Warren Buffett says Berkshire 'built to last' though eye-popping gains are over

FILE PHOTO: Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc’s annual shareholder meeting in Omaha, Nebraska, U.S., May 4, 2019. REUTERS/Scott Morgan/File Photo

By Jonathan Stempel

(Reuters) – 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-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, American Express, Bank of America and Coca-Cola, 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 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, Marubeni, Mitsubishi, Mitsui and Sumitomo.

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)