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SAT, FEB 22, 2025
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WARREN BUFFETT WATCH
Annual Letter Breaking News Edition
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Buffett downplays Berkshire's big cash pile and offers no explanation |
Warren Buffett's annual letter to shareholders released this morning does not directly answer the question that has raised concerns on Wall Street: why does Berkshire Hathaway have so much cash?
That number increased in the fourth quarter to $334.2 billion as of December 31, up a relatively modest 2.7% from $325.2 billion at the end of September. It is still more than the roughly $300 billion market value of Berkshire's publicly disclosed equity holdings. (For the ninth straight quarter, Berkshire was a net seller. It disposed of $10.1 billion of public equities between October 1 and December 31 and bought only $3.4 billion worth.)
Instead, Buffett credited a large gain in income from all its short-term Treasurys, boosted by improving yields, with helping to offset declining earnings from just over half of Berkshire's operating companies.
And he downplayed the size of the growing cash pile by comparing it to the rest of the conglomerate. |
Warren Buffett with employees of Berkshire subsidiary Nebraska Furniture Mart at the 2024 annual meeting. Photo: CNBC/Adam Jeffery |
"Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities ...
"While our ownership in marketable equities moved downward last year from $354 billion to $272 billion, the value of our non-quoted controlled equities increased somewhat and remains far greater than the value of the marketable portfolio."
Buffett promised that Berkshire "will forever deploy a substantial majority" of shareholders' money in "equities" - a combination of its operating subsidiaries and the shares of companies it buys on the stock market and doesn't fully control.
"Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned."
The sales over the past year or so of large chunks of Berkshire's Apple and Bank of America holdings, sales that have added substantially to its cash, was not mentioned at all.
Buffett also doesn't directly discuss why Berkshire hasn't been buying stocks but does appear to imply it's not because he fears a market downturn, as some on Wall Street have interpreted his reluctance. Instead, he notes that only "very occasionally" do publicly traded stocks "sell at bargain prices," which is generally a pre-requisite for Buffett to buy. That is, prices are just too high right now. |
Buffett didn't have any specifics on timing, but did say that since he is 94, "It won't be long before Greg Abel replaces me as CEO and will be writing the annual letters."
Along with a reassurance that "Greg shares the Berkshire creed that a 'report' is what a Berkshire CEO annually owes to owners," Buffett also praised Abel's ability to make investment decisions.
"Very infrequently we find ourselves knee-deep in opportunities. Greg has vividly shown his ability to act at such times as did Charlie." |
'Growing' investment in Japan 'over time' |
Buffett wrote positively about Berkshire's investments in five Japanese "trading houses," ITOCHU, Marubeni, Mitsubishi, Mitsui and Sumitomo, saying "our admiration for these companies has consistently grown" since Berkshire made its first purchases in 2019.
He notes that while Berkshire agreed "from the start" to support their boards of directors by keeping its holdings below 10% of each company's shares, "As we approached this limit the five companies agreed to moderately relax the ceiling."
As a result, "Over time, you will likely see Berkshire’s ownership of all five
increase somewhat."
Buffett says that as of the end of the year, the market value of the Japanese holdings was $23.5 billion. |
Berkshire paid $26.8 billion in federal taxes last year, about "5% of what all of corporate America paid" and "far more in corporate income tax than the U.S. government had ever received from any company – even the American
tech titans that commanded market values in the trillions." Buffett praised the "American miracle" over the decades and thanked Uncle Sam.
"Someday your nieces and nephews at Berkshire hope to send you even larger payments than we did in 2024.
"Spend it wisely. Take care of the many who, for no fault of their own, get the short straws in life. 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."
CFRA Research analyst Cathy Seifert told the Associated Press, "I thought honestly in a very subtle way that was a powerful message" from Buffett, who has shied away from expressing political views in recent years, |
Trimming the annual meeting Q&A |
In his letter, Buffett announced a "somewhat changed" schedule for the annual meeting on May 3 in Omaha. There will be no pre-Q&A movie. Buffett will do a few introductory remarks starting at 8 AM and then answer questions, along with Greg Abel and insurance chief Ajit Jain, alternating between shareholders in the audience and questions submitted to CNBC's Becky Quick. The morning session will end at 10:30 AM.
The second session, with only Abel joining Buffett on stage, will run from 11 AM to 1 PM. That's a total of 4 1/2 hours, compared to roughly 5 hours last year and around 6 hours in past years. CNBC will provide live coverage. |
- Berkshire's operating earnings increased 71% to $14.5 billion in the fourth quarter.
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The strength of Berkshire's stock price deterred the company from repurchasing any shares in Q4. The 2024 total of $2.9 billion was the lowest since 2018.
- GEICO's improvement in 2024 was "spectacular" under the leadership of Todd Combs.
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Property-casualty insurance pricing "strengthened" last year, "reflecting a major increase in damage from convective storms. Climate change may have been announcing its arrival." There was, however, no "monster event" but "any day a truly staggering insurance loss will occur."
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Buffett indirectly warned state governments against trying to keep insurance prices low through regulation. "No private insurer has the willingness to take on the amount of risk that Berkshire can provide. At times, this advantage can be important. But we also need to shrink when prices are inadequate. We must never write inadequately-priced policies in order to stay in the game. That policy is corporate suicide."
- Earnings for Berkshire's railroad and utility operations improved, but both "have much left to accomplish."
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Buffett honored Pete Liegl, the founder of Berkshire subsidiary Forest River, who died last November at the age of 80, "still working."
- Buffett wrote that he speaks regularly with his 91-year-old sister Bertie on the telephone. "We cover the joys of old age and discuss such exciting topics as the relative merits of our canes. In my case, the utility is limited to the avoidance of falling flat on my face." Bertie responds there is another benefit. "When a woman uses a cane, she tells me, men quit 'hitting' on her."
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BUFFETT AROUND THE INTERNET Some links may require a subscription |
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Please send any questions or comments about the newsletter to me at alex.crippen@nbcuni.com. (Sorry, but we don't forward questions or comments to Buffett himself.) If you aren't already subscribed to this newsletter, you can sign up here. Also, Buffett's annual letters to shareholders are highly recommended reading. There are collected here on Berkshire's website.
-- Alex Crippen, Editor, Warren Buffett Watch |
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