Buffett's 2022 Berkshire Hathaway Shareholder Letter

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teejw123
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Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by teejw123 »

It is currently about 30 minutes until the release of Warren Buffett's 2022 Annual Letter and Berkshire Hathaway's Annual Report. Is anyone else waiting in anticipation? What are you expecting / hoping for? If you are reading this after its release, what are your thoughts?
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JoMoney
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Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by JoMoney »

I noticed Warren Buffett's 2022 Berkshire Hathaway Letter to Shareholder's is now posted,
https://berkshirehathaway.com/letters/2022ltr.pdf

...just now reading it myself, but thought I would start a post regarding it, sometimes there's some interesting topics for discussion in there :)

[This thread has been merged into a previous thread on same topic. Moderator Pops1860]
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by anon_investor »

JoMoney wrote: Sat Feb 25, 2023 8:10 am I noticed Warren Buffett's 2022 Berkshire Hathaway Letter to Shareholder's is now posted,
https://berkshirehathaway.com/letters/2022ltr.pdf

...just now reading it myself, but thought I would start a post regarding it, sometimes there's some interesting topics for discussion in there :)
Does he still recommend 90% S&P500 and 10% t-Bills?
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OuterBanks
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Re: Warren Buffet Annual Letter

Post by OuterBanks »

My take is don’t bet against America.
Here is the link to the letter. https://www.berkshirehathaway.com/letters/2022ltr.pdf
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nedsaid
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by nedsaid »

I just can't get over how utterly clear and well written Buffett's shareholder letters are. Wow. His writing is spectacularly good.
A fool and his money are good for business.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by bgf »

it is a fine letter, but not sure how much longer he'll keep this up... this one continues the nearly decade long trend of decreasing length. i remember reading ones 20-30 pages in length not that long ago.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by bob60014 »

nedsaid wrote: Sat Feb 25, 2023 8:26 am I just can't get over how utterly clear and well written Buffett's shareholder letters are. Wow. His writing is spectacularly good.
Chatgpt is a marvel!! Lol, just kidding.

Seriously, yes it always makes for a good read.
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nedsaid
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by nedsaid »

bob60014 wrote: Sat Feb 25, 2023 8:37 am
nedsaid wrote: Sat Feb 25, 2023 8:26 am I just can't get over how utterly clear and well written Buffett's shareholder letters are. Wow. His writing is spectacularly good.
Chatgpt is a marvel!! Lol, just kidding.

Seriously, yes it always makes for a good read.
Chatgpt would have just made stuff up.
A fool and his money are good for business.
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nedsaid
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by nedsaid »

bob60014 wrote: Sat Feb 25, 2023 8:37 am
nedsaid wrote: Sat Feb 25, 2023 8:26 am I just can't get over how utterly clear and well written Buffett's shareholder letters are. Wow. His writing is spectacularly good.
Chatgpt is a marvel!! Lol, just kidding.

Seriously, yes it always makes for a good read.
Chatgpt would have just made stuff up.
A fool and his money are good for business.
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JoMoney
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by JoMoney »

anon_investor wrote: Sat Feb 25, 2023 8:12 am
JoMoney wrote: Sat Feb 25, 2023 8:10 am I noticed Warren Buffett's 2022 Berkshire Hathaway Letter to Shareholder's is now posted,
https://berkshirehathaway.com/letters/2022ltr.pdf

...just now reading it myself, but thought I would start a post regarding it, sometimes there's some interesting topics for discussion in there :)
Does he still recommend 90% S&P500 and 10% t-Bills?
He hasn't said anything to suggest otherwise, and his intimations have been that as a long-term strategy/advice for most investors - not something that actively managed or adjusted based on whatever whims of the times.
FWIW, regarding the specific 90/10 allocation he suggested for his wife's bequest, he said
Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)
https://berkshirehathaway.com/letters/2013ltr.pdf
As a minor nit to pick, while t-bills are short-term government bonds, there are also short-term government bonds that are NOT t-bills...
His language was looser, less precise, in the requirements, which maybe imparts something of the in-exactness of the conceptual portfolio, it's not supposed to be a precision formula. T-bills are probably fine, as would probably be a government money market fund, short-term bond fund, CDs, or any other "safe" holding for a few years expenses outside the stock markets.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by Boglegrappler »

bgf wrote: Sat Feb 25, 2023 8:35 am it is a fine letter, but not sure how much longer he'll keep this up... this one continues the nearly decade long trend of decreasing length. i remember reading ones 20-30 pages in length not that long ago.

I just read it and have to say that I think it is a bit different than prior letters. It's shorter, and I had some difficulty following the point he was making in one or two spots. I say that as an enthusiastic (small position) holder of the B shares.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by matjen »

Gains from value-accretive repurchases, it should be emphasized, benefit all owners – in
every respect. Imagine, if you will, three fully-informed shareholders of a local auto dealership,
one of whom manages the business. Imagine, further, that one of the passive owners wishes to sell
his interest back to the company at a price attractive to the two continuing shareholders. When
completed, has this transaction harmed anyone? Is the manager somehow favored over the
continuing passive owners? Has the public been hurt?

