Dive deeper into Berkshire Hathaway's annual report (BRK.A) and (BRK.B) the industrial and insurance conglomerate built by Warren Buffett and his late partner Charles Munger, and you'll find this:
Cash and equivalents: $167 billion, divided between its insurance and related businesses and its railroad, utilities and other businesses.
In short, cash will remain king until it makes sense to invest.
Buffett's rules of the game
It is a huge horde of resources waiting to be invested. But in his letter to shareholders, released on saturdayCEO Warren Buffett offers only a faint hint of where it might go:
Related: 5 Questions for Warren Buffett About Berkshire Hathaway's Annual Report
“There are only a handful of companies left in this country capable of really moving the needle in Berkshire, and we and others have picked them endlessly. Some we can value; some we can't. And, if we can, “They have to be attractively priced. Outside the US, there are essentially no candidates that are meaningful options for capital deployment in Berkshire. “Ultimately, we have no chance of achieving an amazing performance.”
The key phrase in terms of whether Berkshire might want to buy: “They have to be attractively priced.”
That means Berkshire won't pay a premium to land a company. But he will not look for cheap companies. Buying junk, as Buffett learned from Charlie Munger, means owning junk. Munger believed in the need to pay strong companies adequately.
Berkshire Hathaway offers no hint in the letter of a company in which it is building a stake. Berkshire has received permission from the Securities and Exchange Commission to continue building the position so as not to disrupt the markets.
Much of Wall Street speculation centers on banking giant JPMorgan Chase (JPM) .
Therefore, Berkshire will look for smaller, more profitable companies that are well managed and well positioned to thrive in good times and bad. Like railroads and electric utilities. Like insurance companies.
Like Pilot Travel Centers, the nation's largest travel center chain, primarily serving truckers.
Berkshire bought in phases for more than $11 billion and a lawsuit. (The lawsuit stemmed from a valuation dispute that was resolved in January.) The company has more than 650 locations and generates more than $45 billion in revenue and was generating more than $1 billion in pre-tax profits.
More on Buffett and Berkshire Hathaway
- Warren Buffett Just Sold Shares of This Popular Streaming Stock
- Leaked Information Shows Warren Buffett Allegedly Engaged in Some Hypocritical Stock Trading
- This stock is heavily shorted. So why is Warren Buffett's Berkshire Hathaway buying shares?
And we cannot forget investments in oil companies: Berkshire owns 27.8% of Occidental Petroleum (OXI) and has warranties that can “materially increase our property at a fixed price.”
Buffett and Berkshire like Occidental's national reserves, technical expertise and “leadership in carbon capture initiatives.”
They don't want to buy Occidental. They just want to be investors. How are they at Chevron (CLC) . The company now owns 126.1 million shares worth $1.5 billion.
Never forget compound interest
Part of the reason to be an investor: One main rule that governs what you do: “Never risk a permanent loss of capital,” Buffett's letter said. “Thanks to the American tailwind and the power of compound interest, the space in which we operate has been – and will be – rewarding if you make a couple of good decisions throughout your life and avoid serious mistakes.”
Rebukes investors looking for quick money:
“Although the stock market is enormously larger than in our early years, today's active participants are no more emotionally stable or better educated than when I was in school. For some reason, markets now exhibit much more similar to that of a casino than before”. “When I was young. The casino is now found in many homes and tempts its occupants daily.”
Related: Charlie Munger's Net Worth: Everything to Know About the Late Berkshire Hathaway Vice Chairman's Investments
Berkshire's business is based on insurance, especially Geico, and utilities, energy and related industries. She also owns See's Candies.
These are big investors in Coca-Cola. (IS) and American Express (AXP) profitable and stable.
The philosophy has worked. The company earned $96.2 billion in 2023, against a loss of $22.8 billion, with insurance and investment gains and $9.6 billion in investment income offset declines in its giant rail and utilities businesses.
Operating profits rose 21% to $37.4 billion from 2022. Buffett likes this measure because it excludes paper profits and losses.
Class A shares are up 15.9% this year to $628,930.19. Class B shares rose 17% to $417.22.
There is no mention in the report whether Berkshire plans to cut its stakes in Apple. (AAPL) . In the fourth quarter, Berkshire sold 1% of its Apple holdings and still owns 95.6 million shares.
The succession plan seems to be underway
Meanwhile, Buffett is still Buffett and doesn't seem ready to retire, even at 93 years old.
He is still listed as president and CEO. He considers running the company “mostly fun and always interesting.”
And the experience is worth it: “We now have a small group of veteran managers who never think about going elsewhere and who consider turning 65 as just another birthday.”
When the company holds its annual meeting in Omaha, Nebraska, on May 4, the vice president will join him on stage. Greg Abel and vice president Ajit Jain.
Abel runs the non-insurance side of Berkshire, and in the letter, Buffett says that the Canadian-born Abel “is ready in every respect to be CEO of Berkshire tomorrow.”
Jain heads the insurance and investment business.
Buffett's tribute to Charlie Munger
Of course, not attending the annual meeting will be Charlie Munger, Berkshire's longtime vice president, who died in November at age 99.
He annual report It begins with Buffett's tribute to his partner. In it, he says: “Charlie was the 'architect' of today's Berkshire, and I acted as 'general contractor' to carry out the day-to-day construction of his vision.”
Their relationship was “part big brother, part loving father,” Buffett wrote. “Even when he knew he was right, he gave me the reins, and when I made a mistake, he never… never –reminded me of my mistake.”
