Jonathan Stempel
(Reuters) – Warren Buffett on Saturday assured investors that his conglomerate Berkshire Hathaway will serve them for the long term, even as he mourned the passing of his longtime second-in-command Charlie Munger. He made a reassuring move.
In his widely read annual letter to Berkshire's shareholders, which saw a record $37.4 billion in annual operating profits, Buffett said his $900 billion-plus conglomerate was in the midst of an unprecedented financial crisis. He said it had become a fortress that could endure.
“Berkshire is built to last,” Buffett wrote.
Buffett also tempered expectations for Berkshire's stock, saying the company's massive size “doesn't suggest spectacular performance.”
“There are only a handful of companies left in this country that can truly move the needle at Berkshire, and they continue to be singled out endlessly by us and others,” Buffett wrote. . “Some things can be evaluated, and some things can't be evaluated.”
But the 93-year-old billionaire also assured investors that his designated successor, Vice Chairman Greg Abel, is “ready in every way to be Berkshire's CEO tomorrow.”
Mr. Buffett also had the most heartfelt words for Mr. Munger, who died in November at the age of 99.
He calls Munger the “architect” of Berkshire, and says that Buffett is just a “general contractor” and how Munger doesn't just buy fair companies at great prices, he buys great companies at fair prices. Investors were reminded of what they were encouraged to do.
Berkshire's “extreme fiscal conservatism” (including a reluctance to make large acquisitions at inflated prices) has led Buffett to raise the Omaha, Nebraska-based company's cash stake to a record $167.6 billion. This is one of the reasons why it was inflated to US dollars.
“In some ways, his relationship with me was that of an older brother and a loving father,” Buffett wrote of Munger. “Even when he knew he was right, he handed me the reins and even when I messed up, he never, ever reminded me of my mistakes.”
CFRA Research analyst Kathy Seifert, who rates Berkshire a “buy,” credits Munger with helping him transform a once-bankrupt textile company into a behemoth that reflects the broader economy. Even after helping, Buffett said he tried to show how Berkshire could withstand the reef.
“Nothing is perfect,” she said. “He tried to show that he had a succession plan and that Berkshire would stick to that plan.”
Mr. Buffett likened Berkshire's cautiousness in making acquisitions, with the stock market regularly hitting record highs, as insurance against hasty and unwise business decisions that would have irritated Mr. Munger.
“I get the sense that Berkshire wants to make Charlie proud,” said Thomas Russo, a portfolio manager at Gardner, Russo & Quinn in Lancaster, Pennsylvania, and a longtime shareholder.
GEICO improves results
Buffett's letter was accompanied by quarterly and annual results from Omaha, Nebraska-based Berkshire.
Operating income for dozens of insurance, rail, industrial, energy and retail businesses rose 28% to $8.48 billion in the quarter and 21% for the year to $37.4 billion, a record high.
Insurance businesses like Geico benefited from improved underwriting quality and higher investment returns due to higher interest rates, offsetting wage pressures at BNSF Railway and losses from wildfires at Berkshire Hathaway Energy.
“The results reflect the value of owning a diversified business,” said Edward Jones analyst Jim Shanahan, who rates Berkshire at “hold.”
Investment gains in Berkshire's $354 billion stock portfolio, which includes stocks such as Apple, American Express, Bank of America and Coca-Cola, helped the company generate $96.2 billion in annual profits.
But that amount reflects accounting rules that require Berkshire to report gains on unsold stocks, which Buffett says is “worse than wasteful” for investors.
Berkshire's cautiousness and record cash commitments are partly reflected in the fact that Berkshire sold about $24 billion more in stock than it bought in 2023.
The results also include a portion of Occidental Petroleum's profits, which reflect Berkshire's approximately 28% stake in the oil company.
Buffett said he expected Berkshire to hold that stock “indefinitely” along with stakes in five Japanese trading companies: Itochu, Marubeni, Mitsubishi, Mitsui & Co. and Sumitomo.
Berkshire's businesses also include an industrial parts and chemical company, a major real estate brokerage, and retail brands such as Dairy Queen, Fruit of the Loom, and See's Candies.
(Reporting by Jonathan Stempel in New York; Editing by Ira Iosebashvili and Diane Craft)
