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Looking beyond Berkshire Hathaway's distorted profit figures

PUBLISHED

2024-02-26

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Warren Buffett is correct in advising investors to disregard Berkshire Hathaway's statutory profit figures, as they are distorted by accounting rules mandating the inclusion of unrealized gains and losses. However, recent figures from the December quarter and full 2023 demonstrate otherwise.

Forced to report in this manner, Berkshire's true standout performer, its vast insurance and re-insurance operations, remains obscured. These operations fueled a remarkable improvement in 2023.

In the December quarter alone, unrealized gains propelled statutory net income to more than double, reaching $37.57 billion. Meanwhile, Buffett's preferred metric, operating profit, saw a more modest increase of 28%, amounting to $8.48 billion.

Throughout 2023, statutory net income soared to $96.2 billion, surpassing the previous record of $89.9 billion in 2021. Operating income increased by a solid 21% to $37.4 billion for the year.

Despite these substantial gains, Berkshire maintains a conservative financial stance, reflected in its extensive cash and US Treasury holdings, which reached a record $167.6 billion by the end of 2023.

Berkshire's standout performer for 2023 was its expansive insurance operations, which experienced exceptional growth, setting records in sales, float, and underwriting profits.

Looking forward, Buffett remains cautious about investment opportunities, lamenting the scarcity of bargains. Nevertheless, Berkshire's strategic moves into companies like Occidental Petroleum and Chevron have bolstered its performance, albeit attracting criticism from environmentalists.

As Berkshire's market value continues to soar, approaching the trillion-dollar mark, Buffett's investment strategies prove influential, underlining the company's enduring success.

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