Investing power
Abel will have plenty of resources to work with when he eventually takes over given that Berkshire now holds $US334.2 billion cash after selling off much of its Apple and Bank of America stock in the past year and continuing to generate money from all its subsidiaries that include Geico insurance, BNSF railroad, a collection of major utilities and an assortment of major manufacturers and well-known retail businesses that include brands like Dairy Queen and See’s Candy. That’s almost double the $US167.6 billion cash Berkshire held a year ago.
Spend it wisely. Take care of the many who, for no fault of their own, get the short straws in life. They deserve better.
Warren Buffett’s annual letter to Berkshire Hathaway shareholders.
Buffett did find a few things to use some of that cash on last year by spending $US3.9 billion to acquire the rest of its utility business from the estate of a former partner and another $US2.6 billion to buy the rest of the Pilot truck stop chain it didn’t already own. Buffett said he also increased Berkshire’s investment in five major Japanese conglomerates, and he’ll likely invest more in them because those companies agreed to let Berkshire increase its ownership beyond 10 per cent. Berkshire has now spent $US13.8 billion over the past six years on those Japanese investments that are now worth $US23.5 billion.
But while Buffett has struggled to find major acquisitions in recent years he affirmed that he has no plans to offer a dividend because he believes reinvesting the money will generate better returns.
Investor Bill Smead of Smead Capital Management said Buffett’s actions show he’s actually “bearish as hell but won’t admit it.” He said Buffett doesn’t want to scare people, but shareholders can look to his past writings and his actions to see that he likely thinks the stock market is terribly expensive. And some of the best investment opportunities he’s found in recent years have been outside the United States.
But Macrae Sykes, portfolio manager at Gabelli Funds, said Berkshire’s cash pile should also be viewed as a key asset because it ensures “the competitive ability of Berkshire to respond with alacrity and at significant scale when motivated. Although infrequent, when the conglomerate does deploy it has historically led to measurable future returns.”
Softening results?
Buffett said Berkshire did better than he expected last year even though 53% of the 189 companies it owns reported lower earnings in 2024. That’s because Berkshire collected more interest on all of its short-term investments and its insurance units reported much higher profits.
The bottom-line profit numbers Berkshire reports can make it hard to see how its companies are really doing because the numbers include the paper value of all the company’s investments, which can vary widely quarter to quarter. So Buffett has long recommended focusing on the operating profits.
In the fourth quarter, Berkshire earned $US19.69 billion profit, or $US13,695 per Class A share. That’s a little over half the $US37.57 billion, or $US26,043 per Class A share, it reported a year ago. But the operating earnings tell a much different story. By that measure, operating profits were up substantially at $US14.5 billion, or $US10,102.07 per Class A share, from the previous year’s $US8.5 billion, or $US5878.21 per A share. The four analysts surveyed by FactSet Research predicted operating earnings of $US6,932 per share.
Edward Jones analyst Jim Shanahan said the weakness in Berkshire’s operating companies is worrisome.
“There may not be a better company to look at for a diversified look into the strength of the broader manufacturing, retail, consumer economy than Berkshire. And these results kind of look soft to me, and it makes me concerned about how strong the economy might really be right now,” Shanahan said.
And Berkshire’s earnings might decline throughout 2025 if that weakness persists, he said. The company also said it expects to record at least a $US1.3 billion loss in the first quarter on insurance claims related to the devastating California wildfires.
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In what might be a nod to the 94-year-old Buffett’s age, the legendary investor announced that this year’s shareholder meeting in May that routinely attracts tens of thousands of people will be shorter. Buffett and Berkshire’s two vice chairmen will only answer questions from 8 am until 1 pm. — several hours less than usual. Buffett also acknowledged using a cane these days to avoid “falling flat on my face.”
AP
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