7 ms·

Berkshire Hathaway Annual Shareholder letter 2022 [pdf]

61 points by npalli 4y ago

ShredKazoo 4y ago
>Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. https://www.berkshirehathaway.com/letters/2022ltr.pdf https://www.berkshirehathaway.com/letters/2022ltr.pdf I'm an American in my early 30s. My impression is that within my lifetime, the self-criticism and self-doubt has increased a lot. Does this accord with the perspective of older Americans? I remember my dad (in his 60s) said that the pre-Watergate times really were quite different in terms of the trust that Americans had in their government. But he didn't give me a sense of the overall trend over the past few decades. It does feel to me like we've reached the zone of diminishing returns to negativity. For example, if America now was like the America I grew up in, I feel like we would make at least a token effort to figure out what went wrong with the CDC's response to the pandemic and how the agency could do better next time, through some sort of blue ribbon commission. But it feels like the pandemic (and everything else) has become hopelessly partisan in a way that interferes with constructive change.
known 4y ago
[dead]
bushbaba 4y ago
Didn’t expect this in their shareholder statement. “At Berkshire we hope and expect to pay much more in taxes during the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved – a contribution Berkshire will always need. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.”
- hajola 4y ago
  Warren also seemed to strongly hint (quoted below) that Treasury should be getting more of its revenue from corporate income tax. Maybe your quoted part was him reinforcing that point and putting BAs money where its mouth is. "The $32 trillion of revenue was garnered by the Treasury through individual income taxes (48%), social security and related receipts (34 1⁄2%), corporate income tax payments (8 1⁄2%) and a wide variety of lesser levies. Berkshire’s contribution via the corporate income tax was $32 billion during the decade, almost exactly a tenth of 1% of all money that the Treasury collected. 8 And that means – brace yourself – had there been roughly 1,000 taxpayers in the U.S. matching Berkshire’s payments, no other businesses nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime."
  - dr_dshiv 4y ago
    The U.S. government's total revenue is estimated to be $4.71 trillion for FY 2023.
    - npilk 4y ago
      The $32 trillion figure in the letter is tax revenue over the decade ending in 2021. Berkshire's $32 billion (0.1%) is over the same 10-year period.
  - groot2581 4y ago
    I don't get the enthusiasm for raising money from corporate income taxes versus individual income tax. Mr. Rich Moneybags pays the same corporate income taxes per share of Berkshire as Joe Schmoe, whose entire retirement pot might be a single BRK.A.
    - Invictus0 4y ago
      Rich moneybags never has to sell. He can just take out a margin loan and skip the taxes.
      - badpun 4y ago
        Surely you can't loan into infinity and have to sell at some point to start paying off the debt.
        Invictus0 4y ago
        Suppose I have 100 million in my investment portfolio and a 5% interest rate. I want to buy a house for $10 million. So I withdraw 2 million in cash and get a margin loan for 2 million so I don't have to sell any securities. I take the 2 million in cash, get a mortgage for 8 million, and buy the house. On average the market returns 7%. So my $100 million portfolio is earning $7 million per year less the loan interest of 100k which comes to $6.9M. After 2 years I pay off the mortgage and repay the margin loan. I now have a house and I didn't have to pay any taxes on my securities to buy it. What if the market goes down? Well, I just wait for it to go back up again. I can easily afford to wait, my margin of safety is huge. Since the margin loan is for 2 million, and I need a 50% margin of safety by law, then the portfolio value would need to decline to 2 million (98% decline) before my loan gets called.
- brobdingnagians 4y ago
  This is political grandstanding and virtue signalling. It also presumes that increasing taxes above current levels helps the economy-- that is definitely not a given. The real reason, I suspect, is that elites have a lot of political control, increasing taxes increases that power, and it makes it harder for competition to catch up. So increasing taxes is a moat for the elite and helps the government achieve the elites' political goals; win-win for them, but a loss for the economy and the common man. But great for virtue signalling.
  - d23 4y ago
    I'm in awe at the level of pretzel logic on display here. The rich are famously supportive of higher corporate tax rates because it helps them entrench their moat?
  - deleted 4y ago
    [deleted]
  - seanhunter 4y ago
    It presumes no such thing. It says that they hope and expect to make more profit in future than they do today. As they pay tax on a proportion of profits, increasing profits will mean they are increasing the amount of tax they pay even if taxes are kept at current levels.
  - hajola 4y ago
    Could you please explain in more detail how a CEO of a profitable massive corporation signaling desire to pay higher corporate income tax is a loss for the economy and the common man. If anything he might be suggesting in the letter that corporations aren't paying their fair share relative to the common man.
    - brobdingnagians 4y ago
