Text size

Every year, investors await Warren Buffett’s annual shareholder letter with excitement, hoping for the insights and flare that make it a must-read. This year’s was a disappointment. 

Buffett took just two pages of the relatively brief 11-page letter to go over events of the past year and there wasn’t a lot of insight. The eagerly anticipated missive released Saturday didn’t address some key issues, including the slowdown in stock buybacks at

Berkshire Hathaway
,
the troubles at Geico, and succession. 

He crowed—deservedly so—about Berkshire’s investment in

Coca-Cola

30 years ago. The stake is now worth $24 billion, well above Berkshire’s cost of $1.3 billion. But he didn’t say why Coke remains a good investment given its reliance on sugary sodas, its contribution to global obesity, and the underperformance of Coke stock relative to the

S&P 500

over the past 20 years. 

And looking ahead is what Buffett should have been doing. He is 92 and his partner and friend, Berkshire Hathaway vice chairman Charlie Munger, is 99. They aren’t Berkshire’s future.  

It would have been nice to hear from him about why he has confidence in the future management team. They include Greg Abel, 60, the likely successor to Buffett as CEO; Ajit Jain, 71, who probably will remain head of the vast insurance operations, and Todd Combs and Ted Weschler, who now run about 10% of Berkshire’s $300 billion-plus equity portfolio and probably will run the whole thing in the post-Buffett era. 

Combs and Weschler have been at Berkshire for over a decade. What is their investment performance? Buffett has said little except for a comment four years ago to CNBC that they were slightly behind the S&P 500. How much longer will Jain be running the insurance business? Is Joe Brandon, the former CEO of Alleghany, the insurer Berkshire bought for about $11.5 billion in October, the likely successor to Jain? 

Buffett stayed mum on other big issues. He slammed buyback critics but didn’t explain why Berkshire slowed its share repurchases in 2022 to $7.9 billion from $27 billion in 2021 and $25 billion in 2020. 

More BERKSHIRE MUST-READS

Geico, Berkshire’s big auto insurance unit, was also unaddressed. It has struggled in the past 18 months and had an underwriting loss in 2022. Geico, which has been run by Combs for the past three years, has underinvested in technology relative to Progressive and is faring worse than its arch rival in profitability and growth. Berkshire did say in its 10-K that it expects Geico to turn an underwriting profit in 2023, but there was nothing in the letter about the progress and challenges at one of Berkshire’s marquee businesses that is probably worth about $75 billion. 

Buffett didn’t even address the good stuff, including Berkshire’s energy investments in 2022, notably a purchase of about $20 billion in

Chevron

and a buy of about $12 billion—a 21% stake—in

Occidental Petroleum
,
both of which have paid off handsomely.

The Oracle of Omaha, as Buffett is known, mentioned that he had made “many mistakes” in 58 years at the helm of Berkshire but didn’t discuss them. One likely was Berkshire’s purchase of Precision Castparts in 2016. Berkshire paid over $30 billion for the maker of aircraft parts—its largest acquisition in the past decade—and took a roughly $10 billion write-down on it in 2020. PCC as it is known had $7.5 billion of revenue and $1.2 billion of operating income in 2022 versus $10 billion of sales and $2.6 billion of operating income in 2015, the year before Berkshire bought it. That’s not great. Does Buffett think PCC can get back to historical levels of profitability?

Berkshire’s fourth-quarter results released Saturday did highlight the company’s financial strength and earnings power. The company had over $30 billion of after-tax operating income in 2022, up 12% from 2021 and it’s sitting on $129 billion of cash even after buying Alleghany. This year’s earnings should be higher due to rising investment income, the swing to profits at Geico and the Alleghany acquisition. 

Despite that strong performance, Berkshire stock has trailed the

S&P 500
over the past five and 10 years—and the biggest question Buffett needs to address is this: Why will Berkshire be a market-beating investment after he’s gone? Even with Buffett at the helm and with all of its many advantages it hasn’t lived up to its reputation as a world-beating investment. 

Let’s hope Buffett tackles some of these issues at the annual meeting in early May. Anything else would be a disappointment.

Write to Andrew Bary at [email protected]