One of the longest running traditions in modern finance is that every year, one Saturday morning in late February, the world’s financial class – from refined professionals to rancid amateurs – sit down as they have for the past 66 or so years – for an hour and read the latest Berkshire annual letter written by Warren Buffett in which the man seen by many as the world’s greatest investor writes down his reflections, observations, aphorisms and other thoughts for the past year, which are closely parsed and analyzed for insight into what he may do next, what he thinks of the current economy and market climate, or simply for insights into how to become a better investor. And with Buffett’s long-time investing partner, Charlie Munger, having one year ago passed away just shy of his 100th birthday and Buffett himself now 94, every such letter may well be the last, which is why – even though their informational content and signal-to-noise ratio has been severely diluted over the year – they are read just as obsessively as they were when Buffett was in his prime.
Which brings us to the latest Berkshire annual report and accompanying letter, which – at 13 pages clocks in three pages less than last year’s edition and one of the shortest ever – was somewhat of a downer as the Omaha billionaire said that even though Berkshire did “better than I expected”, a majority, or 53% of Berkshire’s 189 operating businesses, reported a decline in earnings. The offset? The company’s staggering cash pile (more on that in a second) which is invested in T-Bills and which generates about a 4.5% in interest income: “We were aided by a predictable large gain in investment income as Treasury Bill yields improved and we substantially increased our holdings of these highly-liquid short-term securities.”
Buffett also said that Berkshire’s insurance business also delivered a major increase in earnings, led by the performance of GEICO, whose “2024 improvement was spectacular”, while property-casualty insurance pricing strengthened during 2024, “reflecting a major increase in damage from convective storms.” GEICO was also the main contributor to Berkshire’s insurance results, with its pretax underwriting earnings more than doubling to $7.8 billion in 2024. The auto insurer successfully added new clients in the second half, reversing a years-long trend that previously weighed on its performance.
Buffett also exposed his liberal roots (readers may forget that the folksy Omaha billionaire was one of the loudest and most virtue-signaling Hillary Clinton donors) saying that “climate change may have been announcing its arrival”, yet even Buffett admits that “no ‘monster’ event occurred during 2024.” That said, “someday, any day, a truly staggering insurance loss will occur – and there is no guarantee that there will be only one per annum.” Additionally, Berkshire’s railroad and utility operations, the conglomerate’s largest businesses outside of insurance, also improved their aggregate earnings.
All told, Berkshire recorded operating earnings of $14.5 billion in Q4, up 71% from $8.5 billion a year ago, as higher interest rates lifted the conglomerate’s investment income and, while Berkshire’s insurance business scored a 48% jump in insurance investment income, to $4.1 billion, amid higher interest rates. Earnings also got a significant boost from a strong recovery in the firm’s insurance underwriting business, with operating earnings quadrupling over the period to $3.4 billion.
All told, in 2024 Berkshire earned $47.4 billion in operating earnings, the third straight record operating profit (Buffett will never tire of emphasizing this measure “rather than GAAP-mandated earnings”.) Here’s a breakdown of the 2023-24 earnings as Berkshire reported them.
That said, Berkshire said it expects pretax losses of approximately $1.3 billion from the wildfires that ravaged entire parts of Los Angeles last month. Net income for the full year totaled $89 billion, including gains from Berkshire’s common stock investments such as Apple and American Express; for Q4, Berkshire reported that net income more than doubled to $37.574 billion, or $26,043 per Class A share, from $18.8 billion, or $12,355 per share, a year earlier.
Meanwhile, the otherwise acquisitive Berkshire refused to pursue any M&A for yet another quarter, and Buffett’s cash hoard grew for the 10th quarter in a row, to a record $334.2 billion at the end of 2024, as the billionaire continued to refrain from major stock transactions in the fourth quarter.
Still, Buffett said his company will continue to prefer owning equities, primarily U.S. stocks, over cash, adding Berkshire is “not finished.”
Going back to Q4, the firm was a net seller of $6.7 billion worth of shares; this marked the 9th consecutive quarter in which Berkshire has been selling stock (Berkshire has not made a major purchase of an entire company since 2016), the longest stretch by far in the company’s history…
… and even though Berkshire did not sell any Apple this quarter (having previously slashed his holdings in the smartphone giant by more than half), in Q4 Berkshire did continue to aggressively sell down its financial holdings such as BofA, Citi and Capital One, as discussed in our breakdown of the company’s 13F last week.
