“Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.” by Warren Buffet

144 pages. That’s the length of the annual report of Warren Buffet’s investment company, Berkshire Hathaway for 2022.

To go through that annual report will probably take days if not weeks of digesting for a regular layman, especially as the language is … not reader-friendly. If you are not well-versed in the realm of business and finance, it will be like Greek to you.

So, why bother? Because being one of the most successful investors in the world, Warren Buffet’s insights are invaluable to everyone who wants to invest.

Luckily for you, this article condenses the lengthy and technical information in the annual report and you only need to know these 5 simple things from it!

#1: Berkshire Hathaway Made a Loss in 2022

Yes, you heard that right. Berkshire Hathaway (BH) made a loss of US$22.8 billion in 2022, which is rare for the company considering that it has consistently made money.

Should you be worried? The short answer is no. In 2020 and 2021, BH made a total profit of US$132.3 billion, which more than covers the loss this year.

In the whole history of BH since 1963, if you invested US$100 in the beginning, you would have got an average return of about 20% every year until now. If you invested in the U.S. stock market (S&P 500), you would only have gotten half of that at about 10% every year.

Hence, while BH made a loss in 2022, the takeaway for you is that BH invests for the long term, and has a long track record of making a lot of money. So, you don’t need to worry about that.

#2: The Loss Was Due to Investments, But Main Businesses Are Still Doing Good

So why did BH make losses in 2022? BH is currently making a big loss of in some of its investments in stocks, which came to about US$53.6 billion. What? US$53.6 billion in losses?

Relax. BH is classifying this as mostly “unrealised losses”. Think of it this way. You invested in a share for about RM100, and for some reason, it dropped to only about RM80 the next day. However, you have done your research and are confident that the company is solid, so you keep holding on to it.

Technically, you are making RM20 in “unrealised losses”, but you haven’t actually sold the share yet and make a loss. In the future, the value of your investment can go back up to RM120 and when you sell it, you would have made a “realised profit” of RM20.

With that out of the way, BH’s main businesses are insurance, railroad, utilities, energy, manufacturing, services, and retail. If the “unrealised losses” from investments are excluded, BH’s main businesses’ profits have increased by 12.2% from US$27.5 billion in 2021 to US$30.8 billion in 2022. Long story short, BH is doing fine.

#3: Two Major Investments in Alleghany and Dominion Energy

BH made two major investments in 2022. It invested about US$11.5 billion to acquire Alleghany, which does insurance and reinsurance for property and casualty. Alleghany is a pretty solid company with about US$2.4 billion in revenue, and makes about US$216 million in profits in 2022.

BH also paid about US2.5 billion to acquire some of Dominion Energy’s (DE) businesses which buys, sells and transports natural gas. DE is also a pretty decent company, which made about US$17.2 billion in revenue and US$985 million in profits in 2022.

#4: Pay Attention to Its Insurance and Manufacturing Businesses

If there are two businesses that you should pay attention to, it’s the insurance and manufacturing, service and retailing (MSR) businesses in BH. Both businesses are doing pretty well in 2022 compared to the other ones.

Its investment profits from the insurance business increased the most by 34.9% from US$4.8 billion in 2021 to US$6.5 billion in 2022. Meanwhile, MSR businesses’ profits also increased at a strong rate of 12.5% from US$11.1 billion in 2021 to US12.5 billion in 2022. These two businesses make up about 61.7% of the BH’s total business profits of US$30.8 billion mentioned in point #2.

Source: Berkshire Hathaway’s Annual Report 2022

It’s not easy reading the annual report of BH or any company in that case. Hence, make your life easier by just looking for the business breakdown and compute how much profits have increased and the top 2 or 3 biggest contributor to profits. You can’t go wrong with that.

#5: Some Worries about Insurance Underwriting Losses

If there is one thing you need to be worried about, it would be the losses from its insurance underwriting business. In 2021, this business made about US$728 million, but it suddenly made a loss of about US$90 million in 2022.

The reason why its insurance underwriting business is making losses is due to GEICO. GEICO mainly provides insurance for automobiles, and is one of the largest car insurance providers in the U.S.

It made US$1.9 billion in losses in 2022 as more Americans started to drive in after the pandemic. GEICO had to pay out more in insurance damages as more Americans got into accidents and also sustained more injuries.

Funnily enough, this means that insurance companies want you to stay home to make more money. If you don’t drive, you don’t get into accidents. You keep paying the insurance premiums, while they don’t pay as much insurance damages.

Conclusion

To properly reap learnings from it, we do encourage you to try reading the annual report in full. You can use our summary as guideposts to help you stay on track with what you think you are absorbing.

Warren Buffet always has this principle of “I like companies that have simple business models because they are easy to understand and invest in”. Don’t let Warren Buffet’s thick annual report on Berkshire Hathaway stop you from getting some valuable insights on his investments. Learn from the best to make better informed decision about your investments!

 

Let us know in the comments below what you think about Warren Buffet’s Berkshire Hathaway investment performance in 2022!

 

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