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).
You hear similar incredibly strongly worded rebukes from Ken French, Cliff Asness, etc. yet the argument persists. Crazy.
A man is rich in proportion to the number of things he can afford to let alone.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by sfmurph »

matjen wrote: Sat Feb 25, 2023 8:59 am
Gains from value-accretive repurchases, it should be emphasized, benefit all owners – in
every respect. Imagine, if you will, three fully-informed shareholders of a local auto dealership,
one of whom manages the business. Imagine, further, that one of the passive owners wishes to sell
his interest back to the company at a price attractive to the two continuing shareholders. When
completed, has this transaction harmed anyone? Is the manager somehow favored over the
continuing passive owners? Has the public been hurt?

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).
You hear similar incredibly strongly worded rebukes from Ken French, Cliff Asness, etc. yet the argument persists. Crazy.
If taxes were the same between repurchases and dividends, there would be no impact on the public or the country, but the tax rates are lower for repurchases. If CEOs had contract incentives around "total return" (including dividends), instead of just stock price, repurchases wouldn't be beneficial to CEOs. So it's not "all repurchases are harmful," but some are.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by JoMoney »

sfmurph wrote: Sat Feb 25, 2023 10:44 am... If taxes were the same between repurchases and dividends, there would be no impact on the public or the country, but the tax rates are lower for repurchases...
The shareholder's taxes on qualified dividend or long-term capital gain (if they sold the repurchased shares) are the same. The difference is that a dividend forces the distribution and that tax in the current year, whereas the capital gain can be deferred until they sell the stock. Being able to defer the taxes doesn't make them lower.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by bondsr4me »

JoMoney wrote: Sat Feb 25, 2023 8:10 am I noticed Warren Buffett's 2022 Berkshire Hathaway Letter to Shareholder's is now posted,
https://berkshirehathaway.com/letters/2022ltr.pdf

...just now reading it myself, but thought I would start a post regarding it, sometimes there's some interesting topics for discussion in there :)

[This thread has been merged into a previous thread on same topic. Moderator Pops1860]
Thanks for the link….appreciate….I just started to read! :sharebeer
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by Phil DeMuth »

In case Buffett's letter leaves you wanting more this year, I highly recommend Christopher Bloomstran's annual letter, which dropped on Friday. Berkshire is his largest holding and he devotes 60 action-packed pages to discussing it (starting on p. 76).

https://www.semperaugustus.com/clientletter
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by CuriousTacos »

JoMoney wrote: Sat Feb 25, 2023 10:52 am
sfmurph wrote: Sat Feb 25, 2023 10:44 am... If taxes were the same between repurchases and dividends, there would be no impact on the public or the country, but the tax rates are lower for repurchases...
The shareholder's taxes on qualified dividend or long-term capital gain (if they sold the repurchased shares) are the same. The difference is that a dividend forces the distribution and that tax in the current year, whereas the capital gain can be deferred until they sell the stock. Being able to defer the taxes doesn't make them lower.
If you're comparing a one-time tax that's either now or in the future, the two are equivalent if the tax rates are the same. That's like comparing roth to traditional. But if you're comparing one security that has taxed distributions along the way, and another that has the same pre-tax total return but without distributions, the tax "drag" of the former causes it to fall behind the after-tax value of the latter, even if the tax rates are the same.

Quick example:
Two stocks return 10%/year. One provides all this return as dividends, taxed at 15%. The other provides all this return as price appreciation, with gains taxed when sold at 15%.

After 1 year, they both have a pre-tax value of $110, but the one with dividends is now worth $108.50 due to taxes. If you sold the one without dividends, it would also be $108.50. But if you sell neither, then after 2 years, the one with dividends is worth $117.72 (108.50 * 1.1 - 108.50 * 0.1 * 0.15), while the one without dividends is worth $118.50 (it's worth 100 * 1.1 * 1.1 = $121 before you sell, then you pay 0.15 * 21 in taxes).
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by dagsboro »

I greatly admire Munger and Buffet. I used to buy Hathaway shirts in 1963 even before Warren was a shareholder. I hope they use their 6 million shares of Norfolk Southern to influence better safety procedures.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by yolointopants »

bgf wrote: Sat Feb 25, 2023 8:35 am it is a fine letter, but not sure how much longer he'll keep this up... this one continues the nearly decade long trend of decreasing length. i remember reading ones 20-30 pages in length not that long ago.
It kind of seems like a farewell letter.

there's a lot of talk in there about a legacy, for the country, for the company, how a future would look for shareholders. I suspect you will not see many more of these letters from Buffett.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by MCR »

yolointopants wrote: Sat Feb 25, 2023 6:19 pm
bgf wrote: Sat Feb 25, 2023 8:35 am it is a fine letter, but not sure how much longer he'll keep this up... this one continues the nearly decade long trend of decreasing length. i remember reading ones 20-30 pages in length not that long ago.
It kind of seems like a farewell letter.

there's a lot of talk in there about a legacy, for the country, for the company, how a future would look for shareholders. I suspect you will not see many more of these letters from Buffett.
I hate to admit it, but I had the same feeling when I read it this morning...
"Price is what you pay, value is what you get." Warren E. Buffett
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by arcticpineapplecorp. »

nedsaid wrote: Sat Feb 25, 2023 8:42 am
bob60014 wrote: Sat Feb 25, 2023 8:37 am
nedsaid wrote: Sat Feb 25, 2023 8:26 am I just can't get over how utterly clear and well written Buffett's shareholder letters are. Wow. His writing is spectacularly good.
Chatgpt is a marvel!! Lol, just kidding.