      It is a moat and keeps the status quo. He understands how finance works, and he understands how compound interest rates work; he got the benefit of "low interest rates" on taxes and generated a lot of wealth; if he increases taxes for upstarts and himself, the upstarts are harmed more, since he has the legacy wealth from the historical discount. Aristocrats made the laws favor themselves, and since they already owned all the land and wealth, no one was going to challenge them inside the legal framework. There is a tendency, once you make your own fortune, to get political influence and make laws that make it harder for others to do the same thing. Change the rules of the game so you can't fall. Lobbying is a key business skill these days.
- slavboj 4y ago
  One way that BH has historically made good acquisitions is by taking over a company with cashflow but not enough liquidity to afford a giant tax bill - for instance on the founder's death.
- 2OEH8eoCRo0 4y ago
  > America would have done fine without Berkshire. The reverse is not true.
- oaththrowaway 4y ago
  They can always just pay more themselves right? Why don't they do that instead of grandstanding about hoping to pay more?
  - jamiegreen 4y ago
    If one company pays more voluntarily, it's unlikely the head of that company will remain there very long!
    - oaththrowaway 4y ago
      And then people wonder why others are tired of virtue signaling...
      - lotsofpulp 4y ago
        There is no inconsistency with advocating for changing the rules of the game for all players, while also playing according to the existing rules until that happens.
        oaththrowaway 4y ago
        Are they lobbying for that or just writing it like it's a dream?
        lotsofpulp 4y ago
        I do not see what difference that would make. Writing it, especially in a widely read publication, is a form of lobbying anyway.
        oaththrowaway 4y ago
        Why does it not make a difference to bribe politicians? That's the whole point of lobbying isn't it?
- bilsbie 4y ago
  Don’t they already pay double tax since the companies they own also pay taxes?
  - voisin 4y ago
    No. Any taxes paid by a subsidiary would be a credit to the holding company’s taxes owing in one form or another (even if a deferred credit) depending on the legal structure.
    - bilsbie 4y ago
      Interesting. Can you point me towards some further reading on that?
- tomcam 4y ago
  Nothing is stopping them from paying more taxes right now. Why not lead the way and check that off their to-do list immediately?
  - voisin 4y ago
    Because that’s not how you reform a broken system.
  - tim333 4y ago
    I'm not sure that's actually true. Taxes are set in law. If you write to the IRS saying my tax bill is $1000 but I'm sending you a check for $10,000 because I want to pay more I imagine they'd have to return it.
    - deleted 4y ago
      [deleted]
    - tomcam 4y ago
      Just write it to these fine people: https://fiscal.treasury.gov/general-fund/ https://fiscal.treasury.gov/general-fund/
mg 4y ago
According to the first page of the letter, they have a pretty good track record. In 58 years, they outperformed the S&P500 39 times. That is 67% of the time, which according to R comes down to a p value of 0.01: binom.test(x=39, n=58, p=.5) => p-value = 0.01193 On the other hand, countless investors started out 58 years ago and 1 in 50 had a performance like this or better by pure chance. So it's hard to say to what extent the performance is an indicator of capability.
- haakonhr 4y ago
  Not going to do the math here, but the magnitudes are quite important.. It seems like the worst years are around 20% worse than the S&P, but there are several years where their outperformance is more than 100%.
- sethev 4y ago
  On it's face, it seems implausible that 1 in 50 investors were as successful as Warren Buffet.
- gtheodor 4y ago
  In 1984, Warren Buffett wrote an article to address this criticism - https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...
  - deleted 4y ago
    [deleted]
aicharades 4y ago
[flagged]
gwern 4y ago
The Buffett letters, and returns, get worse each year. To reiterate my comments on earlier ones, it's amazing that in this era of financial chaos, Buffett seems to be so uninvolved and get so little use out of his vaunted warchest & credit... There's nothing new here if you've read 2 or 3 of the previous ones, and it's astonishing how navel-gazing and hermetic it is: this could have been written in 2015 or 2010 or 2005, there's basically no way to tell other than from a few marquee names. Bring to mind everything that has happened in the past 2 or 3 years which is relevant to finance and politics and investing, which is a lot, and see how much of it you can find even the slightest allusion to in here.
- nodesocket 4y ago
  I agree, as of late I think I have come to realize Warren is extremely cold and calculated and holds his cards close to his chest. I went to the shareholder meeting in omaha in 2017 and felt even then he was much more open in the years prior letters. You'd think he would have touched on inflation, the everything-bubble that was 2021 fueled by out of control government spending. What's the future of unemployment in America? Technology, more color on Apple their largest stock holding (41%[1] of their total portfolio)? [1] https://www.cnbc.com/berkshire-hathaway-portfolio/ https://www.cnbc.com/berkshire-hathaway-portfolio/
  - tim333 4y ago
    I'd say he is one of the least cold people I can think of but he is 92 and slowing down a bit in terms of explaining the latest trends.

