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Big market price swings, uncertainty in the economy, and geopolitical tensions… nothing stopped Berkshire Hathaway from outperforming the S&P 500 index in 2022. What is the secret of Buffett’s fund, or is it simply the result of share buybacks?
In reality, apart from buybacks, the company’s shares were helped by strong financial results and new strategic acquisitions. According to the annual report, the holding company’s operating profit soared by more than 10% to a record $30.8 billion.
Total revenues, in turn, rose by 9.4% to $302.1 billion last year. All this was made possible not only by the Fed’s interest rate hike, which benefited the insurance business but also by the post-pandemic economic recovery.
On the other hand, thanks to the purchase of Alleghany Insurance Company, Berkshire Hathaway’s insurance float increased from $147 billion to $164 billion. In the long term, this will bring higher earnings, as well as additional capital for new investments.
Overall, Warren Buffett said the fund “will always have plenty of cash and U.S. Treasuries, along with a broad range of businesses.” It will also avoid “behaviors that could lead to uncomfortable cash needs at inopportune times.”
Speaking of the broader economy, the market guru again recommended in his annual letter to shareholders “not to bet against the U.S.” and to focus on the long-term outlook. Despite all the risks, the investor is optimistic about the future of the U.S. economy.
This is not to say that just any American stock would do to include in the portfolio. Warren Buffett, in this regard, prefers companies with long-term development prospects rather than stocks on their own. It is worth mentioning that this same principle works for all markets.
