Linda @ The Cents of Money
Read Warren Buffett’s 2025 letter to shareholders, which may be among the last letters he writes. Billionaire Warren Buffett’s letter to Berkshire Hathaway shareholders is a must-read for investors and those who want to stay in the know. The legendary annual letter is considered a required reading for those who want to know about the economy, how to invest, liquidity, and managing business.
This year’s letter is a celebration of Berkshire’s 60th year with Buffett at the helm since 1965. It’s evident with each year that Buffett’s favored and expected successor, Greg Abel, who runs all of the non-insurance operations, will become CEO in the not-too-distant future. Buffett compares Abel as a successor to Charlie Munger (who passed away in 2023), which is praiseworthy.
As one of the greatest investors with an enviable track record, Buffett’s influence on investors and business leaders remains monumental. His folksy nature and humility are traits that make him easy to admire. The financial world pays heed to the golden nuggets in his annual letter. His renowned transparency and allegiance to his shareholders and vice versa are admirable, especially in troubled times.
I have read, analyzed, and written about his letters for years, sharing them with readers, colleagues, and my finance students. Each letter is accessible, informative, and enriched with charm, wit, and wisdom. Buffett’s gems become famed quotes filled with Buffett’s savviness accumulated from decades of success and his clever observation of life. Here is the latest letter.
Berkshire’s 2024 Stock Performance
Berkshire shares grew 25.5%, slightly ahead of the nearly 20% compounded annual gain since 1965, almost twice the 10.4% gain for the S&P 500. Berkshire’s shares were up a healthy 25.5% in 2024, slightly ahead of the S&P 500’s growth of 25.0%, including dividends. Berkshire doesn’t pay dividends and reinvests their cash.
The company’s 2024 performance benefited from its owned and controlled businesses, substantial marketable securities, and significant investment income gain from higher Treasury Bill yields. At this writing, Berkshire Hathaway’s market capitalization is $1.03 trillion, making it the ninth most valuable company globally.
Berkshire Makes Mistakes and Provides Transparency
As CEO, Warren Buffett has always admitted his mistakes in running the company, and this letter is no different. Buffett reminds us that what he paid for the Berkshire acquisition as a textile operation in 1965 “looked cheap…. but headed for extinction,” which plagued management for two decades. He admits to errors in making capital allocations and hiring managers, which he refers to as a “pain that can approach that of a failed marriage.”
In more recent times, Buffett tells readers that he used words like ‘mistake’ or ‘error’ 16 times in his letters between 2019-2023. This refreshing transparency differs from other large companies who, according to Buffett, “Never used either word over that span.” He acknowledges that Amazon is among the few to make brutal observations in its 2021 letter. According to Buffett, who has been a director on many large company boards, mistakes are not often heard at meetings, despite the directors’ role and responsibility to provide direction and oversight of company to ensure that stakeholders, including shareholder interested are looked after.
As a former equity analyst, I recall many companies under my watch made mistakes that impacted that their stocks, but management seemed immune to admitting harmful errors publicly. It is essential for company management to be clear and informative when communicating to investors, especially when they make mistakes.
Berkshire’s Owned and Controlled Businesses
As a large conglomerate, Berkshire Hathaway oversees 189 owned (mostly 100%) and operating businesses, with 53% reflecting a decline in earnings. Among the largest and most significant, they include:
Insurance Businesses
Its insurance business delivered strong earnings, with significant improvement by GEICO. Central to the company’s growth is its property-casualty or P/C insurance, which strengthened due to substantial damage from convective storms, though none were “monster” events that could happen as a result of climate change in the future. The P/C business risk profile differs from most businesses where buyers pay for policies upfront, but it may take decades for policy writers like Berkshire to know its costs. To protect itself against future unpredictable disasters like wildfires, tornados, and earthquakes, Berkshire uses one-year policy coverage to manage its risks. In the meantime, Berkshire’s insurance benefits from the $171 billion float (money that an insurance company gets between the time customers pay premiums to the potential claims), up from $46 billion.
Railroad and Utility Businesses
Its railroad and utility operations are the most prominent businesses, which experienced improved earnings but ” have much left to accomplish.” Berkshire increased its ownership of its utility operation from 92% to 100% during 2024, costing about $3.9 billion.
Berkshire owns businesses between 20% and 50%, including Kraft Heinz, Occidental Petroleum, and Berkadia.
Sold Some Marketable Securities
Berkshire owns small equity stakes in about a dozen huge and profitable businesses, including Apple, American Express, Coca-Cola, and Moody’s, valued at $272 billion at the end of 2024 versus $354 billion in 2023. Buffett cut some of its holdings last year (notably Apple and Banc of America shares) but increased its interest in Occidental in its non-quoted controlled equities. Buffett didn’t give a reason for his sale of shares and increased liquidity (see below), but he may be positioning his charitable aspirations.
Buffett will likely continue to buy stakes rather than significant acquisitions. He has found it challenging to make large acquisitions of strong businesses at attractive valuations that can move Berkshire’s needle.
Buffett likes its ownership of 9% of each of the five Japanese companies (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo) with shareholder-friendly policies. Berkshire is limited to a stake of over 10% of these companies (there may be flexibility), though he sees these investments leading to potential partnerships for Berkshire globally.
Extraordinary Cash Position
Buffett has always touted Berkshire’s unique liquidity, saying, “Extreme fiscal conservatism is a corporate pledge.” At the end of 2024, the company maintained a strong liquidity position of over $334 billion, mostly in Treasury Bills, well above $163.3 billion at the end of 2023. This liquid position prepares the company for opportunities, economic downturns, or negative surprises.
Berkshire Achieves Record as Largest Taxpayer
Unlike its large company peers, Berkshire has not shirked its responsibility to pay its tax bill to Uncle Sam. Last year, it made four payments to the IRS amounting to $26.8 billion, equating to 5% of all corporate America paid. This amount doesn’t include sizable income tax amounts to foreign governments and 44 states.
Throughout Berkshire’s 60 years, the company has made cash income tax payments amounting to $101 billion, ” paid far more in corporate income tax than US government had ever received from any company the American tech titans that commanded market values in the trillions.”
America’s Prosperity Despite Its Flaws
Buffett has long believed in our country and how it has benefited Berkshire’s prosperity by operating in America. Except for its equity stakes in Japanese businesses, Berkshire has been steadfast in investing in primarily American equities and Treasury securities. He acknowledges that American companies rely on capitalism which remains the best among all economic systems, even with its faults, abuses, and those who would defraud others.
Warren Buffett will head the annual gathering on May 3, 2025, with Greg Abel, Ajit Jain, Vice Chairman of the insurance operations, and Buffett’s sister, Bertie.