“Deceptive ‘adjustments’ to earnings” is how Berkshire Hathaway’s legendary CEO Warren Buffet has taken to describe the often dubious methods of accounting that are being used to boost the value of stocks today. Talking to Berkshire shareholders in his now infamous letters, the Oracle of Omaha suggested that the phrase was a “polite description” for these actions, which have become “more frequent and more fanciful as stocks have risen.”

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The billionaire investor added, “Speaking less politely, I would say that bull markets breed bloviated bull…”

Buffet’s annual shareholder letters have gathered a cult status among investors over the years for containing invaluable wisdom for many, in addition to the highlights of the financial holding’s that the company has.

Buffet, in particular, had been talking about its wholly-owned company, BNSF Railway, which is Berkshire’s third most valuable holding per market value. The freight railroad is one of the largest in the US, employing 35,000 and having a fleet of 8,000 locomotives.

Buffet added that the “railroad had record earnings of $6 billion in 2021”. This earning was “calculated after interest, taxes, depreciation, amortization and all forms of compensation” something that Buffet calls the “old-fashioned” way in a subtle lash at the ways that today’s companies have taken to boost their earnings reported through ‘creative means.’

Among Berkshire’s other valuable holdings, Buffet highlighted the financials of these holdings as well.

A fact that many outsiders would not know is that Berkshire’s most valuable asset is the group of insurance companies that it owns. Berkshire Hathaway GUARD Insurance Companies, Berkshire Hathaway Specialty Insurance, Applied Underwriters, Gateway Underwriters Agency, GEICO, General RE, MedPro Group, National Indemnity Company, and United States Liability Insurance Group collectively contribute a massive $147 billion “float” value, an increase of $9 billion over the past year.

“The insurance business is made to order for Berkshire. The product will never be obsolete, and sales volume will generally increase along with both economic growth and inflation. Also, integrity and capital will forever be important. Our company can and will behave well,” Buffet said.

Apple is the company’s second most valuable “giant”, as Buffet puts it. The company’s ownership in the tech giant grew by .16 percent over the past year, with “each 0.1% of Apple’s 2021 earnings amounted to $100 million”. Berkshire’s holding in value is now worth $5.6 billion, with the increase in stake coming from Apple stock repurchases. Apple also contributed $785 million in dividends to Berkshire.

Berkshire Hathaway Energy, or BHE, is Berkshire’s fourth giant. The company is 91.1 percent owned by Berkshire Hathaway and had earnings of a record $4 billion in 2021. It is one of the largest producers of renewable energy in the US, with the company being “a leading force in wind, solar and transmission throughout much of the United States.”

Buffet also highlighted that BHE’s environmental accomplishments are, added as annexures, not “one of those currently-fashionable ‘green-washing’ stories.”

Finally, Buffet also shared many of his personal touches to the letter as he is often known to do, including acknowledging the tremendous luck that Berkshire Hathaway has had in its road to achieving an overall gain of 3,641,613 percent, or CAG of 20.1 percent, between 1965-2021.

The entire letter can be read in its entirety here: https://www.berkshirehathaway.com/letters/2021ltr.pdf

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(Edited by : Shloka Badkar)

First Published:Mar 15, 2022 7:39 PM IST