Buffett backs Berkshire, mourns Munger
• Sage of Omaha promises investors conglomerate will continue to serve them well over time
Warren Buffett on Saturday moved to reassure investors that his conglomerate, Berkshire Hathaway, would serve them well over the long term, even as he mourned the recent passing of his longtime second-incommand, Charlie Munger.
In his widely read annual letter to Berkshire shareholders Buffett said his more than $900bn conglomerate has become a fortress that could withstand even an unprecedented financial disaster.
“Berkshire is built to last,” Buffett wrote.
Still, he tempered expectations for Berkshire’s stock price, saying his Omaha, Nebraskabased company “should do a bit better” than the average American corporation, but its huge size left “no possibility of eye-popping performance”.
“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 wrote.
The letter was accompanied by Berkshire’s financial results, including a record $37.4bn operating profit and $96.2bn net profit for all of 2023.
Berkshire’s shares have risen 4,384,748% since Buffett took over in 1965, or 19.8% compounded annually. The S&P 500 index, in contrast, gained a mere 10.2% annually, though in recent years Berkshire has performed more like the index.
Buffett assured investors that vice-chair and designated successor Greg Abel was “in all respects ready to be CEO of Berkshire tomorrow”.
But the 93-year-old billionaire saved his most heartfelt words for Munger, who died in November at age 99.
Buffett called Munger the “architect” of Berkshire, with Buffett being only the “general contractor”, and reminded investors how Munger pushed him to buy wonderful businesses at fair prices instead of fair businesses at wonderful prices.
Berkshire’s “extreme fiscal conservatism”, including a reluctance to pay inflated prices, is one reason Buffett let Berkshire’s cash stake swell to a record $167.6bn.
“In a way his relationship with me was part older brother, part loving father,” Buffett wrote, referring to Munger. “Even when he knew he was right, he gave me the reins, and when I blundered he never — never — reminded me of my mistake.”
SUCCESSION PLAN
Edward Jones analyst Jim Shanahan said Buffett “wouldn’t have been as successful” without Munger.
Cathy Seifert, a CFRA Research analyst who rates Berkshire a buy, said Buffett tried to illustrate Berkshire’s ability to withstand rocky shoals, after transforming it from a failing textile company into a colossus mirroring the broader economy.
“Nothing is perfect,” she said. “He tried to show there is a succession plan, and Berkshire would stick to its knitting.”
Buffett likened Berkshire’s caution, with the stock market now routinely setting record highs, to an insurance policy against hasty, “dumb” business decisions.
Thomas Russo, a longtime shareholder at Gardner, Russo & Quinn in Lancaster, Pennsylvania, said Buffett still offered shareholders “tremendous value from his ability to make decisions before the opportunity is far gone”.
Berkshire’s fourth-quarter operating profit from its dozens of insurance, railroad, industrial, energy and retail businesses rose 28% to $8.48bn. Full-year profit rose 21%.
The Geico car insurer benefited in 2023 from improved underwriting and cost cuts, including the shedding of 7,700 jobs, or 20% of its workforce, while higher interest rates boosted investment income for Berkshire’s insurance units.
That helped offset wage pressures at the BNSF railroad and wildfire losses at Berkshire Hathaway Energy.
“Berkshire has diversified, very solid assets,” said James Armstrong, a longtime Berkshire investor at Henry H Armstrong Associates in Pittsburgh. “A mom-and-pop investor can feel that Berkshire is unlikely to suffer permanent harm.”
Investment gains in Berkshire’s $354bn portfolio of stocks such as Apple, American Express, Bank of America and Coca-Cola, helped generate Berkshire’s $96.2bn net profit.
But that amount reflects accounting rules that require Berkshire to report gains in stocks it hasn’t sold, making it “worse than useless” to investors, according to Buffett.
Berkshire’s caution, and a reason for its record cash stake, was reflected in its having sold about $24bn more stocks than it bought in 2023.
Results also included some of Occidental Petroleum’s earnings, which reflected Berkshire’s about 28% stake in the oil company. Buffett said he expected Berkshire would keep that stake “indefinitely”, with its stakes in five Japanese trading houses: Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo.
Munger’s death means only Abel and vice-chair Ajit Jain will share the stage with Buffett at Berkshire’s annual meeting.
This year’s meeting is scheduled for May 4 in Omaha.