Berkshire Hathaway: The Unbreakable Fortress 2023

Berkshire Hathaway has long been known as a safe haven during economic downturns, thanks to Warren Buffett's conservative investment strategy and focus on undervalued companies with strong fundamentals. The company has consistently outperformed the S&P 500 during recessions and bear markets, and its diversified portfolio, top holding Apple, and massive cash hoard have contributed to its resilience. Despite underperformance from subsidiary Geico, Berkshire Hathaway's future outlook remains strong, with potential future investments and acquisitions likely to bolster its portfolio and drive continued outperformance. As shareholders, it is essential to stay informed and adhere to a long-term investment strategy to maximize investments and benefit from the company's resilience during turbulent times.

Important: Tomorrow, May-06-2023 is our 2023 shareholder meeting!.

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Introduction

Berkshire Hathaway, a multinational conglomerate holding company, has long been regarded as a safe haven during recessions and bear markets. With its roots dating back to the 19th century, the company has evolved into a powerhouse under the leadership of Warren Buffett, the Oracle of Omaha. As Berkshire Hathaway prepares for its annual shareholder meeting this weekend, it is essential to examine the factors that have contributed to the company's resilience and success in turbulent times. This article will delve into Berkshire Hathaway's history, its performance during recessions and bear markets, the impact of its top holding Apple, the underperformance of Geico, and the future outlook for the company.

Berkshire Hathaway's Performance During Recessions and Bear Markets

Since 1980, Berkshire Hathaway has consistently outperformed the S&P 500 during recessions and bear markets. According to CNBC, Berkshire shares have beaten the broader market over the course of six recessions by a median of 4.41 percentage points. Furthermore, the conglomerate has outpaced the S&P 500 each time it dropped 20%, beating the broader index by a median of 14.89 percentage points¹. These impressive figures can be attributed to Warren Buffett's long-term focus and conservative investment strategy.

Buffett's investment philosophy is centered on the idea of purchasing undervalued companies with strong fundamentals and holding onto them for the long term. This approach has allowed Berkshire Hathaway to weather economic downturns and emerge even stronger. Additionally, Buffett's preference for investing in stable, dividend-paying companies has helped build Berkshire Hathaway's reputation as a safe haven during turbulent times. The company's diversified portfolio, which includes investments in companies such as Coca-Cola, American Express, and Wells Fargo, has also contributed to its resilience.

Apple's Impact on Berkshire Hathaway's Portfolio

Apple, the tech giant that has revolutionized the way we communicate and consume information, has played a significant role in Berkshire Hathaway's success. Accounting for roughly 45% of the firm's portfolio, Apple has been a notable winner for Berkshire Hathaway¹. The company's recent strong Q2 revenue and earnings, coupled with a 4% dividend increase, have further bolstered Berkshire Hathaway's performance².

Berkshire Hathaway first bought Apple in 2016, and since then, the tech giant has become the conglomerate's top holding. Apple's consistent growth, innovative products, and strong brand have contributed to its success and, in turn, Berkshire Hathaway's outperformance. As Apple continues to expand its product offerings and tap into new markets, it is likely to remain a significant driver of Berkshire Hathaway's success in the years to come.

Geico's Underperformance

Despite Berkshire Hathaway's overall success, its crown jewel, Geico, has been struggling. The auto insurer suffered a $1.9 billion pretax underwriting loss in 2022 and lost market share to competitor Progressive³. Geico also experienced a 1.7 million decrease in active policies in 2022, further highlighting its underperformance³.

According to Ajit Jain, Berkshire's vice chairman of insurance operations, the biggest culprit for Geico's underperformance is telematics³. Telematics, the use of technology to monitor driver behavior and adjust insurance premiums accordingly, has become increasingly popular among auto insurers. Geico's slow adoption of telematics has put it at a disadvantage compared to competitors such as Progressive, which have embraced the technology more quickly.

However, Berkshire Hathaway expects Geico to return to an underwriting profit in 2023 after obtaining premium rate increase approvals from a few states³. This turnaround, if successful, could help bolster Berkshire Hathaway's overall performance and further solidify its reputation as a safe haven during economic turbulence.

Berkshire Hathaway's Class A Shares

Berkshire Hathaway's Class A shares have been on an upward trajectory, climbing more than 4% this year and trading near 52-week highs¹. The shares briefly topped $500,000 again, reflecting the company's continued success and strong performance³. This growth can be attributed to Berkshire Hathaway's diversified portfolio, conservative investment strategy, and the performance of its top holding, Apple. Note: the same holds for Berkshire's B shares as well, ticker BRK-B.

The company's compounded annual gain of 19.8% from 1965 to 2022, compared to 9.9% for the S&P 500 during the same time, further highlights Berkshire Hathaway's impressive performance¹. This success has not only benefited shareholders but has also solidified Berkshire Hathaway's reputation as a reliable investment during periods of market volatility.

Warren Buffett's Massive Cash Hoard

One of the key factors contributing to Berkshire Hathaway's success during periods of volatility is Warren Buffett's massive cash hoard. Buffett's long-held affection for insurance companies has allowed him to accumulate significant cash reserves, which he can deploy strategically during market downturns. This cash hoard provides Berkshire Hathaway with the flexibility to make opportunistic investments and acquisitions, further contributing to its success.

In addition to insurance companies, Berkshire Hathaway has also invested in other stable, dividend-paying companies, which provide a steady stream of income during turbulent times. This conservative investment approach has helped protect Berkshire Hathaway and its shareholders from the worst effects of market downturns, making it a popular choice for investors seeking safety amid uncertainty.

Berkshire Hathaway's Diversified Portfolio

Berkshire Hathaway's diversified portfolio has been instrumental in its success during recessions and bear markets. The company's investments span various industries, including technology, consumer goods, financial services, and insurance. This diversification helps to mitigate risk and cushion the impact of market fluctuations on Berkshire Hathaway's performance.

The benefits of diversification are evident in the company's ability to weather economic downturns and emerge even stronger. As Berkshire Hathaway continues to expand its portfolio and tap into new markets, its diversification is likely to remain a key driver of its success in the years to come.

Future Outlook for Berkshire Hathaway

As the stock market faces ongoing uncertainty, Berkshire Hathaway's reputation as a safe haven during turbulent times is likely to endure. The company's conservative investment strategy, diversified portfolio, and massive cash hoard position it well to weather market downturns and capitalize on opportunities that arise.

Potential future investments and acquisitions for Berkshire Hathaway could further bolster its portfolio and contribute to its success. As the company navigates the current market landscape, its long-term focus and commitment to investing in undervalued companies with strong fundamentals are likely to continue driving its outperformance.

Conclusion for Shareholders of Berkshire Hathaway

In summary, Berkshire Hathaway's history of outperforming the S&P 500 during recessions and bear markets, coupled with its diversified portfolio and conservative investment approach, make it a strong choice for investors seeking safety amid market turbulence. The company's top holding, Apple, has been a significant driver of its success, while its underperforming subsidiary, Geico, is expected to return to profitability in 2023.

As shareholders of Berkshire Hathaway, it is essential to remain informed about the company's performance, investments, and future outlook. By staying up-to-date on Berkshire Hathaway's activities and adhering to a long-term investment strategy, shareholders can maximize their investments and continue to benefit from the company's resilience during turbulent times.

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