Many investors look forward to the annual letter from Warren Buffett. On Saturday, Berkshire Hathaway reported earnings and Mr. Buffett offered commentary and delivered his annual letter to shareholders. The company reported record operating profits and also beat the market handily in 2022. Fearing a recession in 2023, more investors put their trust (and money) in the hands of the world’s greatest investor. Berkshire Hathaway is the largest position in my wife’s accounts. We’re listening to Warren Buffett on the Sunday Reads.
Warren Buffett’s Berkshire Hathaway Inc on Saturday reported its highest-ever annual operating profit, even as foreign currency losses and lower gains from investments caused fourth-quarter profit to fall. Businesses generated $30.8 billion of profit despite rising inflation. Buffett and friends also increased their cash position to near $130 billion.
Sitting on a massive cash pile
The investment giant held ~$128.7B of cash and short-term securities at Dec. 31, 2022, vs. ~$109.0B at Sept. 30. That’s even with the company acquiring Alleghany Corp. in the last quarter of 2022. Owning or purchasing Berkshire delivers an immediate cash hedge, in “pretty good hands”. Should we get a recession, the Berkshire teams will go shopping in a meaningful way. Corrections are when they do their thing and create the conditions for outperformance.
Berkshire’s share price rose 4% in 2022, far outpacing the S&P 500 which fell 18%, reflecting Berkshire’s status as a defensive investment. I have long suggested that investors consider a position in Berkshire (BRK BRK.B). When the going gets tough, Berkshire often gets going.
In the COVID correction Warren Buffett did not get his chance to be greedy. Massive stimulus quickly ended the shallow recession and stock market correction. From the chart above, we can see that the market started to embrace Mr. Buffett and the stock. Will Mr. Buffett get the chance to spend a good chunk of his $130 billion in a recession? Who knows. But I like the idea of having that cash pile in good hands.
You’ll see just a little bit of outperformance from the time of my article, ha. 71% vs 28%. 🙂 But to be honest, the S&P 500 gets a little boost for that Author’s Rating evaluation, they did not includes the dividends. But it’s still not a fair fight.
This is not advice, but you might consider Berkshire Hathaway as part of your portfolio defense. For Canadian dollar accounts you can purchase Berkshire Hathaway as a CDR listed on the Ne0 Exchange. Those are currency hedged.
Another rough week for stocks
Friday’s slide came as investors digested another stronger-than-expected inflation figure. Government statistics showed that the PCE price index, considered a favorite indicator for the Federal Reserve, rose 0.6% in January compared to the previous month. This topped the 0.4% increase that economists were predicting.
The same report showed that personal spending rose 1.8% in January, also stronger than projected. These figures cemented the growing narrative that the Fed will need to remain hawkish for longer than previously expected to get inflation under control.
It’s more of that same as I have been observing. Things are moving in slow motion.
Lance Roberts shows how pandemic savings are running out as the credit cards are working double duty. And most notably, Lance offers how many young retail investors are learning some expensive lessons.
And Martin Pelletier tweeted that the Fed might have to try harder …
Many have suggested that Canada no longer has an inflation problem. But food is sticky …
More Sunday Reads
On My Own Advisor, Mark writes that high yield stocks are not so bad.
A few weeks ago I noticed that dividend investors were leading the charge.
Bob at Tawcan has posted his January 2023 portfolio update.
The 17 dividend paycheques added up to $5,193.45. This has been the highest monthly dividend income ever for us.
Also from Bob …
In January, the following companies we own announced dividend hikes:
- Metro (MRU.TO) increased its dividend payout by 10% to $0.3025 per share.
- Canadian National Railway (CNR.TO) increased its dividend payout by 8% to $0.79 per share.
- BCE (BCE.TO) increased its dividend payout by 5.2% to $0.09675 per share.
- BlackRock (BLK) increased its dividend payout by 2.5% to $5.00 per share.
You’ll find those 4 companies in the Canadian Wide Moat Portfolio. It might be the best stock portfolio approach in Canada.
$1.7 million to retire?
On MoneySense, Jonathan Chevreau takes a look at the claim that we’ll need $1.7 million to retire.
Of course everyone is different in lifestyle and income needs. I’ve talked to so many retirees who live quite comfortably on much less. A key is to have no debt in retirement IMHO.
I’ve updated the defensive sectors for retirement post. It now includes Canadian dollar ETFs for the consumer staples, healthcare and utilities sector.
At Questrade you can buy ETFs for free.
At stocktrades.ca, Dan offers some Canadian healthcare stocks.
Dividend Hawk looks at the earnings and investment posts of the week. CIBC was the first Canadian bank to report. I believe the rest of them report next week. It’s likely they will continue to find ways to drive profits even while lending declines. That said, the Canadian real estate recession should bite, at some point.
Next week should be very interesting.
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Hi Dale,
Which type of account would you suggest putting BRK:NEO (BRK.B?) in? Do you know if there are withholding taxes on BRK:NEO ? CDRs sound quite interesting. I’m guessing they would be taxed as dividend income?
Thanks for all the great info you send our way!
Hi Deb, you can use the CDRs in Canadian Dollar Accounts. You’d buy BRK.B in U.S. dollar accounts.
Fortunately on the tax front, Berkshire Hathaway does not pay a dividend so there will be no withholding taxes. Normally there would be as it’s a U.S. holding in a Canadian Dollar account.
If you hold Berkshire in a taxable account you would pay capital gains on any profits from share sales.
I hope that helps.