Seriously, yes it always makes for a good read.
Chatgpt would have just made stuff up.
Especially because chatgpt has no info in its database after 2021. Would kinda make it hard to write a shareholder letter for 2022.
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by yolointopants »

MCR wrote: Sat Feb 25, 2023 6:42 pm
yolointopants wrote: Sat Feb 25, 2023 6:19 pm
bgf wrote: Sat Feb 25, 2023 8:35 am it is a fine letter, but not sure how much longer he'll keep this up... this one continues the nearly decade long trend of decreasing length. i remember reading ones 20-30 pages in length not that long ago.
It kind of seems like a farewell letter.

there's a lot of talk in there about a legacy, for the country, for the company, how a future would look for shareholders. I suspect you will not see many more of these letters from Buffett.
I hate to admit it, but I had the same feeling when I read it this morning...
Lets be honest, he could basically put that cagr chart vs s&p 500 on a page and write:


You're welcome. Farewell.

-w.b.
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Buffett's investment letter 2022 - leverage

Post by Valuethinker »

[Thread merged into here --admin LadyGeek]
There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is
dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count
on getting rich twice.
https://www.berkshirehathaway.com/letters/2022ltr.pdf

There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
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Re: Buffett's investment letter 2022 - leverage

Post by arcticpineapplecorp. »

Valuethinker wrote: Sun Feb 26, 2023 9:10 am
There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is
dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count
on getting rich twice.
https://www.berkshirehathaway.com/letters/2022ltr.pdf

There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
i read that too but it's important to note that was one of Charlie's quips, not Warren's.

Also there's an article that says from 1976-2011:
Once he has selected these cheap, quality, low-beta stocks, Buffett magnifies their returns with the judicious use of leverage, which he finances with below-market-cost capital from a balance sheet that includes a sizable float from Berkshire’s insurance holdings...

Buffett applies a leverage of about 1.6-1, on average. This is a non-trivial use of leverage, and can help explain why Berkshire realises a high volatility despite investing in a diversified set of relatively stable businesses.

source: https://www.ipe.com/insurance-linked-in ... 82.article
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Re: Buffett's investment letter 2022 - leverage

Post by Dry-Drink »

Valuethinker wrote: Sun Feb 26, 2023 9:10 am
There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is
dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count
on getting rich twice.
https://www.berkshirehathaway.com/letters/2022ltr.pdf

There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
A) Few would say to put everything in those clever strategies.
B) Plenty of unleveraged strategies can also go to zero.
C) Buffett himself used plenty of leverage throughout his life.

Using debt (leverage) is just a tool of the investor. Used judiciously, it can be a net positive. Used recklessly, it can be a net negative.
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Re: Buffett's investment letter 2022 - leverage

Post by JoMoney »

Dry-Drink wrote: Sun Feb 26, 2023 9:56 am
Valuethinker wrote: Sun Feb 26, 2023 9:10 am
There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is
dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count
on getting rich twice.
https://www.berkshirehathaway.com/letters/2022ltr.pdf

There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
A) Few would say to put everything in those clever strategies.
B) Plenty of unleveraged strategies can also go to zero.
C) Buffett himself used plenty of leverage throughout his life.

Using debt (leverage) is just a tool of the investor. Used judiciously, it can be a net positive. Used recklessly, it can be a net negative.
A - Depends in what social circles you're in. Definitely not a Boglehead endorsed strategy... but the r/WallStreetBets crowd thrive on using options to make "bets" using options to essentially take synthetic leverage "to the moon!"
B - That's what "diversification" is meant to avoid, particularly with regard to stock/bond allocation... but then people go down the mathematical quantification rabbit hole, trying to assign probabilities to things like stocks (that are not confined to probabilistic outcomes), and based on historical ranges lead people down the road to leverage being "optimal" based on their derived model.
C - Buffett's widely criticized for his vocalized avoidance of leverage, while using insurance float for similar purposes, but on it's face "insurance float" is very different from other debt. Not saying the criticisms are unjustified or not hypocritical, but also not saying it makes other forms of leverage "ok" or less-risky. Having someone pay you to hold onto their money (insurance pool for future claims) for an unidentified amount of time is different then having to pay someone else to borrow a specific amount due at a specific time.
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Re: Buffett's investment letter 2022 - leverage

Post by nisiprius »

Dry-Drink wrote: Sun Feb 26, 2023 9:56 am
Valuethinker wrote: Sun Feb 26, 2023 9:10 am There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
A) Few would say to put everything in those clever strategies...
"Few would say to put everything in those clever strategies," but in point of fact that is exactly what Ayres and Nalebuff were recommending in the magazine article that inspired Market Timer, and their 2010 book. They were recommending that young workers invest their entire retirement savings portfolio into 100% stocks with 2X leverage.

