Buffett’s Moves And Market Outlook

Warren Buffett’s 2024 Annual Letter to Berkshire Hathaway Shareholders: Key Highlights and Insights

1. Robust Operating Performance in 2024

Warren Buffett, the legendary CEO of Berkshire Hathaway, recently released his highly anticipated annual letter to shareholders, providing a detailed overview of the company’s performance in 2024. The year was marked by strong operating earnings, which reached $47.44 billion, representing a significant 27% increase from $37.35 billion in 2023. This growth was further highlighted by a remarkable 71% year-over-year surge in fourth-quarter operating earnings, amounting to $14.53 billion. These impressive figures were primarily driven by substantial gains in insurance underwriting and investment income. However, Buffett remained characteristically humble, acknowledging that 53% of Berkshire’s 189 operating businesses experienced a decline in earnings. Despite these challenges, the company’s strong insurance results and higher Treasury yields helped offset the losses, showcasing Berkshire’s resilience and diversified portfolio.

2. Record Cash Reserves: A Strategic Defensive Move

Berkshire Hathaway ended 2024 with a record $334.2 billion in cash reserves, up from $325.2 billion in the third quarter of 2024. This significant cash pile, which has grown primarily from the sale of publicly traded stocks, is viewed by Buffett as a strategic defensive weapon in turbulent economic times. In his letter, Buffett emphasized that while some analysts might perceive this cash position as extraordinary, the majority of Berkshire’s funds remain invested in equities. This approach ensures flexibility for future opportunities, aligning with Berkshire’s long-term investment strategy. However, Buffett disappointed some investors by reaffirming his preference for compounding capital over returning cash to shareholders through dividends, a stance that has been consistent with Berkshire’s philosophy.

3. Portfolio Adjustments Reflect Strategic Investment Decisions

One of the most notable aspects of Berkshire’s 2024 performance was the adjustment in its portfolio holdings. The company significantly reduced its stakes in two major holdings: Apple and Bank of America. By the end of the year, Berkshire’s Apple stake was trimmed from over 900 million shares to 300 million, while it sold 117 million shares of Bank of America, retaining a 9% ownership. These sales contributed to the increase in cash reserves, although Buffett did not elaborate on the specific reasons behind these decisions in his letter. Despite these adjustments, Berkshire’s commitment to equities remains unwavering, with Buffett expressing confidence that a significant majority of shareholder funds will continue to be allocated to equities, primarily American stocks with substantial international operations.

4. Commitment to International Holdings and Strategic Partnerships

Buffett also highlighted his continued confidence in Berkshire’s five largest Japanese holdings: ITOCHU, Marubeni, Mitsubishi, Mitsui, and Sumitomo. He praised these companies for their prudent dividend policies, sensible share buybacks, and conservative compensation practices for top executives. Buffett’s appreciation for these qualities underscores his long-term investment philosophy, which emphasizes stability, strong management, and aligns with Berkshire’s overall value investing approach. This commitment to international holdings, while limited compared to global conglomerates, reflects Berkshire’s strategic diversification without compromising its core focus on U.S.-based businesses.

5. The Impact of Tariffs and a U.S.-Centric Strategy

Berkshire’s portfolio remains heavily tilted toward U.S.-based businesses, with approximately 85% of its revenue generated domestically in 2023. This domestic focus has historically shielded the company from geopolitical uncertainties and trade tensions, providing a stable foundation amid ongoing tariff disputes. Buffett noted that Berkshire’s preference for American businesses has minimized exposure to international trade disruptions, although he acknowledged that some subsidiaries with global operations face challenges from fluctuating tariffs and foreign currency exchange rates. This U.S.-centric strategy, combined with a strong cash position, positions Berkshire to navigate economic uncertainties with confidence.

6. Looking Ahead: Adapting to Change While Staying True to Core Principles

As Berkshire Hathaway looks to the future, the company remains committed to its core principles of value investing and financial prudence. Buffett’s letter reinforced the importance of adaptability in a changing economic landscape, while staying true to the strategies that have driven Berkshire’s success. Steven Check, president of Check Capital Management and a long-term Berkshire shareholder, echoed this sentiment, praising Buffett’s wisdom and reiterating the value of learning from Berkshire’s approach. As Berkshire continues to evolve, its ability to balance strategic adjustments with enduring investment principles will remain a cornerstone of its success.