61 points by npalli 4y ago

>Despite our citizens’ penchant – almost enthusiasm – for self-criticism and self-doubt, I have yet to see a time when it made sense to make a long-term bet against America. https://www.berkshirehathaway.com/letters/2022ltr.pdf https://www.berkshirehathaway.com/letters/2022ltr.pdf I'm an American in my early 30s. My impression is that within my lifetime, the self-criticism and self-doubt has increased a lot. Does this accord with the perspective of older Americans? I remember my dad (in his 60s) said that the pre-Watergate times really were quite different in terms of the trust that Americans had in their government. But he didn't give me a sense of the overall trend over the past few decades. It does feel to me like we've reached the zone of diminishing returns to negativity. For example, if America now was like the America I grew up in, I feel like we would make at least a token effort to figure out what went wrong with the CDC's response to the pandemic and how the agency could do better next time, through some sort of blue ribbon commission. But it feels like the pandemic (and everything else) has become hopelessly partisan in a way that interferes with constructive change.

known 4y ago

[dead]

bushbaba 4y ago

Didn’t expect this in their shareholder statement. “At Berkshire we hope and expect to pay much more in taxes during the next decade. We owe the country no less: America’s dynamism has made a huge contribution to whatever success Berkshire has achieved – a contribution Berkshire will always need. We count on the American Tailwind and, though it has been becalmed from time to time, its propelling force has always returned.”

hajola 4y ago
Warren also seemed to strongly hint (quoted below) that Treasury should be getting more of its revenue from corporate income tax. Maybe your quoted part was him reinforcing that point and putting BAs money where its mouth is. "The $32 trillion of revenue was garnered by the Treasury through individual income taxes (48%), social security and related receipts (34 1⁄2%), corporate income tax payments (8 1⁄2%) and a wide variety of lesser levies. Berkshire’s contribution via the corporate income tax was $32 billion during the decade, almost exactly a tenth of 1% of all money that the Treasury collected. 8 And that means – brace yourself – had there been roughly 1,000 taxpayers in the U.S. matching Berkshire’s payments, no other businesses nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime."
- dr_dshiv 4y ago
  The U.S. government's total revenue is estimated to be $4.71 trillion for FY 2023.
  - npilk 4y ago
    The $32 trillion figure in the letter is tax revenue over the decade ending in 2021. Berkshire's $32 billion (0.1%) is over the same 10-year period.
- groot2581 4y ago
  I don't get the enthusiasm for raising money from corporate income taxes versus individual income tax. Mr. Rich Moneybags pays the same corporate income taxes per share of Berkshire as Joe Schmoe, whose entire retirement pot might be a single BRK.A.
  - Invictus0 4y ago
    Rich moneybags never has to sell. He can just take out a margin loan and skip the taxes.
    - badpun 4y ago
      Surely you can't loan into infinity and have to sell at some point to start paying off the debt.
      - Invictus0 4y ago
        Suppose I have 100 million in my investment portfolio and a 5% interest rate. I want to buy a house for $10 million. So I withdraw 2 million in cash and get a margin loan for 2 million so I don't have to sell any securities. I take the 2 million in cash, get a mortgage for 8 million, and buy the house. On average the market returns 7%. So my $100 million portfolio is earning $7 million per year less the loan interest of 100k which comes to $6.9M. After 2 years I pay off the mortgage and repay the margin loan. I now have a house and I didn't have to pay any taxes on my securities to buy it. What if the market goes down? Well, I just wait for it to go back up again. I can easily afford to wait, my margin of safety is huge. Since the margin loan is for 2 million, and I need a 50% margin of safety by law, then the portfolio value would need to decline to 2 million (98% decline) before my loan gets called.
brobdingnagians 4y ago
This is political grandstanding and virtue signalling. It also presumes that increasing taxes above current levels helps the economy-- that is definitely not a given. The real reason, I suspect, is that elites have a lot of political control, increasing taxes increases that power, and it makes it harder for competition to catch up. So increasing taxes is a moat for the elite and helps the government achieve the elites' political goals; win-win for them, but a loss for the economy and the common man. But great for virtue signalling.
- d23 4y ago
  I'm in awe at the level of pretzel logic on display here. The rich are famously supportive of higher corporate tax rates because it helps them entrench their moat?
- deleted 4y ago
  [deleted]
- seanhunter 4y ago
  It presumes no such thing. It says that they hope and expect to make more profit in future than they do today. As they pay tax on a proportion of profits, increasing profits will mean they are increasing the amount of tax they pay even if taxes are kept at current levels.
- hajola 4y ago
  Could you please explain in more detail how a CEO of a profitable massive corporation signaling desire to pay higher corporate income tax is a loss for the economy and the common man. If anything he might be suggesting in the letter that corporations aren't paying their fair share relative to the common man.
  - brobdingnagians 4y ago
    It is a moat and keeps the status quo. He understands how finance works, and he understands how compound interest rates work; he got the benefit of "low interest rates" on taxes and generated a lot of wealth; if he increases taxes for upstarts and himself, the upstarts are harmed more, since he has the legacy wealth from the historical discount. Aristocrats made the laws favor themselves, and since they already owned all the land and wealth, no one was going to challenge them inside the legal framework. There is a tendency, once you make your own fortune, to get political influence and make laws that make it harder for others to do the same thing. Change the rules of the game so you can't fall. Lobbying is a key business skill these days.
slavboj 4y ago
One way that BH has historically made good acquisitions is by taking over a company with cashflow but not enough liquidity to afford a giant tax bill - for instance on the founder's death.
2OEH8eoCRo0 4y ago
> America would have done fine without Berkshire. The reverse is not true.
oaththrowaway 4y ago
They can always just pay more themselves right? Why don't they do that instead of grandstanding about hoping to pay more?
- jamiegreen 4y ago
  If one company pays more voluntarily, it's unlikely the head of that company will remain there very long!
  - oaththrowaway 4y ago
    And then people wonder why others are tired of virtue signaling...
    - lotsofpulp 4y ago
      There is no inconsistency with advocating for changing the rules of the game for all players, while also playing according to the existing rules until that happens.
      - oaththrowaway 4y ago
        Are they lobbying for that or just writing it like it's a dream?
        lotsofpulp 4y ago
        I do not see what difference that would make. Writing it, especially in a widely read publication, is a form of lobbying anyway.
        oaththrowaway 4y ago
        Why does it not make a difference to bribe politicians? That's the whole point of lobbying isn't it?
bilsbie 4y ago
Don’t they already pay double tax since the companies they own also pay taxes?
- voisin 4y ago
  No. Any taxes paid by a subsidiary would be a credit to the holding company’s taxes owing in one form or another (even if a deferred credit) depending on the legal structure.
  - bilsbie 4y ago
    Interesting. Can you point me towards some further reading on that?
tomcam 4y ago
Nothing is stopping them from paying more taxes right now. Why not lead the way and check that off their to-do list immediately?
- voisin 4y ago
  Because that’s not how you reform a broken system.
- tim333 4y ago
  I'm not sure that's actually true. Taxes are set in law. If you write to the IRS saying my tax bill is $1000 but I'm sending you a check for $10,000 because I want to pay more I imagine they'd have to return it.
  - deleted 4y ago
    [deleted]
  - tomcam 4y ago
    Just write it to these fine people: https://fiscal.treasury.gov/general-fund/ https://fiscal.treasury.gov/general-fund/