If you only put a small amount into a leveraged strategy, so that your whole portfolio is not net leveraged, what's the point? Why put (say) 60% into stocks and 10% into 2X leveraged stocks when you could just put 80% into stocks? If you dilute a leveraged holding aren't you wasting the leverage?

(Yes, I do get idea of an "overlay" or "returns stacking" strategy--instead of 60/40 stocks/bonds you can put 2/3rds of your portfolio into 90/60, in the form of NTSX, and put the other 1/3rd into some low-return supposedly-uncorrelated holding. The leverage holding gives you the full effect of 60/40 with just 2/3rd of your portfolio, so it doesn't matter that your diversifying asset has low return.. As originally presented, that's what it NTSX supposedly for. But the majority of people discussing NTSX in this forum didn't seem to be talking about that, they seemed be using NTSX just to get 50% higher return.)
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Re: Buffett's investment letter 2022 - leverage

Post by Dry-Drink »

JoMoney wrote: Sun Feb 26, 2023 10:26 am A - Depends in what social circles you're in. Definitely not a Boglehead endorsed strategy... but the r/WallStreetBets crowd thrive on using options to make "bets" using options to essentially take synthetic leverage "to the moon!"
I was talking about the trillions in derivatives and leveraged used by thousands of large institutional entities (hedge funds, insurance funds, etc). The stuff Buffett loves to rail against. Few advisors would say you put everything in a hedge fund for instance.
But yeah, you could cherry-pick what some Reddit forum likes to do. But even there, few would recommend you actually do that so I stand by my statement even in those edge cases.
JoMoney wrote: Sun Feb 26, 2023 10:26 am B - That's what "diversification" is meant to avoid, particularly with regard to stock/bond allocation... but then people go down the mathematical quantification rabbit hole, trying to assign probabilities to things like stocks (that are not confined to probabilistic outcomes), and based on historical ranges lead people down the road to leverage being "optimal" based on their derived model.
That doesn't disprove what I said.
JoMoney wrote: Sun Feb 26, 2023 10:26 am C - Buffett's widely criticized for his vocalized avoidance of leverage, while using insurance float for similar purposes, but on it's face "insurance float" is very different from other debt. Not saying the criticisms are unjustified or not hypocritical, but also not saying it makes other forms of leverage "ok" or less-risky. Having someone pay you to hold onto their money (insurance pool for future claims) for an unidentified amount of time is different then having to pay someone else to borrow a specific amount due at a specific time.
Insurance is only a part of the leverage Buffett uses, he has done plenty of leveraged buyouts in his life. And I will assume he has invested money in plenty of other endeavors that did use derivatives and/or leverage of some form or another. Who cares? All I'm saying is he's a hypocrite in this aspect. You aren't saying he isn't so we're mostly in agreement it seems.
nisiprius wrote: Sun Feb 26, 2023 10:48 am
Dry-Drink wrote: Sun Feb 26, 2023 9:56 am
Valuethinker wrote: Sun Feb 26, 2023 9:10 am There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
A) Few would say to put everything in those clever strategies...
"Few would say to put everything in those clever strategies," but in point of fact that is exactly what Ayres and Nalebuff were recommending in the magazine article that inspired Market Timer, and their 2010 book. They were recommending that young workers invest their entire retirement savings portfolio into 100% stocks with 2X leverage.

If you only put a small amount into a leveraged strategy, so that your whole portfolio is not net leveraged, what's the point? Why put (say) 60% into stocks and 10% into 2X leveraged stocks when you could just put 80% into stocks? If you dilute a leveraged holding aren't you wasting the leverage?
Like I said, used judiciously it can be a net positive (reduces risk and increases return over the lifecycle, as shown by academia, or as Buffett has). But used recklessly (like Market Timer did), it can end up being a net negative.
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Re: Buffett's investment letter 2022 - leverage

Post by Dry-Drink »

nisiprius wrote: Sun Feb 26, 2023 10:48 am If you only put a small amount into a leveraged strategy, so that your whole portfolio is not net leveraged, what's the point? Why put (say) 60% into stocks and 10% into 2X leveraged stocks when you could just put 80% into stocks? If you dilute a leveraged holding aren't you wasting the leverage?
You shouldn't dilute a leveraged holding with cash, I agree with you. It's silly to have 60% stocks, 10% 2x stocks and 30% cash. Better to just be 80% stocks, 20% cash. Agreed.