“Often, nothing looks compelling; very infrequently we find ourselves knee-deep in opportunities,” Buffett wrote.
And, for the second straight quarter, Buffett also did not find Berkshire stock itself to be attractive, buying back zero shares in Q4, the same amount as in Q3. Berkshire’s market capitalization has been hovering above $1 trillion since late last month, and according to Buffett it is perfectly fairly valued here.
The company’s stock price has risen 15% in the last year, while the S&P 500 rose 18%. Over the last decade, Berkshire’s stock price has risen 225%, while the index rose 241% including dividends and 185% excluding dividends, Reuters data show.
“They will have lots of buying opportunities but Berkshire will never be the large double-digit compounder it had been,” said Bill Smead, chief investment office at Smead Capital Management in Phoenix. “Berkshire will be a solid way of participating in owning major companies, and avoiding trouble.”
The lack of any attractive mergers is a problem that Buffett has been staring down for almost a decade as the growth of Berkshire’s operations and cash levels have compounded. In his annual letter to shareholders, Buffett addressed concerns that Berkshire is hoarding cash and reminded investors that the great majority of the firm’s money remains invested in equities, both public and private, and that this won’t change.
“Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned,” Buffett said in the letter.
Buffett also said the value of the Berkshire’s private equity holdings increased and remained “far greater than the value of the marketable portfolio” last year. Over the same period, Berkshire’s ownership of public equities declined 23%, to $272 billion.
The billionaire said Berkshire could increase “over time” its long-time holdings in Itochu, Marubeni, Mitsui, Mitsubishi and Sumitomo, Japan’s five largest trading houses. While Berkshire initially intended to keep its stake below the 10% threshold, the five companies have agreed to “moderately relax the ceiling” as the conglomerate approaches it.
The 94-year-old Buffett also acknowledged his advanced age in the letter, telling shareholders he now uses a cane and will spend less time fielding their questions at Berkshire’s annual meeting in May. He nonetheless assured shareholders they would be in good hands after he turns over the conglomerate’s reins to Vice Chairman Greg Abel, saying the 62-year-old Abel has “vividly shown his ability” to deploy capital.
Among other topics discussed in his letter, Buffett he sent a cautionary message to Washington, lamenting how capitalism “has its faults and abuses–in certain respects more egregious now than ever,” with malfeasance by “scoundrels and promoters” in full force.
“But even with such malfeasance – which remains in full force today – and also much deployment of capital that eventually floundered because of brutal competition or disruptive innovation” Buffett said that “the savings of Americans has delivered a quantity and quality of output beyond the dreams of any colonist.”
The billionaire also urged lawmakers to help preserve a stable U.S. dollar, saying “paper money can see its value evaporate if fiscal folly prevails,” and that the United States has in its history “come close to the edge. Fixed-coupon bonds provide no protection against runaway currency.”
The warning comes at a time of ever louder rumblings about a Mar-A-Lago accord, in which the Trump admin will stealthily devalue the dollar against all other currencies in a bid to kickstart US manufacturing, but will only succeed in sending gold and crypto to new all time highs.
Buffett said long-term success of Berkshire and the American economy, which he called the “American miracle,” has depended on people’s ability to participate. That, he said, is something Uncle Sam can encourage, or take away.
“Take care of the many who, for no fault of their own, get the short straws in life,” Buffett wrote, addressing the government. “They deserve better. And never forget that we need you to maintain a stable currency and that result requires both wisdom and vigilance on your part.”
To be sure, this was more than just some folksy aphorism. According to Cathy Seifert, a CFRA analyst who rates Berkshire “hold”, “talking about the business of America being messy was his way of addressing the political landscape and its impact on the macroeconomic environment. He is warning Washington: Be careful where you tread.”
At the annual meeting, which tens of thousands of people attend, Buffett will spend less time on the stage where he, Abel and Berkshire Vice Chairman Ajit Jain answer shareholder questions. Buffett told Fortune magazine last month that he was still having fun and able to do a few things reasonably well, while other activities had been “eliminated or greatly minimized.”
The meeting will also not feature the traditional movie created by Buffett’s daughter Susie.
In discussing his age, Buffett said he talks regularly on Sundays with his 91-year-old sister Bertie, using an old-fashioned phone.
