Berkshire Hathaway, the conglomerate run for decades by billionaire investor Warren Buffett, recorded its highest annual profit in 2023. But its chief executive found reason to blame government regulation for hurting the results of some of its biggest businesses.

In his letter to investors that traditionally accompanies the annual report, Mr Buffett also paid tribute to Mr Charlie Munger, his long-time lieutenant and Berkshire’s vice-chair until his death in November 2023 at the age of 99.

The company – whose divisions include insurance, the United States’ BNSF railroad, an expansive power utility, Brooks running shoes, Dairy Queen and See’s candy – disclosed US$97.1 billion (S$130.43 billion) in net earnings in 2023, a sharp swing from its US$22 billion loss in 2022 because of investment declines.

Berkshire also reported US$37.4 billion in operating earnings – the financial metric that Mr Buffett prefers because it excludes paper investment gains and losses – for the year, up 21 per cent from 2022.

Investors often see Berkshire as a bellwether of the US economy, given the breadth of its business.

Those gains arose from the powerful engine at the heart of Berkshire, its vast insurance operations that include Geico car insurance and reinsurance.

The division reported US$5.3 billion in after-tax earnings for 2023, reversing from a loss in the previous year, thanks to fewer significant catastrophic events, rate increases and fewer claims at Geico.

The business that Berkshire is best known for, stock investments using the enormous cash that the insurance business throws off, also performed well in 2023. Investment income jumped nearly 48 per cent amid rising market valuations.

About 79 per cent of the conglomerate’s investment income comes from just five companies: Apple, Bank of America, American Express, Coca-Cola and Chevron.

But two of the conglomerate’s biggest non-financial operations performed below expectations. BNSF, which operates the nation’s biggest freight railroad, reported US$5 billion in operating profit for the year, while Berkshire’s utilities business earned US$2.3 billion. Earnings at both were significantly below those of 2022.

While Mr Buffett noted in his annual letter to investors the challenges that both divisions faced in 2023 – BNSF was hurt primarily by falling shipment volumes and the utilities business was battered by more frequent forest fires – he also pointed to government regulations as challenges.

The criticism contrasts with Mr Buffett’s general support of government regulation, especially given his backing of Democratic policy efforts like the effort to raise taxes on the wealthy that became known as the “Buffett rule”.

In the case of BNSF, Mr Buffett wrote that “wage increases, promulgated in Washington, were far beyond the country’s inflation goals”. And for the utilities business, he went on at length about tighter regulations in several states that crimped the power utility’s profitability.

“The regulatory climate in a few states has raised the spectre of zero profitability or even bankruptcy,” he wrote, alluding to California’s Pacific Gas and Energy and Hawaiian Electric in Hawaii.

Mr Buffett further warned that tighter regulations on utilities could pose a broader problem for the industry, and suggested that Berkshire Hathaway might curtail its business in certain states.

“We will not knowingly throw good money after bad,” he wrote.

In the annual letter – a must-read publication for his millions of followers that is peppered with his customary folksy asides – Mr Buffett talked up two of Berkshire’s longest-held investments, American Express and Coca-Cola, as solid financial performers.

He also noted newer stock positions that he said he expected to maintain “indefinitely”: fossil fuel producer Occidental Petroleum, of which Berkshire owns nearly 28 per cent, and stakes in five Japanese trading companies, regarded as a bet on the revival of Japan’s long-moribund economy.

In promoting the Japanese investments, Mr Buffett took a jab at how much American companies pay their top executives.

“The managements of all five companies have been far less aggressive about their own compensation than is typical in the United States,” he wrote.

Yet again, Mr Buffett spent little time talking about what he has long called Berkshire’s “elephant gun”, the vast cash hoard it amasses from its insurance operations that he has used to strike major transactions.

In recent years, the conglomerate has favoured using that money to buy back its own stock as a better way to generate higher returns for investors.

That pile grew to US$163.3 billion by the year end, but Mr Buffett said he saw few opportunities to profitably spend that cash at scale.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” he wrote. “All in all, we have no possibility of eye-popping performance.”

Instead, Mr Buffett emphasised Berkshire’s financial resilience.

“I believe Berkshire can handle financial disasters of a magnitude beyond any heretofore experienced,” he wrote. “This ability is one we will not relinquish.”

As expected, Mr Buffett offered a lengthy tribute to Mr Munger, a fellow Omaha, Nebraska, native who shared a love of investing.

The two men were Berkshire’s biggest ambassadors, with an often comedic buddy act: Mr Buffett the persistent optimist, Mr Munger the gimlet-eyed cynic.

In a lengthy introduction, Mr Buffett praised Mr Munger as the “architect” of the Berkshire business model of investing in good businesses at fair prices, an approach that made them billionaires and many of their long-time shareholders millionaires.

“Charlie never sought to take credit for his role as creator, but instead let me take the bows and receive the accolades,” he wrote. “Even when he knew he was right, he gave me the reins, and when I blundered he never – never – reminded me of my mistake.” NYTIMES