However, it's perfectly reasonable to put a small portion of the account in leveraged investments (like, idk 10-25% into AQR long-short funds) if you're not holding an appreciable amount of cash. 80% TSM, 20% AQR long-short isn't "silly" like the above portfolio is.
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Re: Buffett's investment letter 2022 - leverage

Post by dumbmoney »

Leverage is pervasive. The companies that make up the stock market are leveraged (everyone was acutely aware of this during the 2008 crisis). Avoiding leverage is not a practical option, but you can soften it by holding bonds in addition to stocks.
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Re: Buffett's investment letter 2022 - leverage

Post by ScubaHogg »

arcticpineapplecorp. wrote: Sun Feb 26, 2023 9:27 am
Valuethinker wrote: Sun Feb 26, 2023 9:10 am
There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is
dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count
on getting rich twice.
https://www.berkshirehathaway.com/letters/2022ltr.pdf

There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
i read that too but it's important to note that was one of Charlie's quips, not Warren's.

Also there's an article that says from 1976-2011:
Once he has selected these cheap, quality, low-beta stocks, Buffett magnifies their returns with the judicious use of leverage, which he finances with below-market-cost capital from a balance sheet that includes a sizable float from Berkshire’s insurance holdings...

Buffett applies a leverage of about 1.6-1, on average. This is a non-trivial use of leverage, and can help explain why Berkshire realises a high volatility despite investing in a diversified set of relatively stable businesses.

source: https://www.ipe.com/insurance-linked-in ... 82.article
The literalists on Bogleheads strike again (in general on this thread criticizing buffets use of leverage while BH uses it)

One has to think that was buffet has in mind when he advises against leverage is places like LTCM (what were they, like 100:1 levered) and all the banks in 2008, many which saw things like 20/30+ to 1 leverage. Compared to those 1.6:1 is trivial. One is fragile to the smallest forecast error, one isn’t

Plus, and I’m no expert, if we are talking about the insurance float here that is very very different than being levered with callable debt (or short term debt that needs to be rolled)
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Re: Buffett's investment letter 2022 - leverage

Post by ScubaHogg »

nisiprius wrote: Sun Feb 26, 2023 10:48 am
Dry-Drink wrote: Sun Feb 26, 2023 9:56 am
Valuethinker wrote: Sun Feb 26, 2023 9:10 am There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
A) Few would say to put everything in those clever strategies...
"Few would say to put everything in those clever strategies," but in point of fact that is exactly what Ayres and Nalebuff were recommending in the magazine article that inspired Market Timer, and their 2010 book. They were recommending that young workers invest their entire retirement savings portfolio into 100% stocks with 2X leverage.
Not their entire life savings, if you consider their entire life. Their “entire” savings at one very specific time period where they could be wiped out and it wouldn’t really be that destructive.

As Charlie says, don’t count on getting rich twice. But the young savers aren’t financially rich yet.
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by chassis »

JoMoney wrote: Sat Feb 25, 2023 8:10 am I noticed Warren Buffett's 2022 Berkshire Hathaway Letter to Shareholder's is now posted,
https://berkshirehathaway.com/letters/2022ltr.pdf

...just now reading it myself, but thought I would start a post regarding it, sometimes there's some interesting topics for discussion in there :)

[This thread has been merged into a previous thread on same topic. Moderator Pops1860]
Excellent as always. I find Warren's writings to be consistent with Peter Lynch's. Read both to understand what and why.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

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I merged JoMoney's thread into the ongoing discussion.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by thatme »

A related question that I thought someone could help with: I want to attend the Berkshire annual meeting in May. I bought a single share of Class B stock last year in my Schwab account. Does anyone know how I get credentials for the meeting? Will I get something in my Schwab account? Someone to contact? I’ve been a Buffett fan forever but never owned any BH stock until now. I really want to attend the meeting while him and Charlie are still in good health. Thanks all!
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by sfmurph »

JoMoney wrote: Sat Feb 25, 2023 10:52 am
sfmurph wrote: Sat Feb 25, 2023 10:44 am... If taxes were the same between repurchases and dividends, there would be no impact on the public or the country, but the tax rates are lower for repurchases...
The shareholder's taxes on qualified dividend or long-term capital gain (if they sold the repurchased shares) are the same. The difference is that a dividend forces the distribution and that tax in the current year, whereas the capital gain can be deferred until they sell the stock. Being able to defer the taxes doesn't make them lower.
And if the capital gain is deferred until the death of the owner, the step-up basis makes that tax avoided entirely.
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Re: Buffett's investment letter 2022 - leverage

Post by Valuethinker »

ScubaHogg wrote: Sun Feb 26, 2023 1:00 pm
arcticpineapplecorp. wrote: Sun Feb 26, 2023 9:27 am
Valuethinker wrote: Sun Feb 26, 2023 9:10 am
There is no such thing as a 100% sure thing when investing. Thus, the use of leverage is
dangerous. A string of wonderful numbers times zero will always equal zero. Don’t count
on getting rich twice.
https://www.berkshirehathaway.com/letters/2022ltr.pdf

There's a lot of very clever strategies involving leverage out there. They can all wind up with 0 as an outcome.
i read that too but it's important to note that was one of Charlie's quips, not Warren's.

