Buffett confirms successor, saying stocks are more attractive than cash

Source: Balun Chinese

For a long time, people have been speculating about who will succeed Buffett. In his annual shareholder letter released on the morning of February 22 local time, Buffett wrote, ‘I am 94 years old, and before long Greg Abel will take over as CEO and write the annual shareholder letter.’

Buffett explicitly confirmed two things in the letter: that Berkshire Hathaway Energy CEO and Berkshire’s vice chairman of non-insurance businesses, Abel, is his successor, and the handover will happen soon.

Warren Buffett’s annual shareholder letter attracts attention from investors around the world not only because Berkshire often makes groundbreaking moves, but also because of Buffett’s profound insights into investment, the economy, and sometimes even society, politics, and marriage. This 15-page open letter continues the trend of fewer pages than the previous year, and does not contain too much content related to these two topics. (Click ‘Read full article’ to view the full shareholder letter)

But having said that, Buffett is 94 years old, as he recently said in an interview with Fortune, “I still very much enjoy working, can still do some things quite well, but have discontinued other activities or greatly reduced them.”

The fourth-quarter financial report released with the shareholder letter shows that Berkshire’s cash reserves reached a record $334.2 billion, but Buffett said that Berkshire prefers to hold stocks rather than cash.

Buffett wrote in the letter, ‘If the wind of financial recklessness blows stronger, the value of paper currency will evaporate. Some countries have made such reckless practices a habit, and the United States has also approached that edge in its brief history. Fixed-rate bonds cannot prevent exchange rate out of control.’

Buffett also wrote, “Berkshire will never be more willing to hold cash than to invest in good companies, either through full ownership or partial ownership.”

Buffett pointed out in the letter that operating profit is his most important performance measure. By 2024, Berkshire’s operating profit increased from $37.4 billion in 2023 to $47.4 billion, a 26.7% increase. Buffett said that the strong performance of Geico’s insurance business (which has maintained a trend of turning losses into profits in the past few quarters) is one of the reasons for Berkshire’s operating profit growth. Buffett attributed Geico’s growth to Geico CEO and Berkshire investment manager Todd Combs.

Buffett wrote, “Geico is a gem that Berkshire has long owned and needs to be polished again. Todd is tirelessly doing this work. Although the work is not finished yet, the progress made in 2024 is amazing.”

The pricing of Berkshire’s ‘very important’ property and casualty insurance business, as termed by Buffett, has risen, ‘reflecting a significant increase in losses caused by weather-related events.’ Insurance companies often raise prices after experiencing losses.

Buffett wrote, ‘Climate change may already be here, with staggering insurance losses that could occur one day, possibly on any day, and no one can guarantee that such losses will only occur once a year.’

Buffett also wrote in the letter that Berkshire Hathaway pays more taxes to the US Treasury than any other company. In 2024, Berkshire Hathaway paid $26.8 billion in taxes, he wrote, “far more than the US government collects in corporate income tax from any other company… about 5% of all corporate taxes paid in the US.” Over its 60-year history, the company has paid $101 billion in taxes.

Berkshire Hathaway had a strong performance last year, but the company faced obstacles in doing what it does best - investing. With stock prices soaring, Buffett and his two deputies believed that no company’s stock price was attractive enough. Last year, Berkshire Hathaway sold about $134 billion worth of stocks, most of which were Apple AAPL stocks.

Due to Berkshire Hathaway not paying dividends, the cash reserves surged from $168 billion at the end of 2023 to $334.2 billion, roughly equivalent to the market value of Berkshire’s long-term investment target, Coca-Cola, KO.

Buffett mentioned in the letter that Berkshire has increased its investments in five Japanese trading companies: Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo. Buffett said that these five companies are similar to Berkshire in that they all “hold stakes in businesses from different industries”.

Warren Buffett said that the total cost of investing in five Japanese trading companies is $13.8 billion (Berkshire Hathaway started buying their stocks in 2019), now valued at $23.5 billion. Buffett wrote, “Over time, you may see Berkshire’s holdings in these five companies further increase.”

The end of the letter was somewhat heavy, Buffett said, this year’s Berkshire Hathaway annual meeting - often referred to as the ‘Woodstock Festival for Capitalists’ - will be a ‘redesigned gathering’. There will be no funny videos playing before the meeting, as in the past, and it will not last until the evening. This year’s meeting will end at 1 p.m.

Berkshire Hathaway’s 2025 annual shareholders meeting will be held at the CHI Health Center in Omaha, Nebraska on Saturday, May 3, local time.