This is a summary of the 2019 Warren Buffett (Trades, Portfolio) shareholder letter.
Earnings:
Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) earned $81.4 billion in 2019 according to generally accepted accounting principles (commonly called “GAAP”). The components of that figure are $24 billion of operating earnings, $3.7 billion of realized capital gains and a $53.7 billion gain from an increase in the amount of net unrealized capital gains that exist in the stocks it holds. Each of those components of earnings is stated on an after-tax basis.
The components of that figure are $24 billion of operating earnings, which were little changed in 2019.
Acquisition criteria:
First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price.
Tom Murphy’s advice:
“To achieve a reputation as a good manager, just be sure you buy good businesses.”
Operating results: Non-insurance
Total net income in 2019 from the non-insurance businesses it controls amounted to $17.7 billion, an increase of 3% from the $17.2 billion earned in 2018. Acquisitions and dispositions had almost no net effect on these results.
Operating results: Insurance
Berkshire has now operated at an underwriting profit for 16 of the last 17 years, the exception being 2017, when the pre-tax loss was a whopping $3.2 billion. For the entire 17-year span, the pre-tax gain totaled $27.5 billion, of which $400 million was recorded in 2019.
Stock buybacks:
According to Buffett, Berkshire will buy back its stock only if a) "Charlie and I believe that it is selling for less than it is worth" and b) "the company, upon completing the repurchase, is left with ample cash."
Calculations of intrinsic value are far from precise. Consequently, neither of them feels any urgency to buy an estimated $1 of value for a very real 95 cents. In 2019, the Berkshire price-value equation was modestly favorable at times, and management spent $5 billion in repurchasing about 1% of the company.
You can read the complete letter here.
Comments: There were no major stock purchase or acquisitions in 2019. Berkshire’s buybacks in 2019 indicate that Buffett thinks the intrinsic value of Berkshire class B stock is at around $205 a share, with the price-book ratio at about 1.3. This is above that 1.2 buyback threshold he talked about a few years back. But it is consistent with what he said about the increase of the portion of operating business, which deserves a higher price-book ratio.