Also there's an article that says from 1976-2011:
Once he has selected these cheap, quality, low-beta stocks, Buffett magnifies their returns with the judicious use of leverage, which he finances with below-market-cost capital from a balance sheet that includes a sizable float from Berkshire’s insurance holdings...

Buffett applies a leverage of about 1.6-1, on average. This is a non-trivial use of leverage, and can help explain why Berkshire realises a high volatility despite investing in a diversified set of relatively stable businesses.

source: https://www.ipe.com/insurance-linked-in ... 82.article
The literalists on Bogleheads strike again (in general on this thread criticizing buffets use of leverage while BH uses it)

One has to think that was buffet has in mind when he advises against leverage is places like LTCM (what were they, like 100:1 levered) and all the banks in 2008, many which saw things like 20/30+ to 1 leverage. Compared to those 1.6:1 is trivial. One is fragile to the smallest forecast error, one isn’t

Plus, and I’m no expert, if we are talking about the insurance float here that is very very different than being levered with callable debt (or short term debt that needs to be rolled)

The point about Berkshire Hathaway is that it uses leverage in a way an individual basically cannot.

(Buffett actually did write that some of the derivative positions he had acquired with ?Swiss Re? could, in the extremis, wipe BH out. He wrote that around 2000 I think. And that he was neither able to fully value them, nor unwind them).

Yes it borrows. At one of the highest (the highest?) credit rating of any corporate (Apple might have a higher credit rating - if we look at market spreads on the bonds, rather than the letter score).

And then invests in low volatility stocks. Consumer products. Utilities. Railways (which are a form of utility). etc.

And you are right that the insurance float is not equivalent to the sort of debts you and I can take on to invest. We don't own insurance companies. It isn't "callable" in the way margin debt is callable.

The only leverage a private investor can take on is:

- investing in leveraged funds eg Closed End Funds
- deferring repayment of a home mortgage, to invest
- leveraged option-type investments, however to gear the portfolio to more than 100% exposure to equities, is to risk a wipeout in a bad enough bear market

None of those positions can be margin called. At least in the first half of one's career, a bear market can be ridden through. If you've got the financial wherewithal to last out 15 years, which would be the equivalent of 1966-81 or 1929-1944, then you probably are good to go. This is more or less what my father did, in his own small way.

The problem with leverage is forced liquidation. And that's what hits and can wipe you out. I knew people in the 2000s repaying the margin debt they had incurred speculating on tech stocks. Ditto people in the 1990s who had been hit by the Crash of 1987 and were still repaying it. From the oil bubble before that. There was Day Trading long before we had ever heard the term.

Also there may well be a correlation between your career and the markets - either directly because you work for a financial institution, or indirectly eg the prices of tech stocks drive investment into tech which drives tech hiring which drives your career.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by Tanelorn »

JoMoney wrote: Sat Feb 25, 2023 10:52 am Being able to defer the taxes doesn't make them lower.
It absolutely does.

https://www.biglawinvestor.com/tax-dela ... -not-paid/

If you prefer, you can compound the gains tax free for longer while you stay invested. BRK stock has this benefit, while some utility stock like DUC or EIX you pay taxes on their qualified dividend yield that, when reinvested on a post tax basis, leads to lower total returns even if the combined appreciation plus dividends were the same.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by chassis »

thatme wrote: Sun Feb 26, 2023 6:43 pm A related question that I thought someone could help with: I want to attend the Berkshire annual meeting in May. I bought a single share of Class B stock last year in my Schwab account. Does anyone know how I get credentials for the meeting? Will I get something in my Schwab account? Someone to contact? I’ve been a Buffett fan forever but never owned any BH stock until now. I really want to attend the meeting while him and Charlie are still in good health. Thanks all!
"More Information Coming Soon"

https://www.berkshirehathaway.com/sharehold.html
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by rockstar »

Patience. Love it. Reminds me of Yoda saying Luke has no patience.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by AniccaBob »

Phil DeMuth wrote: Sat Feb 25, 2023 12:12 pm In case Buffett's letter leaves you wanting more this year, I highly recommend Christopher Bloomstran's annual letter, which dropped on Friday. Berkshire is his largest holding and he devotes 60 action-packed pages to discussing it (starting on p. 76).

https://www.semperaugustus.com/clientletter
Thanks for the link, I enjoyed Mr. Bloomstran's letter. I found this passage regarding S&P500 buybacks particularly interesting...

"One final comment on the record share repurchases in 2022.
A trillion dollars in shares repurchased bought 2.8% of the S&P 500's $36 trillion average market capitalization during the year.
However, shares outstanding shrank by only 1.1%. What happened to the remaining 1.7%? That's the dilution that comes with CFOs telling investors to ignore share-based compensation because it's not a cash expense. Fine.
Here's an idea. How about ignoring share-based compensation but running the money spent buying shares through the income statement as an expense, but without the tax benefit? Pick your poison, pirates. You can't have it both ways. Suggesting that executives are pirates is too harsh and unwarranted?
At least 40% of S&P 500 aggregate net income over the last two decades has not been used for outside shareholder benefit, but instead was paid to management. Makes 2 and 20 look like a discount. There is a better word than pirates, but this is a G-rated letter. Speaking of which, I need to schedule my colonoscopy. These pirates don't know which end is up."

