Warren Buffett has released his annual letter to shareholders for 2021 and in it, he reveals the company's performance over the last year.
Let's dive into that letter below with some highlights that traders need to know.
BRK.A had strong beats on earnings, revenue, and operating profits in Q4 2021
Buffett's annual letter names "Four Giants" are key to Berkshire's results: its insurance business, its stake in Apple, its BNSF railroad, and its energy operations.
Buffett cites three paths to raising shareholder value: earnings of controlled businesses, non-controlling interests in excellent companies, and share buybacks.
Berkshire Hathaway earnings results
Berkshire Hathaway, Inc. reported Q4 FY 2021 earnings that exceeded analysts' expectations. Earnings per share were up by 16.0% year over year and 44.7% better than analysts' forecasts.
Earnings Per Share ($)
Operating Earnings ($B)
Source: Predictions based on analysts' consensus from Visible Alpha
The company's four giants
The first of these is the company’s collection of insurers. Berkshire Hathaway effectively owns 100% of this group. Buffett notes that this market "will never be obsolete, and sales volume will generally increase along with both economic growth and inflation."
The next of the big four is Apple. Berkshire Hathaway owned a 5.55% stake in the company in 2021, which is an increase over its 5.39% stake in 2020. Berkshire Hathaway gained $785 million in dividends from the tech company in 2021.
The third of the big four is BNSF Railway, one of the largest railways in North America and keeps commerce flowing in the country. The company, which is owned by Berkshire Hathaway, reported earnings of $6 billion in 2021.
The final of the four giants is the company's own Berkshire Hathaway Energy. Earnings for 2021 came in at $4 billion. For comparison, the company reported earnings of $122 million in 2000, which is when Berkshire Hathaway first took a stake in it. Now it holds a 91.1% stake in the energy company.
Three ways to increase the value of your investment
The first is always front: Increase the long-term earning power of Berkshire's controlled businesses through internal growth or by making acquisitions.
The second choice is to buy non-controlling part-interests in the many good or great businesses that are publicly traded.
The final path to value creation is to repurchase Berkshire shares. When the price/value equation is right, this path is the easiest and most certain way to increase wealth.
Here are key quotes from the letter
"Whatever our form of ownership, our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO. Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie (Vice Chairman Charlie Munger) and I are not stock-pickers; we are business-pickers."
"Deceptive 'adjustments' to earnings – to use a polite description – have become both more frequent and more fanciful as stocks have risen. Speaking less politely, I would say that bull markets breed bloviated bull."
"Today, though, we find little that excites us. That's largely because of a truism: Long-term interest rates that are low push the prices of all productive investments upward, whether these are stocks, apartments, farms, oil wells, whatever. Other factors influence valuations as well, but interest rates will always be important."