What we read from Warren Buffett’s Letter to Shareholders

27 Feb 2025 , 12:23 PM

BERKSHIRE HATHAWAY CONTINUES TO CONFOUND INVESTORS?

The Berkshire Hathaway annual letter to shareholders holds a special place for the investor community. It is not just a presentation about the most valuable financial company in the world, but also a tome on all the collective wisdom of Warren Buffett. In a sense, Buffett continues to confound investors and analysts alike. Most experts argue that Buffett has not come up with big ideas in recent years, apart from Apple. However, if you look at the compounded annual returns (CAGR) of the portfolio since 1965, it is twice the S&P500.

This track record is not over 10 or 20 years, but consistently over the past 60 years. The second reason people find Buffett confounding is that despite being the finest value investor in the world, he currently sits on cash of $330 Billion. That is more than the annual GDP of 150 countries in the world. It is hard to explain such a phenomenon, but Buffett just calls it the Forever Investment Horizon. Here are some key takeaways from the latest newsletter to shareholders.

KEY TAKEAWAYS FROM THE BUFFETT NEWSLETTER FOR 2024

Like most years, the year also saw a pithy annual newsletter penned by Buffett. Here is what we read.

• Buffett is magnanimous enough to admit that he has made his share of mistakes. In a sense, he is referring to the recent past. Some of the recent purchases like IBM, and the airline companies have been bad and he had to exit quickly. However, Berkshire has done more things right than wrong. For instance, in the recent past, some of his bets like on Apple, silver and on US treasuries have really paid off. It remains to be seen how his big bets on US oil companies and Japanese trading conglomerates work out.
• Buffett has officially announced that Greg Abel will take over as the CEO. But, Buffett is going to continue as long as he is around. At 94, Buffett admits that he missed the earthy wisdom of Charlie Minger, who recently passed away at the age of 99. Are shareholders and the markets worried about succession? With returns like these, age of the CEO should hardly be a concern for anybody.
• You can read that in the historic portfolio of Berkshire Hathaway, but Buffett is not loath to admit that. As Buffet puts it, “A single great decision is enough to offset an array of bad decisions.” That is what decisions like Coca Cola, Amex, and Apple have been for Berkshire Hathaway. They have been so immensely successful and such phenomenal wealth creators, that they gloss over many ordinary performers.
• Buffett shares an interesting perspective on businesses to bet on. Buffett believes; Nature beats Nurture. You really cannot train someone to become a successful businessman. Smart business is an innate quality and quite often has nothing to do with education qualifications or Ivy League degrees. Buffett himself is Ivy League trained, but is forthright to admit that business is more natural than taught.
• Buffett does not believe in EBITDA, and hence reports operating income. At $47.43 Billion, the operating income in 2024 was 27% higher than year 2023. Bulk of the growth has come from insurance underwriting and insurance investment business. Regarding his investment business, Buffett has always presented it in MTM terms, to give a real picture as of the year-end.
• Finally, the cash pile of $330 Billion! Buffett is happy to wait, especially at a time when there are not enough opportunities to buy stocks at adequate margin of safety. That is exactly what he is doing now.

At the end of the day, the proof of the pudding lies in the eating. S&P 500 earned 10.4% CAGR over the last 60 years, while Berkshire Hathaway delivered 19.9% CAGR in the same period. With that kind of returns over a 60 year period, that is possibly the last word!