Wrapup 1: Warren Buffett says Berkshire 'built to last' though eye-popping gains are over
24/02/2024 17:31
By Jonathan Stempel
Feb 24 (Reuters) - Warren Buffett on Saturday moved to
reassure investors that his conglomerate Berkshire Hathaway
BRKa.N would serve them well over the long term, even as he
mourned the recent passing of his longtime second-in-command
Charlie Munger.
In his widely-read annual letter to Berkshire shareholders,
which accompanied a record $37.4 billion full-year operating
profit, Buffett said his more than $900 billion conglomerate has
become a fortress capable of withstanding even an unprecedented
financial disaster.
"Berkshire is built to last," Buffett wrote.
Buffett also tempered expectations for Berkshire's stock
price, saying the company's 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.
"Some we can value; some we can't."
But the 93-year-old billionaire also assured investors that
Vice Chairman Greg Abel, his designated successor, was "in all
respects ready to be CEO of Berkshire tomorrow."
Buffett also saved his most heartfelt words for Munger, who
died in November at age 99.
He 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
reluctance to make major acquisitions at inflated prices, is one
reason Buffett has let the Omaha, Nebraska-based company's cash
stake swell to a record $167.6 billion.
"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."
Cathy Seifert, a CFRA Research analyst who rates Berkshire
"buy," said Buffett tried to show how Berkshire could withstand
rocky shoals, even after Munger helped him transform a
once-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 in making acquisitions,
with the stock market now routinely setting record highs, to an
insurance policy against the kind of hurried, unwise business
decisions that would have irked Munger.
"I have a sense that Berkshire wants to make Charlie proud,"
said Thomas Russo, a portfolio manager and longtime shareholder
at Gardner, Russo & Quinn in Lancaster, Pennsylvania.
GEICO BOOSTS RESULTS
Buffett's letter was accompanied by Omaha, Nebraska-based
Berkshire's quarterly and annual results.
Operating profit from its dozens of insurance, railroad,
industrial, energy, and retail businesses rose 28% in the
quarter to $8.48 billion and 21% for the year to a record $37.4
billion.
Insurance businesses such as Geico benefited from improved
underwriting quality and higher investment income as interest
rates rose, offsetting wage pressures at the BNSF railroad and
wildfire losses at Berkshire Hathaway Energy.
"Results reflect the value of holding a diversified
collection of operating businesses," said Jim Shanahan, an
Edward Jones analyst with a "hold" rating on Berkshire.
Investment gains in Berkshire's $354 billion equity
portfolio, including stocks such as Apple AAPL.O , American
Express AXP.N , Bank of America BAC.N and Coca-Cola KO.N ,
helped Berkshire generate a $96.2 billion annual profit.
The amount reflects accounting rules that require Berkshire
to report gains in stocks it hasn't sold, however, making it
"worse-than-useless" to investors according to Buffett.
Berkshire's caution, and one of the reasons for its record
cash stake, was reflected in its having sold about $24 billion
more stocks than it bought in 2023.
Results also included some of Occidental Petroleum's OXY.N
earnings, which reflected Berkshire's approximately 28% stake in
the oil company.
Buffett said he expects Berkshire will keep that stake
"indefinitely," along with its stakes in five Japanese trading
houses: Itochu 8001.T , Marubeni 8002.T , Mitsubishi 8058.T ,
Mitsui 8031.T and Sumitomo 8053.T .
Berkshire's businesses also include industrial parts and
chemical companies, a big 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)
((jon.stempel@thomsonreuters.com; +1 646 223 6317; Reuters
Messaging: jon.stempel.thomsonreuters.com@reuters.net))