Warren Buffett’s Berkshire Hathaway Inc said its cash pile scaled a new record as the billionaire investor decried a lack of meaningful deals that would give the firm a shot at “eye-popping performance.”
Berkshire’s cash hoard jumped to a record at US$167.6 billion in the fourth quarter of last year as the conglomerate struggled to find deals at attractive valuations.
The company also reported fourth-quarter operating earnings of US$8.48 billion, versus US$6.63 billion for the same period a year earlier, helped by an increase in insurance underwriting earnings and investment income amid higher interest rates and milder weather.
Photo: REUTERS
“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, 93, said in his annual shareholder letter, which the company released alongside its results on Saturday. “Outside the US, there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.”
Buffett last year struck a US$11.6 billion deal to buy Alleghany Corp and snapped up shares in Occidental Petroleum Corp — an investment he on Saturday said that he expects to hold “indefinitely” but has no plans to purchase or manage the company.
The investor also boosted Berkshire’s stake in five of Japan’s trading houses last year after their profits surged — a move that fueled a rally in their stock. Berkshire’s year-end unrealized gain from those investments was US$8 billion, or 61 percent, it said.
Buffett has also continued to lean on share repurchases amid the dearth of appealing alternatives, saying the measures benefit shareholders. The firm spent US$2.2 billion on buybacks in the fourth quarter, bringing the total for the year to about US$9.2 billion.
Berkshire shares, which gained 15 percent last year, are up 17 percent so far this year and have touched a record in each of the past seven trading days.
The company’s earnings are always closely watched as a proxy for US economic health because of the expansive nature of Buffett’s businesses. That also makes the company particularly susceptible to higher interest rates, which can crimp demand, and Buffett in May last year said that earnings at most of its operations would fall as an “incredible period” for the US economy draws to an end.
The company said operating earnings from its railroad operations fell to US$1.36 billion last quarter, versus US$1.47 billion for the same period a year earlier. Operating earnings from utilities and energy also fell to US$632 million from US$739 million.
Still, operating earnings from insurance underwriting jumped to US$848 million for the period from US$160 million in the same quarter a year earlier.
“Our insurance business performed exceptionally well last year, setting records in sales, float and underwriting profits,” Buffett said in the shareholder letter. “We have much room to grow.”
This is the first time Berkshire reported earnings since Charlie Munger, Berkshire’s vice chairman and Buffett’s long-time investing partner, died at 99 in November last year. Buffett devoted much of the letter to praising Munger’s role in creating the sprawling firm, calling him the “architect” of the company and referring to himself as the person “in charge of the construction crew.”
“Come to Berkshire’s annual gathering on May 4, 2024,” Buffett said. “On stage you will see the three managers who now bear the prime responsibilities for steering your company,” he said, referring to himself, reinsurance executive Ajit Jain and Berkshire Hathaway Energy chief executive Greg Abel.
Including investment and derivatives, Berkshire posted US$37.6 billion of net earnings for the quarter, more than the year prior, helped by higher interest rates.
Berkshire often says that investors should look past investment gains or losses, which are tied to generally accepted accounting principles (GAAP), saying they can be misleading.
“Berkshire now has — by far — the largest GAAP net worth recorded by any American business,” Buffett said in the annual letter. “Record operating income and a strong stock market led to a year-end figure of US$561 billion. The total GAAP net worth for the other 499 S&P companies — a who’s who of American business — was US$8.9 trillion in 2022.”
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