Berkshire Hathaway Inc (BRK.B)

[bar1080]

"Buffett Calls This Metric "Worse Than Useless," but Everyone Uses It. Here's How to Make Yourself a Smarter Investor."

"Investors look forward to Warren Buffett's annual shareholder letter, and in the 2023 version, released on Feb. 24, he didn't disappoint. It was chock-full of Buffett's typical down-to-earth, blunt, and solid investing advice mixed with his wit and humor.

He paid tribute to his decades-long investing partner, Charlie Munger, who passed away last year, and in a first, he addressed the letter as if he were writing to his sister Bertie.

She's a longtime Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) shareholder whom Buffett described as understanding "many accounting terms, but ... not ready for a CPA exam." In doing so, he's addressing the vast majority of individual investors.

In the letter, he points to Berkshire's earnings numbers, which look strange when you consider how they have changed over the past three years. And he calls the net income metric "worse than useless." Here's how he counsels investors to use it when evaluating a company.

Net income vs. operating income
Buffett highlighted Berkshire Hathaway's net income, in contrast with its operating income.

Metric

2021

2022

2023

Net income (loss)

$89.9 billion

($22.8 billion)

$96.2 billion

Operating income

$27.6 billion

$30.9 billion

$37.4 billion

Data source: Berkshire Hathaway.

He noted how something looks off with the changes in net income, so even though a public company has fulfilled its legal duty by reporting "this worse-than-useless 'net income' figure" according to regulations, it makes him uncomfortable.

The main difference between the two figures is unrealized capital gains and losses, which refers to price changes for stocks Berkshire Hathaway owns. Individual investors don't usually have to worry about unrealized capital gains or losses; gains or losses only come into play when they sell a stock, at which time there are capital gains tax considerations for the shareholder."

https://news.yahoo.com/finance/news/warren-buffett-calls-metric-worse-144000377.html