 billion US dollars, or about 57.6 billion yuan.
In August 2020, Warren Buffett made his first investment in Japan's five major trading companies (Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Co., and Sumitomo Corporation), with an initial stake of about 5% and a total investment of $6 billion.
By the end of June 2023, Berkshire's stake in these trading companies had increased to more than 8.5%, and since then the five major trading companies have increased their holdings further, reaching the level of 9% by the end of the year.
The Japanese stock market has attracted the attention of global investors in recent years, and in 2024, the Nikkei 225 Index will break through the "peak of the bubble" for the first time in 34 years and hit a record high, which is inseparable from the pursuit of global capital represented by Warren Buffett since last year.
Reasons to be bullish on the five major trading companies
Warren Buffett's way of investing in the Japanese stock market is to increase his holdings in the stocks of Japan's five largest trading companies by issuing yen bonds and borrowing debt at lower interest rates.
His last issuance of yen bonds was not long ago. According to Yicai, Warren Buffett's company Berkshire Hathaway issued yen bonds again on April 18. The issuance consisted of seven tranches of notes with maturities ranging from 3 to 30 years, priced at the midpoint of the benchmark rate plus 51 basis points, totaling 263.3 billion yen ($1.7 billion).
This was one of the largest yen trades by an overseas issuer since the Bank of Japan abolished the negative interest rate regime in March this year. It is also Berkshire's largest issuance of yen bonds since its first issuance in 2019. The outside world sees it as an early signal for Buffett to further increase the weight of the Japanese stock market.
Previously, Buffett revealed some reasons for his investment in the Japanese stock market, such as high cash flow, high dividends, and Japanese companies usually do not issue new shares, and financial management is more prudent.
As Buffett's golden partner, Munger also detailed Buffett's knack for investing in Japanese stocks before his death: Japanese companies are entrenched overseas, and they have cheap copper mines, rubber plantations and other natural resources overseas.
"So Warren Buffett borrows money in Japan at 0.5% and invests in Japanese stocks, which have a 5% dividend and generate a lot of cash flow, without investing in the real economy, without thinking, without anything, and lying down and watching the Nikkei go up. ”
The investment logic of Japan's five major trading companies coincides with Buffett's investment preference, they do not pursue short-term fluctuations, but rather look at long-term profits with sustained and steady growth.
Dai Kang, chief asset research officer of GF Securities Development Research Center, said that Buffett likes the company's characteristics including good operation, abundant cash flow, and relatively undervalued valuation, and he often adopts a long-term value investment strategy, and Japan's five major trading companies just fit his investment philosophy. In addition, from a regulatory and governance perspective, the Big Five trading companies have followed some shareholder-friendly policies that are much better than some practices in the United States.
Increased stake in oil companies
In addition to the five major trading companies, Warren Buffett's increase in his holdings in Chevron and Occidental Petroleum, the two major U.S. energy companies, has also attracted much attention. According to the financial report, as of the end of the fourth quarter of 2023, Berkshire has increased its positions in Chevron and Occidental Petroleum.
In fact, Warren Buffett's first few investments in oil stocks have all gone down the drain.
Back in 2008, Berkshire experienced heavy losses in oil stocks. In 2006, Warren Buffett began to buy ConocoPhillips, when the international oil price had soared to $70, but in 2008, when the financial crisis broke out, the ConocoPhillips stock price fell below $50, and Buffett cleared his position, losing $2.6 billion.
At the 2009 shareholder meeting, Warren Buffett admitted that "it was a big investment mistake to buy ConocoPhillips stock last year when international oil prices were near all-time highs." ”
In mid-November 2013, Berkshire's third quarterly report disclosed Buffett's largest heavy stock in the past two years - ExxonMobil. At that time, Berkshire bought about 40 million shares of the company for $3.45 billion. But in February 2015, affected by the collapse in oil prices, Buffett liquidated all his shares in ExxonMobil and returned disappointed again.
In 2019, Warren Buffett funded Occidental Petroleum's acquisition of Anadarko Petroleum Company, and then suffered a series of "black swan" events such as the collapse of oil prices, and the market value of Occidental Petroleum fell from $50 billion before 2019 to less than $9 billion at the end of 2020.
Since 2022, international oil prices have been pushed up by geopolitical situations and other factors, constantly refreshing eight-year highs.
Warren Buffett is optimistic about the long-term development trend of the oil industry. He said that due to the difficulty of increasing production capacity, oil will become a more scarce investment energy source in the future. Munger even believes that oil will become a scarce resource in the next 200 years.
Warren Buffett pointed out that "although the United States has a large number of strategic oil reserves, if you think about it, the current reserves are still not enough, and they may be gone in three to five years", so he also stressed: "For Western oil, we can buy as much as we can." ”
In a letter to shareholders published in February, Buffett addressed his views on Occidental Petroleum, which has continuously increased its positions: "At the end of 2023, Berkshire owns 27.8% of Occidental Petroleum common stock, becoming the company's largest shareholder, and also has warrants. For the past five years or so, Berkshire has had the option to significantly increase ownership at a fixed price. ”
Warren Buffett said, "The energy industry is such an industry, and after a long time, it is very likely to pay off, and these businesses need to be supported for a long time." As a result, short-term market volatility will not affect Berkshire's investment strategy. ”
Buffett said that investments in the Big Five trading companies and oil companies are both "open-ended," as is the case with Coca-Cola and American Express.
Warren Buffett noted, "When you find a really great business, stick with it." Patience always pays off, and choosing a great business can hedge against many of the inevitable bad decisions. ”
Editor-in-charge: Wang Shidan | Review: Li Zhen | Supervisor: Wan Junwei
(Source: Oriental Fortune Network)
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