Warren Buffett praises late Charlie Munger in stock letter

Buffett told the story of how in 1965 he was lamenting his decision to purchase Berkshire, at the time a failing New England textile company.

That’s when Munger advised him to use Berkshire as an investment vehicle. Munger told Buffett as he sought to add to the company, he should focus on acquiring “wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices.”

That, Buffett said, became the guiding principle that has made Berkshire what it is today.

“In reality, Charlie was the ‘architect’ of the present Berkshire, and I acted as the ‘general contractor’ to carry out the day-by-day construction of his vision,” Buffett wrote. “Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades.”

Saturday’s annual letter was the first Buffett has published since the November death of the 99-year-old Munger, the feisty, brainy sidekick who served for decades as Buffett’s partner and Berkshire vice chairman.

Buffett noted that Munger’s advice flew in the face of what Buffett had learned from his own mentor, value investment guru Benjamin Graham. And it was offered years before Munger actually partnered with Buffett or owned a single share of Berkshire stock.

Munger’s importance continued in the decades the two worked together. Munger, Buffett wrote, often “jerked me back to sanity when my old habits surfaced.”

“Until his death, he continued in this role and together we, along with those who early on invested with us, ended up far better off than Charlie and I had ever dreamed possible,” Buffett wrote.

Buffett’s letter also recounted some of the reasons behind a solid year for Berkshire, which saw the operating income of its core companies increase 17% from $30.9 billion to $37.4 billion.

However, the fourth quarter operating results Berkshire also reported on Saturday were down more than $2 billion from the third quarter, leaving total annual results short of analysts’ projections.

James Shanahan, who analyzes Berkshire for investment firm Edward Jones, said the falling results can largely be traced to weak performance of Berkshire’s energy holdings. Berkshire Hathaway Energy is continuing to feel the effects of losses due to wildfires in California and Oregon.

Berkshire’s pile of cash at the end of the year reached a record $167 billion, up $39 billion from the year before.

Its growth reflects Buffett’s inability to find a large company to purchase, which Buffett again lamented is due to the fact Berkshire has grown so large it’s hard to find an attractive target that can “move the needle.”

“(F)or a while, we had an abundance of candidates to evaluate. If I missed one — and I missed plenty — another always came along,” Buffett wrote Saturday. “Those days are long behind us.”

Buffett noted that Berkshire did increase its stakes in both Occidental Petroleum and in five large Japanese companies it first invested in in 2019. The increased holdings in the Japanese companies came after Buffett traveled to Tokyo last year.

Buffett praised Berkshire’s stake of nearly 28% of Occidental Petroleum. He said the company’s investments in shale oil production has sharply reduced America’s reliance on foreign sources of oil.

“Occidental is doing the right things for both its country and its owners,” Buffett wrote.

Speaking to Berkshire’s large size, Buffett noted that Berkshire is now worth some $560 billion while the rest of the 499 S&P companies are worth about $9.5 trillion.

“By this measure, Berkshire now occupies nearly 6% of the universe in which it operates,” he wrote.

Berkshire also bought back $9.2 billion worth of its own stock in 2023, up from $7.9 billion the previous year. In all, Shanahan said, Berkshire has bought back $75 billion worth since 2018.

With Munger’s passing, the 93-year-old Buffett noted he will be joined only by vice chairmen Greg Abel and Ajit Jain when he takes the stage at the annual meeting in Omaha on May 4.

Buffett mused how he and Munger had both grown up in Omaha. And while Abel was born in Canada and Jain in India, before they joined Berkshire both lived in Omaha just blocks from Buffett’s home. 

“Is it Omaha’s water? Is it Omaha’s air? Is it some strange planetary phenomenon akin to that which has produced Jamaica’s sprinters, Kenya’s marathon runners, or Russia’s chess experts?” Buffett wrote.

To find out, he encouraged shareholders to come to Omaha and sample the air and water themselves.

He also encouraged shareholders to pick up the new 4th edition of the book “Poor Charlie’s Almanack,” a collection of Munger’s speeches and writings.

“Charlie’s wisdom will improve your life as it has mine,” Buffett wrote.