Berkshire Exceeds Expectations

On Saturday, Berkshire Hathaway unveiled its annual report for the fiscal year 2024, accompanied by the highly anticipated letter to shareholders from Warren BuffettThis annual ritual has become a key moment for investors and analysts alike, as Buffett, often referred to as the "Oracle of Omaha," shares insights not only into the company's performance but also broader market trends and investment philosophies.

The financial results reveal that Berkshire Hathaway recorded an impressive operating profit of $14.53 billion in the fourth quarter alone, marking a substantial year-over-year increase of over 71%. For the entirety of 2024, the operating profits stood at a staggering $47.44 billionWhen factoring in Buffett’s ingenious investment strategies, the net profit attributable to shareholders skyrocketed to nearly $89.995 billionHowever, it’s clear that Buffett has reservations about this calculation method, indicating a desire for a more grounded approach to evaluating performance.

Another striking point made in the report is the company’s increasing liquidityBy the end of last year, Berkshire’s cash and cash-equivalent reserves reached a record high of $334.2 billionNotably, throughout the fourth quarter of 2024, and into the first quarter of this year ending February 10, Berkshire refrained from any stock buybacksThis decision has led to speculations that Buffett perceives Berkshire’s stock prices to be above their intrinsic values, a sentiment that has stirred discussions within investment circles.

Buffett's shareholder letter praised the company’s unexpected performance in 2024, despite encountering a decline in earnings across 53% of its 189 operating businessesA key contributing factor to this unexpected growth was the improving yields from U.STreasury securities, which encouraged Berkshire to significantly increase its position in these short-term investments, resulting in predictable and substantial investment income.

In the report, Berkshire also addressed the tax implications of recent natural disasters, notably the wildfires that devastated parts of Los Angeles last month, estimating pre-tax losses of approximately $1.3 billion.

As one of the most enduring entities in the stock market, Berkshire Hathaway’s performance over the years is a testament to Buffett's long-term investment ethos

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The A-shares of Berkshire experienced a continued upward trajectory, surging by 25.5% in 2024. This brings the annualized return since 1965 to an impressive 19.9%, while the total return from 1964 has reached an astronomical 5,502,284%. This past year also marked a significant milestone, as Berkshire’s market capitalization surpassed the $1 trillion threshold for the first time.

The jewel of this annual report is undoubtedly the letter from Buffett, who at 94 years of age continues to share his wealth of knowledge and insights through this extensive documentHe systematically elaborates on his observations regarding the stock market and the global landscape of assets, providing invaluable guidance to investors.

Buffett humorously noted in his letter that he is nearing the time when Greg Abel, his designated successor, may take over as CEO and begin writing the annual letters himself.

One of the key highlights of this year’s letter was Buffett's emphasis on the substantial cash reserves held by BerkshireDespite some market commentators suggesting that the company holds excessive cash positions, Buffett reassured shareholders that the majority of their funds are still invested in equities, maintaining a steadfast preference for this asset classThroughout the past year, while Berkshire reduced its stakes in stocks like Apple and Bank of America, it maintained a robust cash position, prompting a deeper inquiry into his investment strategy.

According to the latest 13F filing, as of the end of 2024, Berkshire’s top five stock investments remain American Express, Apple, Bank of America, Coca-Cola, and Chevron, comprising 71% of the overall portfolio, down from 79% in the previous yearThe dramatic spike in cash reserves, now at a historic $334.2 billion, raises questions about whether Buffett intends to deploy this liquidity or if he is positioning the company strategically in the face of market uncertainty.

The letter further revealed Buffett’s ongoing fascination with the Japanese stock market, where he has held investments since July 2019 in five of Japan's major trading companies