mg 4y ago

According to the first page of the letter, they have a pretty good track record. In 58 years, they outperformed the S&P500 39 times. That is 67% of the time, which according to R comes down to a p value of 0.01: binom.test(x=39, n=58, p=.5) => p-value = 0.01193 On the other hand, countless investors started out 58 years ago and 1 in 50 had a performance like this or better by pure chance. So it's hard to say to what extent the performance is an indicator of capability.

haakonhr 4y ago
Not going to do the math here, but the magnitudes are quite important.. It seems like the worst years are around 20% worse than the S&P, but there are several years where their outperformance is more than 100%.
sethev 4y ago
On it's face, it seems implausible that 1 in 50 investors were as successful as Warren Buffet.
gtheodor 4y ago
In 1984, Warren Buffett wrote an article to address this criticism - https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...
- deleted 4y ago
  [deleted]

aicharades 4y ago

[flagged]

gwern 4y ago

The Buffett letters, and returns, get worse each year. To reiterate my comments on earlier ones, it's amazing that in this era of financial chaos, Buffett seems to be so uninvolved and get so little use out of his vaunted warchest & credit... There's nothing new here if you've read 2 or 3 of the previous ones, and it's astonishing how navel-gazing and hermetic it is: this could have been written in 2015 or 2010 or 2005, there's basically no way to tell other than from a few marquee names. Bring to mind everything that has happened in the past 2 or 3 years which is relevant to finance and politics and investing, which is a lot, and see how much of it you can find even the slightest allusion to in here.

nodesocket 4y ago
I agree, as of late I think I have come to realize Warren is extremely cold and calculated and holds his cards close to his chest. I went to the shareholder meeting in omaha in 2017 and felt even then he was much more open in the years prior letters. You'd think he would have touched on inflation, the everything-bubble that was 2021 fueled by out of control government spending. What's the future of unemployment in America? Technology, more color on Apple their largest stock holding (41%[1] of their total portfolio)? [1] https://www.cnbc.com/berkshire-hathaway-portfolio/ https://www.cnbc.com/berkshire-hathaway-portfolio/
- tim333 4y ago
  I'd say he is one of the least cold people I can think of but he is 92 and slowing down a bit in terms of explaining the latest trends.