As American As Apple Pie And Billionaires

I saw someone describe Warren Buffett’s annual letter as a “must-read” today. That sort of thing makes me sad.

Ostensibly, people pore over Buffett’s letters because they want to invest like him, but in addition, people are suckers for accumulated granddad wisdom and pretensions to folksy candor, particularly when they emanate from one of the world’s largest fortunes.

Over the years, Buffett has created an aura of faultlessness. He’s the frugal, affable billionaire next door who’ll gladly buy you an ice cream cone and afford you whatever smalltalk fits between the tip of a soft serve swirl and the last bite of a waffle cone. But he’s also the capitalist who’ll charge you every penny of the $19 million a serious discussion over a steak lunch is worth — only to turn around and donate the entire sum to a charity for homeless people, to whom the very existence of billionaires is an egregious affront. What’s not to love?

Buffett is also a fossilized piece of Americana. He’s like one of those perfectly preserved vintage oil cans the guys in American Pickers risk life and limb to uncover across the country’s innumerable Deliverance towns — a purely mundane, but singularly American item with humble beginnings now prized as an almost priceless piece of memorabilia.

A couple of things about all of that.

First, you can’t “invest like Buffett,” no matter what some book you bought at a long-shuttered Books-A-Million said. Conceptually, Berkshire is a giant hedge fund built atop an insurance float. Assuming you don’t plan to start an insurance company, the only way you can replicate Buffett is by selling loads of puts and investing the premiums in stocks you intend to hold forever. If you don’t know how to manage those puts, there’s a decent chance you’ll go broke.

It works for Buffett because cumulatively, through his insurance empire, he’s short an uncovered put to humanity, where the strike price is the Chicxulub impactor. He’ll tell you he’s got that covered with Berkshire’s cash pile. The truth is a little more depressing: If that entire put goes in the money all at once, it won’t matter because something’s gone so terribly awry that collecting will be the least of anyone’s concerns.

Second, Buffett isn’t a novelist. He’s not a historian either. And he damn sure isn’t a philosopher. He’s just some guy who made a lot of money and frankly, his path to billions wasn’t very interesting. I’ve said this before, and some readers don’t appreciate it, but I can promise you it’s accurate: If human civilization evolves in such a way that societies are structured differently let’s call it 500 years from now, nobody will even remember Warren Buffett, or at least not for doing anything worth doing.

It’s with all of that in mind that I’ll begrudgingly document Berkshire’s Q4 results and also Buffett’s letter. Operating income was $6.71 billion in Q4. That was down YoY, but the total for 2022, $30.8 billion, was a record.

Net earnings, which includes his stocks, were $18.16 billion. The jump was attributable to an $11.5 billion increase in Berkshire’s investments and derivative contracts.

Buffett obviously prefers investors focus on operating income, not net earnings which, incidentally, showed a net loss of almost $23 billion for 2022 as a whole.

Berkshire’s cash pile as of year-end was $128.585 billion, up nearly $20 billion from Q3.

“Berkshire will always hold a boatload of cash and US Treasury bills along with a wide array of businesses,” Buffett said, adding that the conglomerate “will also avoid behavior that could result in any uncomfortable cash needs at inconvenient times, including financial panics and unprecedented insurance losses.”

Buffett reiterated his contention that it’s “irresponsible” to delegate the job of chief risk officer to anyone. Age apparently isn’t relevant in that discussion and to be fair, he did seem sharp in Saturday’s letter, particularly while commenting on buybacks. He chided investment bankers for encouraging them at prices that aren’t accretive, but he reserved his most barbed criticism for politicians.

“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 (characters that are not mutually exclusive),” Buffett wrote, an especially pointed remark that won’t be lost on Progressives or on the White House. In his State of the Union address, Joe Biden floated quadrupling a tax on repurchases.

In Q4, Berkshire spent nearly $3 billion buying back its own shares, bringing 2022’s total to around $8 billion, the least since 2019. Buffett was a net seller of other stocks in Q4, but we already knew that (i.e., the Taiwan Semi news).

Buffett also said Saturday that if just 1,000 taxpayers were willing to chip in as much as he has over the past 10 years, nobody else would need to pay any taxes. “Berkshire’s contribution via the corporate income tax was $32 billion during the decade, almost exactly a tenth of 1% of all money that the Treasury collected,” he wrote. “Had there been roughly 1,000 taxpayers in the US matching Berkshire’s payments, no other businesses nor any of the country’s 131 million households would have needed to pay any taxes to the federal government. Not a dime.”

Without disputing the numbers (because I’m sure there’s nothing to dispute), I’d gently suggest there’s more to it than that. I’d also submit that when you’re implicitly told Americans have one man to thank for 1% of everything the federal government has done for 330 million people over the past decade, “you are listening to either an illiterate on government finance or a silver-haired billionaire, characters who, apparently, are not mutually exclusive.”

Buffett described how much in taxes Berkshire has paid in terms of an airplane’s cruising altitude. If you were to pile up $100 bills that together sum to the conglomerate’s cumulative tax payments from 2012 to 2021, then climb up the stack and sit on top, you’d be 21 miles in the sky, he wrote.

Thankfully, he again acknowledged the fact (and contrary to what a lot of capitalists will tell you, it is a fact) that private enterprises can only flourish to their full potential in the presence of public investment. “At Berkshire we hope and expect to pay much more in taxes during the next decade,” Buffett said, adding that he “owe[s] the country no less” given that “America’s dynamism has made a huge contribution to whatever success Berkshire has achieved — a contribution Berkshire will always need.”

Buffett also seemed upset with America’s ongoing reckoning with its own history, although the nebulous terms he employed made it impossible to say who (or, more to the point, which party), he was tacitly criticizing. “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,” he wrote.

That’s an example of what I mean when I contend that Buffett is no wellspring of philosophical profundity. We should all exhibit a “penchant” for self-criticism, if not necessarily self-doubt. Self-criticism is the key to introspection, and unlike money, true introspection can “buy” a measure of true happiness.

For all the “temporarily embarrassed billionaires,” Buffett was kind enough to pass along his “secret sauce,” as he called it. “In August 1994 Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own,” he told millions of disciples who, instead of spending Saturday with family, friends and pets, squandered at least half an hour (re)reading the wholly uninteresting account of how two ninety-year-old men became rich.

“The total cost was $1.3 billion [and] the cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million,” Buffett went on. “Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke’s quarterly dividend checks.”

See there? You too can be a billionaire! It’s as simple and, importantly, as American, as apple pie. And peanut brittle. And Coke.