Is this correct? Was 40% of the S&P 500's aggregate net income over the last two decades paid to management? How can I double check this math?
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by JoMoney »

AniccaBob wrote: Wed Mar 01, 2023 7:32 am
Phil DeMuth wrote: Sat Feb 25, 2023 12:12 pm In case Buffett's letter leaves you wanting more this year, I highly recommend Christopher Bloomstran's annual letter, which dropped on Friday. Berkshire is his largest holding and he devotes 60 action-packed pages to discussing it (starting on p. 76).

https://www.semperaugustus.com/clientletter
Thanks for the link, I enjoyed Mr. Bloomstran's letter. I found this passage regarding S&P500 buybacks particularly interesting...

"One final comment on the record share repurchases in 2022.
A trillion dollars in shares repurchased bought 2.8% of the S&P 500's $36 trillion average market capitalization during the year.
However, shares outstanding shrank by only 1.1%. What happened to the remaining 1.7%? That's the dilution that comes with CFOs telling investors to ignore share-based compensation because it's not a cash expense. Fine.
Here's an idea. How about ignoring share-based compensation but running the money spent buying shares through the income statement as an expense, but without the tax benefit? Pick your poison, pirates. You can't have it both ways. Suggesting that executives are pirates is too harsh and unwarranted?
At least 40% of S&P 500 aggregate net income over the last two decades has not been used for outside shareholder benefit, but instead was paid to management. Makes 2 and 20 look like a discount. There is a better word than pirates, but this is a G-rated letter. Speaking of which, I need to schedule my colonoscopy. These pirates don't know which end is up."

Is this correct? Was 40% of the S&P 500's aggregate net income over the last two decades paid to management? How can I double check this math?
It would be nice to know a source for that data, especially aggregated like that. You could get some idea of the numbers individually by looking at the SEC required "compensation table"(s) reported in the company's annual proxy statement.
e.g. here's a link to Apple Inc.'s
The number provided above seems shockingly large, but even without having the numbers used I believe it's at least directionaly accurate, I wish the mutual fund companies would raise as much of a stink about executive compensation practices as they seem to have been with their other "ESG" marketing... to me, they missed an opportunity to make "ESG" actually meaningful to investors.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by Kenster1 »

Rob Berger did a summary video on this ---

7 Powerful Lessons From Warren Buffett's 2023 Berkshire Hathaway Letter
https://www.youtube.com/watch?v=kHLps0v6s8Y

.
Last edited by Kenster1 on Wed Mar 01, 2023 11:15 am, edited 1 time in total.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by petulant »

But also note, it is likely Buffet is avoiding paying dividends and prefers buybacks to benefit his own tax situation. He plans to leave his wealth to a non-profit organization, most likely a 501(c)(3) private foundation. The restrictions on private foundations make it difficult to maintain control over a large corporation, so he would pretty quickly have to start selling shares if he donated them to a foundation while alive. If he had started that at age 80, he would already have less direct control by now. If he paid dividends, he would pay taxes and would have limitations on his ability to donate the dividends due to the 50/60 limitations and (for many years) the Pease limitations. So, to advance his own interests, he is holding the stock to maximize control and minimize his own taxes, after which he will leave it to his foundation when he passes away. Then, his appointed people can sell off shares and focus on using the money to change/control society. And then he is writing the shareholders a folksy letter to tell them why buybacks are a good idea.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by Elysium »

I don't understand why people on this forum pay so much attention to this failed stock picker. While most of the other gurus and experts gets trashed here, how come Buffett gets not only a pass but such reverence despite his abysmal record in stock picking over the last two decades. It has been said he lost it around late 90's, but then he just side stepped a tech bubble and benefitted from the flight to value breifly during the tech crash. However, since 2003, he has trailed both the S&P 500 and Total Stock Index. See here

He has been buying and selling stocks or as they call businesses without much significant results to show in their portfolio. They jumped in on the tech bandwagon finally with Apple, which helped the bottomline a little bit, think of what would be the result if it weren't for that one stock for last decade. His results since 2009 is even more abysmal, even with the Apple pick in 2015/16, see here

They would've been better off investing in S&P 500 instead of all this sound & fury.
Last edited by Elysium on Wed Mar 01, 2023 10:28 am, edited 1 time in total.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by Valuethinker »

petulant wrote: Wed Mar 01, 2023 10:05 am But also note, it is likely Buffet is avoiding paying dividends and prefers buybacks to benefit his own tax situation. He plans to leave his wealth to a non-profit organization, most likely a 501(c)(3) private foundation. The restrictions on private foundations make it difficult to maintain control over a large corporation, so he would pretty quickly have to start selling shares if he donated them to a foundation while alive. If he had started that at age 80, he would already have less direct control by now. If he paid dividends, he would pay taxes and would have limitations on his ability to donate the dividends due to the 50/60 limitations and (for many years) the Pease limitations. So, to advance his own interests, he is holding the stock to maximize control and minimize his own taxes, after which he will leave it to his foundation when he passes away. Then, his appointed people can sell off shares and focus on using the money to change/control society. And then he is writing the shareholders a folksy letter to tell them why buybacks are a good idea.
Buffett has been very clear that paying dividends would give him a personal tax problem. So not "likely" but "certain".

