As of 31 December 2024, Berkshire’s common stock investments are worth US$ 271.6 billion, which is a 23.2% decline from US$ 353.8 billion at end-2023. Such was attributed to a reduction of its stockholdings in Apple and Bank of America. The sale proceeds were placed at US Treasury Bills. Thus, Berkshire’s holdings in US Treasury Bills had increased from US$ 129.6 billion in end-2023 to as high as US$ 286.5 billion on 31 December 2024.
Its top five holdings accounted for 71% of its equity investment in 2024:
1. American Express Company (AMEX)
2. Apple Inc
3. Bank of America Corporation
4. The Coca-Cola Corporation
5. Chevron Corporation
In his 2024 letter, Buffett had reiterated on the basics as follows:
1. Property-Casualty Insurance (P/C)
P/C insurance continues to be Berkshire’s core business. When writing P/C insurance, we receive payment upfront and much later learn what our product has cost us – sometimes a moment of truth that is delayed as much as 30 or more years. In recent decades, this “money-up-front, loss-payments-later” model has allowed Berkshire to invest large sums (float) while generally delivering what we believe to be a small underwriting profit. We make estimates for “surprises” and, so far, these estimates have been sufficient.
Buffett wrote that Berkshire’s P/C operations have the ability to handle extreme losses without needing to rely on reinsurers. Such ability stems from Berkshire’s mammoth balance sheet of owning US$ 1.15 trillion in total assets in 2024. This offers Berkshire a cost advantage as it doesn’t need to incur reinsurance costs.
According to Buffett, Berkshire raised capital known as “float” and these capital are invested in “controlled companies”, “marketable equities” and others which include US Treasury Bills. This form of capital is “cost-free” to Berkshire as it had generated US$ 32 billion in after-tax underwriting profits in the last 20 years. As such, it means that Berkshire is “getting paid” for raising such “capital” to invest on behalf of themselves.
2. In Favour of Businesses
Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities – mostly American equities although many of these will have international operations of significance. Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.
Buffett prefers income-productive businesses over cash-equivalent assets. Such is because businesses would find ways to cope with monetary instability and he finds that fixed-coupon bonds offer no protection against runaway currencies. It is evident that Buffett classifies his business ownership into two categories:
1. Controlled Businesses
These are companies that Berkshire owns >80% shareholdings in. Currently, the total number of such companies Berkshire owns is 189. They include Burlington North Santa Fe (BNSF), Berkshire Hathaway Energy, Duracell, Lubrizol and so on and so forth. Berkshire would earn business income from them.
2. Marketable Equities
They are public listed companies that Berkshire owns <20% shareholdings in. At present, they include Amex, Apple, Bank of America, Coca-Cola and Chevron. In holding them, Berkshire stands to earn dividends and enjoys capital gains. With marketable equities, Berkshire’s reported annual earnings can fluctuate heavily. This is because it is required to report both realised / unrealised capital gains or losses that occur in each financial year. Investors should “exclude” these capital gains or losses when assessing the operating performances of Berkshire.
3. Reinvestment over Dividend Payouts
In a very minor way, Berkshire shareholders have participated in the American miracle by foregoing dividends, thereby electing to reinvest rather than consume. Originally, this reinvestment was tiny, almost meaningless, but over time, it mushroomed, reflecting the mixture of a sustained culture of savings, combined with the magic of long-term compounding.
For decades, shareholders of Berkshire were not paid dividends. This is because Buffett believes that a better way to allocate capital is to reinvest them to “earn more money”. Growth is achieved via long-term compounding and Berkshire, in the aspect, is a product of such, after fifty years of compounded annual gains of 19.9%.
4. Mistakes
Sometimes I’ve made mistakes in assessing the future economics of a business I’ve purchased for Berkshire – each a case of capital allocation gone wrong. That happens with both judgments about marketable equities – we view these as partial ownership of businesses – and the 100% acquisitions of companies. At other times, I’ve made mistakes when assessing the abilities or fidelity of the managers Berkshire is hiring. The fidelity disappointments can hurt beyond their financial impact, a pain that can approach that of a failed marriage.
Even the legend is humble enough to admit mistakes made. What about us? So, I believe that while we try to make good investment decisions, it is inevitable to make occasional mistakes. The key is to learn from them so that we are smarter at investing. Also, Buffett mentioned that mistakes do fade away, but if we have winners, we should hold onto them as they could blossom for a long-time.
5. Japan
Berkshire made its first purchases involving the five in July 2019. We simply looked at their financial records and were amazed at the low prices of their stocks. As the years have passed, our admiration for these companies has consistently grown. Greg has met many times with them, and I regularly follow their progress.
Both of us like their capital deployment, their management and their attitude in respect to their investors. Each of the five companies increase dividends when appropriate, they repurchase their shares when it is sensible to do so, and their top managers are far less aggressive in their compensation programs than their U.S. counterparts.
Buffett had made investments into Mitsubishi, Sumitomo, Itochu, Mitsui and as well as Marubeni for US$ 13.8 billion. They are now worth US$ 23.5 billion as of 31 December 2024.
The success formula is simple and can be listed as follows:
1. Financial Records (how many buy stocks without looking at them?)
2. Low prices (I believe the context here is valuation and not exactly price itself)
3. Regularly follow their progress (just to ensure their fundamentals are intact).
4. Capital deployment (it sets the culture of how management uses capital).
5. Increase dividends (more earnings / operating cash flows = more dividends).
6. Repurchase shares (could boost earnings per share when done right).
Conclusion:
Obviously, there is nothing new about what Buffett did to attain his success as a businessman and value investor. It is decades of compounding success from the basics, which include financial prudence, coupling with good capital allocation.
Source: Buffett’s Letter 2024
Here, if you intend to build a Growth-based Portfolio filled with the top 1% companies listed in the United States, check out our free 1-Hour online webinar training on growth investing:
Link:
Online Training: Case Study of 1 Actual Stock that I had Invested in and Why It Doesn’t Take High Risk to Generate High Returns in the Stock Market?
