Warren Buffett is still betting on America.
Stocks and bonds slumped in 2022 after central banks raised interest rates at a rapid pace to try to rein in inflation. But Mr. Buffett retained his sense of optimism in his annual letter to investors Saturday, saying he continues to believe in the resilience of the U.S. economy.
“I have been investing for 80 years—more than one-third of our country’s lifetime. 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,” Mr. Buffett said in the letter.
Mr. Buffett, widely regarded as one of the world’s top investors, has been publishing the letters for more than half a century. Over that time, he hasn’t just reflected on the past year for his company, Berkshire Hathaway Inc., but also shared his thoughts on everything from esoteric accounting rules to his aversion to excessive risk-taking.
Saturday’s letter offered readers a glimpse into how Mr. Buffett, 92, viewed what wound up being a shaky stretch for markets. Mr. Buffett’s portfolio took a hit, too, with Berkshire posting a loss for 2022 in large part due to investment losses.
The volatility offered Berkshire an opportunity to jump in and buy stocks. While Berkshire largely bought back its own shares in 2021, it focused more in 2022 on investing in other companies—opening up new positions in media company Paramount Global and building-materials manufacturer Louisiana-Pacific Corp., among other businesses, and swiftly becoming Occidental Petroleum Corp.’s single-biggest shareholder.
As of the end of 2022, Berkshire was the largest shareholder of eight companies—American Express Co., Bank of America Corp., Chevron Corp., Coca-Cola Co., HP Inc., Moody’s Corp., Occidental and Paramount Global.
Berkshire is able to make big investments because its insurance operations generate billions of dollars of float, or premiums that customers pay upfront, which Berkshire can in turn put to work in the markets. Its acquisition last year of property-casualty insurer Alleghany Corp. helped increase its insurance float—which Mr. Buffett called an extraordinary asset for Berkshire—to $164 billion last year, Mr. Buffett said.
How do Mr. Buffett and right-hand man Charlie Munger decide where to put that money? Both have said they refrain from basing their decisions on where they think interest rates, oil prices, or other factors that affect markets will be in a year’s time.
“Though economists, politicians and many of the public have opinions about the consequences of that huge imbalance, Charlie and I plead ignorance and firmly believe that near-term economic and market forecasts are worse than useless,” he said in Saturday’s letter.
Instead, the two focus on investing Berkshire’s money in “a manner that will achieve an acceptable result over time and that will preserve the company’s unmatched staying power when financial panics or severe worldwide recessions occur,” he said. Berkshire reported having cash and cash equivalents of $128.6 billion at the end of 2022, down from a near-record $146.7 billion at the end of 2021 but up from the third quarter.
While Berkshire’s original business, a New England textile operation, no longer exists, Mr. Buffett said Berkshire has continued to be able to deliver returns to shareholders because of its focus on what he called the American tailwind.
“America would have done fine without Berkshire. The reverse is not true,” he said. In his letter, Mr. Buffett also defended the practice of stock buybacks. Berkshire spent nearly $8 billion repurchasing its shares in 2022, down from a record of $27 billion the previous year.
Although critics of buybacks contend that companies would be better off investing that money into their businesses, proponents, like Mr. Buffett, say they can benefit shareholders if they are executed when a company’s share price is trading below its value.
“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue,” he said.
Berkshire also released its results for 2022 Saturday.
The Omaha, Neb., company, which owns businesses including insurer Geico, railroad BNSF Railway and chocolate maker See’s Candies, posted a loss of $22.82 billion for the year, stung by $67.9 billion in investment and derivative contract losses. In 2021 when stocks surged, Berkshire posted a profit of $90.8 billion.
Total revenue rose 9.4% to $302.1 billion.
Berkshire’s operating earnings, which exclude some investment results, rose to a record $30.8 billion. For the fourth quarter, operating earnings fell 8% to $6.7 billion, weighed down by lower profits at its railroad business.
Mr. Buffett, Berkshire’s chief executive, has long held that operating earnings are a better reflection of how Berkshire is doing, since accounting rules require the company to include unrealized gains and losses from its massive investment portfolio in its net income. Volatile markets can make Berkshire’s net income change substantially from quarter to quarter, regardless of how its underlying businesses are doing.
“Capital gains, to be sure, have been hugely important to Berkshire over past decades, and we expect them to be meaningfully positive in future decades,” Mr. Buffett said in his letter. “But their quarter-by-quarter gyrations, regularly and mindlessly headlined by media, totally misinform investors,” he said, adding that he and Mr. Munger urge shareholders to focus instead on Berkshire’s operating earnings.