Yes, it is easy to see how “older and crankier” develops when the nouveau twitter gushes over a Buffet aphorism that was seemingly revelatory in…1986?

But we digress. Our keen eye would note the following as worthy in the 2024 edition.

Well, It Just Depends How you “Adjust” Them?

You seek guidance and are told that the procedures for calculating these “earnings” are promulgated by a sober and credentialed Financial Accounting Standards Board (“FASB”), mandated by a dedicated and hard-working Securities and Exchange Commission (“SEC”) and audited by the world-class professionals at Deloitte & Touche (“D&T”). On page K-67, D&T pulls no punches: “In our opinion, the financial statements . . . . . present fairly, in all material respects (italics mine), the financial position of the Company . . . . . and the results of its operations . . . . . for each of the three years in the period ended December 31, 2023 . . . . .”

So sanctified, this worse-than-useless “net income” figure quickly gets transmitted throughout the world via the internet and media. All parties believe they have done their job – and, legally, they have.

We, however, are left uncomfortable. At Berkshire, our view is that “earnings” should be a sensible concept that Bertie will find somewhat useful – but only as a starting point – in evaluating a business.

Buy an Index Fund or Berkshire? (Answer – There is Less Crap in a Berkshire.)

Berkshire now has – by far – the largest GAAP net worth recorded by any American business. Record operating income and a strong stock market led to a yearend figure of $561 billion. The total GAAP net worth for the other 499 S&P companies – a who’s who of American business – was $8.9 trillion in 2022. (The 2023 number for the S&P has not yet been tallied but is unlikely to materially exceed $9.5 trillion.)

By this measure, 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 (an act that immediately juices net worth).

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 by others. Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the U.S., 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.

So what are You Doing Today?

Nevertheless, managing Berkshire is mostly fun and always interesting. On the positive side, after 59 years of assemblage, the company now owns either a portion or 100% of various businesses that, on a weighted basis, have somewhat better prospects than exist at most large American companies. By both luck and pluck, a few huge winners have emerged from a great many dozens of decisions. And we now have a small cadre of long-time managers who never muse about going elsewhere and who regard 65 as just another birthday.

Sidenote: think of this in the context of how our “industry” seems to correctly prize the idea of “commitment.” But as we all know, there is a magical inflection point where “effort” does not add further basis points to performance. 18 hours a day or ten well thought out hours? Four tabs on a well-designed spreadsheet or 20? 25 analysts or 2? Eight stocks or 500? And three years of stupendous performance at 20% performance fees or 30 years at 200 bps over an index?

Governance, Governance, Governance

Berkshire benefits from an unusual constancy and clarity of purpose. While we emphasize treating our employees, communities and suppliers well – who wouldn’t wish to do so? – our allegiance will always be to our country and our shareholders. We never forget that, though your money is comingled with ours, it does not belong to us.

The Full Time Job of Trying Not to Be Stupid

One investment rule at Berkshire has not and will not change: Never risk permanent loss of capital. Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been – and will be – rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes.

Niagara vs. Viagra

Our goal is realistic. Berkshire’s strength comes from its Niagara of diverse earnings delivered after interest costs, taxes and substantial charges for depreciation and amortization (“EBITDA” is a banned measurement at Berkshire).

Share Repurchase or Dividend?

Berkshire does not currently pay dividends, and its share repurchases are 100% discretionary.

Though Berkshire did not purchase shares of either company in 2023, your indirect ownership of both Coke and AMEX increased a bit last year because of share repurchases we made at Berkshire. Such repurchases work to increase your participation in every asset that Berkshire owns. To this obvious but often overlooked truth, I add my usual caveat: All stock repurchases should be price-dependent. What is sensible at a discount to business-value becomes stupid if done at a premium.

Sidenote: cranky and tired of “debating” share repurchase with people – you just don’t learn anything debating with idiocy. That said, most of corporate America has zero idea of how to practically apply this simple rule of capital allocation: don’t buy anything that is overpriced, including your own stock. Most share repurchase in the corporate America is clearly designed to mop up excessive share issuance from executive compensation.

It’s Not What you Buy and Sell, It’s What You Own.

The lesson from Coke and AMEX? When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.

True Story: We Bought the Name for $1

Moving to the corporate level, Berkshire itself relocated in 1970 from its 81 years of residence in New England to settle in Omaha, leaving its troubles behind and blossoming in its new home.