Your additional analysis re US tax code is interesting but for (almost) anyone, buybacks are preferable to dividends from the point of view of personal taxation? (in that most countries levy capital gains taxes at lower rates than interest taxes, and very few countries tax on unrealised capital gains).
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by petulant »

Valuethinker wrote: Wed Mar 01, 2023 10:24 am
petulant wrote: Wed Mar 01, 2023 10:05 am But also note, it is likely Buffet is avoiding paying dividends and prefers buybacks to benefit his own tax situation. He plans to leave his wealth to a non-profit organization, most likely a 501(c)(3) private foundation. The restrictions on private foundations make it difficult to maintain control over a large corporation, so he would pretty quickly have to start selling shares if he donated them to a foundation while alive. If he had started that at age 80, he would already have less direct control by now. If he paid dividends, he would pay taxes and would have limitations on his ability to donate the dividends due to the 50/60 limitations and (for many years) the Pease limitations. So, to advance his own interests, he is holding the stock to maximize control and minimize his own taxes, after which he will leave it to his foundation when he passes away. Then, his appointed people can sell off shares and focus on using the money to change/control society. And then he is writing the shareholders a folksy letter to tell them why buybacks are a good idea.
Buffett has been very clear that paying dividends would give him a personal tax problem. So not "likely" but "certain".

Your additional analysis re US tax code is interesting but for (almost) anyone, buybacks are preferable to dividends from the point of view of personal taxation? (in that most countries levy capital gains taxes at lower rates than interest taxes, and very few countries tax on unrealised capital gains).
Actually, most shareholders are indifferent because they hold equity shares in tax-advantaged accounts. Even for those that don't, some have very low tax rates thanks to the 0% federal capital gains bracket applying to qualified dividends.

https://www.businessinsider.com/who-act ... 016-5?op=1

Further, the tax cost has to be offset by the risk of misallocation of capital and the risk of non-accretive buybacks. Buffet himself admits that non-accretive buybacks would be a problem, but he provides no analysis of when or how much of buybacks are non-accretive.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by OrangeKiwi »

AniccaBob wrote: Wed Mar 01, 2023 7:32 am At least 40% of S&P 500 aggregate net income over the last two decades has not been used for outside shareholder benefit, but instead was paid to management. Makes 2 and 20 look like a discount. There is a better word than pirates, but this is a G-rated letter. Speaking of which, I need to schedule my colonoscopy. These pirates don't know which end is up."

Is this correct? Was 40% of the S&P 500's aggregate net income over the last two decades paid to management? How can I double check this math?
Is there any reason to think 40% is excessive? Did the person who wrote this earn 2 and 20?
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by alluringreality »

Elysium wrote: Wed Mar 01, 2023 10:22 am I don't understand why people on this forum pay so much attention to this failed stock picker.
I'll take a wild guess that at least part of the interest may relate with investment thoughts from someone having a top ten personal wealth in the world. The charity lunches have went for millions. These are free.
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Re: Buffett's 2022 Berkshire Hathaway Shareholder Letter

Post by GP813 »

Elysium wrote: Wed Mar 01, 2023 10:22 am I don't understand why people on this forum pay so much attention to this failed stock picker. While most of the other gurus and experts gets trashed here, how come Buffett gets not only a pass but such reverence despite his abysmal record in stock picking over the last two decades. It has been said he lost it around late 90's, but then he just side stepped a tech bubble and benefitted from the flight to value breifly during the tech crash. However, since 2003, he has trailed both the S&P 500 and Total Stock Index. See here

He has been buying and selling stocks or as they call businesses without much significant results to show in their portfolio. They jumped in on the tech bandwagon finally with Apple, which helped the bottomline a little bit, think of what would be the result if it weren't for that one stock for last decade. His results since 2009 is even more abysmal, even with the Apple pick in 2015/16, see here

They would've been better off investing in S&P 500 instead of all this sound & fury.
This post is very unconvincing. If your selection period which is awfully convenient and doesn't include yearly contributions has Buffet barley trailing the S&P 500/Total U.S. stock during a huge bull market for both, I think that makes his case as a great investor. Most other "Active mangement"/stock pickers got trounced and charged you money for doing so, he barely lagged and in the last few years he's out performed.

Start from 2016 with a $10,000 lump sum and contribute $1,200 annually and he's beating both U.S. Total Stock and the S&P 500. And what has been the cost to Berkshire owners for slight underperformance for a few years here or there? Berkshire has been less volatile, had a smaller "worst year", had a smaller max drawdown and Berkshire owns way more productive assets in 2023 than it did in 2003. I don't find your critique convincing.
Last edited by GP813 on Wed Mar 01, 2023 2:28 pm, edited 3 times in total.
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