Warren Buffett’s Berkshire Hathaway Inc. said its cash pile scaled a new record as the billionaire investor decried a lack of meaningful deals that would give the firm a shot at “eye-popping performance.”
Berkshire’s cash hoard jumped to a record at US$167.6 billion ($225.09 billion) in the fourth quarter as the conglomerate struggled to find deals at attractive valuations. The company also reported fourth-quarter operating earnings of US$8.48 billion, versus US$6.63 billion for the same period a year earlier, helped by an increase in insurance underwriting earnings and investment income amid higher interest rates and milder weather.
“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” Buffett, 93, said in his annual shareholder letter, which the company released alongside its results on Saturday. “Outside the US, there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.”
Despite ramping up Berkshire’s acquisition machine in recent years, the company has still struggled to find many of the big-ticket deals that burnished Buffett’s reputation, leaving him with more cash than he and his investing deputies could quickly deploy.
He struck an US$11.6 billion deal to buy Alleghany Corp. and has snapped up shares in Occidental Petroleum Corp. — an investment Buffett said Saturday that he expects to hold “indefinitely” but has no plans to purchase or manage the company. The investor also boosted Berkshire’s stake in five of Japan’s trading houses last year after their profits surged — a move that fueled a rally in their stock. Berkshire’s year-end unrealized gain from those investments was US$8 billion, or 61%, it said.
Share Repurchases
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Buffett has also continued to lean on share repurchases amid the dearth of appealing alternatives, saying the measures benefit shareholders. The firm spent US$2.2 billion on buybacks in the fourth quarter, bringing the total for the year to about US$9.2 billion.
Berkshire shares, which gained 15% last year, are up 17% so far in 2024 and have touched a record in each of the past seven trading days.
“Buffett is observing a lack of attractive opportunities — and with a rise in Berkshire’s share price, even repurchasing its own shares is less attractive,” Jim Shanahan, an analyst with Edward Jones, said. “But that’s his pattern: Nothing will really happen and then he goes big.”
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Buffett has a long history of stepping in to aid firms in crisis, leveraging his cult investing status and financial heft to help them restore confidence and rebound from their difficulties. In his letter on Saturday, Buffett said Berkshire is ready to step in should financial disaster strike — noting such market seizures may offer it an “occasional large-scale opportunity.” That’s a tacit reminder from Buffett that problems do arise, according to Cole Smead, president of investment firm Smead Capital Management.
“Buffett is whispering when he used a megaphone in the past,” Smead said. “He’s whispering: Be very careful — problems do arise. He’s saying we’ll be ready, but that Berkshire will only be a buyer when no one else is a buyer.”
Economic Barometer
Berkshire’s earnings are always closely watched as a proxy for US economic health because of the expansive nature of his businesses — ranging from railroad BNSF, Geico and Dairy Queen. That also makes the company particularly susceptible to higher interest rates, which can crimp demand, and Buffett warned in May last year that earnings at most of its operations would fall in 2023 as an “incredible period” for the US economy draws to an end.
The company said operating earnings from its railroad operations fell to US$1.36 billion for the quarter, versus US$1.47 billion for the same period a year earlier. Operating earnings from utilities and energy also fell to US$632 million from US$739 million.
Still, operating earnings from insurance underwriting jumped to US$848 million for the period from US$160 million in the same quarter a year earlier. The company’s Geico unit posted full-year pretax underwriting earnings of US$3.64 billion compared to a loss in 2022 after it raised premiums and received fewer claims.
“Our insurance business performed exceptionally well last year, setting records in sales, float and underwriting profits,” Buffett said in the shareholder letter. “We have much room to grow.”
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May Meeting
This is the first time Berkshire reported earnings since Charlie Munger, Berkshire’s vice chairman and Buffett’s long-time investing partner, died at 99 in late November. Buffett devoted much of the letter to praising Munger’s role in creating the sprawling firm, calling him the “architect” of the company and referring to himself as the person “in charge of the construction crew.”
Together the pair would hold court at Berkshire’s annual meetings in a crowded Omaha sports arena, opining on topics ranging from stock markets to cryptocurrency and even life and success.
“Come to Berkshire’s annual gathering on May 4, 2024,” Buffett said in the letter. “On stage you will see the three managers who now bear the prime responsibilities for steering your company,” he said, referring to himself, Ajit Jain and Greg Abel. Jain runs Berkshire’s insurance businesses and Abel — Buffett’s anointed successor-in-waiting — oversees the non-insurance operations.
Including investment and derivatives, Berkshire posted US$37.6 billion of net earnings for the quarter, more than the year prior, helped by higher interest rates. Berkshire often recommends that investors look past investment gains or losses, which are tied to accounting rules, saying they can be misleading.
“Berkshire now has – by far – the largest GAAP net worth recorded by any American business,” Buffett said in the annual letter. “Record operating income and a strong stock market led to a year-end figure of US$561 billion. The total GAAP net worth for the other 499 S&P companies – a who’s who of American business – was US$8.9 trillion in 2022.”
