The best nuggets from Warren Buffett's 2023 shareholder letter

Warren Buffett's Berkshire Hathaway posted its second straight record annual profit over the weekend, with its Class B shares briefly touching $420 for the first time on record.

Fourth quarter operating profit rose 28% to US$8.48 billion, bolstered by the performance of common stock investments and insurance business. Net income for the quarter more than doubled to US$37.6 billion. For the full-year 2023, Berkshire posted a net profit of $96.2 billion, topped its previous record of $89.9 billion set on 2021.

The conglomerate's cash pile jumped to a record US$167.6 billion at the end of the quarter, partly due to challenges with finding deals at attractive valuations.

The result was accompanied by Buffett's annual letter to shareholders, where he gives a touching tribute to his longtime friend and right hand man Charlie Munger.

In this piece, we'll take a look at the key nuggets from the annual letter and what's next for Berkshire.

A tribute to Munger

• "In reality, Charlie was the “architect” of the present Berkshire, and I acted as the “general contractor” to carry out the day-by-day construction of his vision."

• "Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades. In a way his relationship with me was part older brother, part loving father. Even when he knew he was right, he gave me the reins, and when I blundered he never – never –reminded me of my mistake."

• "Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect."

• "Charlie, in 1965, promptly advised me: 'Warren, forget about ever buying another company like Berkshire ... now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices."

Berkshire's Nuggets

What does Berkshire do: "Our goal at Berkshire is simple: We want to own either all or a portion of businesses that enjoy good economics that are fundamental and enduring ... We particularly favour the rare enterprise that can deploy additional capital at high returns in the future."

Berkshire is too big: " Those days are long behind us; size did us in, though increased competition for purchases was also a factor ... Berkshire now occupies nearly 6% of the universe in which it operates. Doubling our huge base is simply not possible within, say, a five-year period, particularly because we are highly averse to issuing shares."

The era of 'eye-popping performance' is over: "There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and others ... Outside the US, there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance."

Taking advantage of weakness: "Berkshire's ability to immediately respond to market seizures with both huge sums and certainty of performance may offer us an occasional large-scale opportunity."

Don't mention EBITDA: "Berkshire's strength comes from its Niagara of diverse earning delivered after interest costs, taxes and substantial changes for depreciation and amortisation ("EBITDA" is a banned measurement at Berkshire).

Portfolio staples – Coca-Cola and American Express: "Last year, I mentioned two of Berkshire's long-duration partial-ownership positions – Coca-Cola and American Express. These are not huge commitments like our Apple position ... But they are meaningful assets and also illustrate our thought process ... Each was hugely successful in its base business ... Both Coke and AMEX became recognisable names worldwide as did their core products, and the consumption of liquids and the need for unquestioned financial trust are timeless essentials of our world."

Berkshire in Japan: "We increased our holdings in all five [Japanese trading companies including Mitsubishi, Mitsui & Co, Itochu, Marubeni and Sumimoto] after Greg Abel and I made a trip to Tokyo to talk with their managements. Berkshire now owns about 9% of each of the five ... Since we began our Japanese purchases, each of the five has reduced the number of its outstanding shares at attractive prices."

Berkshire is built to last: "Extreme fiscal conservatism is a corporate pledge we make to those who have joined us in ownership of Berkshire. In most years – Indeed in most decades – Our caution will likely prove to be unneeded behaviour. But Berkshire does not want to inflict permanent financial damage ... Berkshire is built to last."

Berkshire's performance: Since inception (1965-2023) Berkshire has logged a compounded annual gain of 19.8% vs. the S&P 500's 10.2% (dividends included). The overall gain of Berkshire sits at 4,384,748% vs. 31,223% gain of the S&P 500. During this time, Berkshire experienced only four drawdowns of 20% or more, including 1974 (-48.7%), 1990 (-23.1%), 2000 (-20.0%), 2008 (-31.8%).

What Buffett didn't mention: Interestingly, Buffett barely mentioned Apple (50% of the portfolio) and did not mention AI even once.