“We cover the joys of old age and discuss such exciting topics as the relative merits of our canes,” he said. “In my case, the utility is limited to the avoidance of falling flat on my face.”
Beside the company’s record cash hoard, there was another notable record revealed in this year’s letter: Buffett said the company has paid the US government more than $101 billion in taxes since he took the helm 60 years ago, more than any other company in history.
Buffett’s comments come as President Donald Trump has vowed to cut corporate taxes further after slashing them to 21% during his first term in 2017. Trump wants to reduce the corporate tax rate to 15%.
Berkshire paid $26.8 billion in taxes in 2024 alone. Buffett said that “record-shattering” figure amounts to roughly 5% of the total taxes paid by US companies last year, and excludes state taxes and taxes paid to foreign governments.
“If Berkshire had sent the Treasury a $1 million check every 20 minutes throughout all of 2024 – visualize 366 days and nights because 2024 was a leap year – we still would have owed the federal government a significant sum at yearend,” Buffett wrote, and what is remarkable, is that he is actually proud of enabling the unprecedented grift, corruption and inefficiency that DOGE – and so many others – have unearthed over the years.
Berkshire’s 2024 tax bill exceeded that of the previous five years combined, owing in part to his significant sales last year of two of its biggest holdings, Apple and Bank of America, according to Edward Jones analyst Jim Shanahan. In the letter, Buffett said that when he took control of Berkshire Hathaway company in 1965, it was a struggling textile operation that paid zero in income taxes that year, and hadn’t for much of the previous decade.
“That sort of economic behavior may be understandable for glamorous startups, but it’s a blinking yellow light when it happens at a venerable pillar of American industry,” Buffett wrote. “Berkshire was headed for the ash can.”
Finally, for all those who are bored to death by the above, here is an AI chatbot summary of all you need to know:
- Summary of Berkshire Hathaway’s 2024 Annual ReportChairman’s Letter Highlights
- Performance & Strategy: Berkshire Hathaway delivered stronger-than-expected results in 2024, despite 53% of its 189 operating businesses reporting earnings declines.
- Insurance Business: The insurance segment, led by GEICO and property-casualty underwriting, saw a significant earnings boost. The company anticipates increased insurance risk due to climate-related disasters.
- Investment Income: Rising Treasury yields contributed to a major gain in investment income.
- Major Acquisitions: Increased ownership of Berkshire Hathaway Energy from 92% to 100% for $3.9 billion.
- Mistakes & Learning: Warren Buffett candidly discusses past investment misjudgments and the importance of correcting errors swiftly.
- Succession Planning: Greg Abel is set to take over as CEO, emphasizing a commitment to transparency and shareholder value.
- Berkshire’s Tax Impact: The company paid a record-breaking $26.8 billion in U.S. corporate taxes in 2024.
- Financial Performance
- Operating Earnings: Increased to $47.4 billion in 2024 from $37.35 billion in 2023.
- Investment Portfolio: Berkshire’s partial ownership in leading companies like Apple, American Express, and Coca-Cola was valued at $272 billion.
- Cash Reserves: While holding a significant cash position, Buffett reinforced the company’s long-term commitment to equities, primarily in the U.S.
- Japanese Investments
- Expanded stakes in five Japanese trading companies: ITOCHU, Marubeni, Mitsubishi, Mitsui, and Sumitomo.
- Current investment worth $23.5 billion, up from a $13.8 billion cost basis.
- Plans to continue long-term investment strategy in Japan.
- Property-Casualty Insurance & Risk
- Berkshire’s P/C insurance sector remains its core business, benefitting from strong underwriting and investment income.
- The company takes on large-scale risks that competitors often avoid but remains disciplined in pricing.
- Future Outlook
- Buffett maintains optimism about capitalism and America’s long-term growth potential.
- The company will continue prioritizing equity investments and disciplined capital allocation.
- Plans to deploy capital in large, high-return opportunities as they arise.
- Shareholder Events
- The 2025 annual shareholder meeting will take place on May 3 in Omaha, featuring a Q&A session with Buffett and Greg Abel.
- This report reflects Buffett’s characteristic mix of financial insight, candid reflections, and long-term optimism for Berkshire Hathaway’s future.
More in the full Berkshire shareholder letter available here.
Tyler Durden
Sat, 02/22/2025 – 14:00
