Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has stated that the size of his conglomerate limits its potential for performance. In his annual letter to shareholders, Buffett explained that due to Berkshire Hathaway’s sheer size and the lack of attractive buying opportunities, the company may only slightly outperform the average American company.
Berkshire Hathaway, based in Omaha, Nebraska, is known for its diverse portfolio of businesses, including BNSF Railway, Dairy Queen, and a significant stake in Apple. With a net worth that surpasses any other American business, Buffett acknowledges that there are only a few companies capable of making a significant impact on Berkshire’s performance. These companies have been thoroughly analyzed by Buffett and others, making it challenging to find attractively priced investments.
The last notable deal made by Berkshire was the acquisition of insurer and conglomerate Alleghany for $11.6 billion in 2022. Additionally, Buffett acquired a 28% stake in energy giant Occidental Petroleum but ruled out purchasing the entire company. While these moves were significant, they fell short of Buffett’s desire for an “elephant-sized” target.
Berkshire currently holds a record $167.6 billion in cash, indicating the lack of compelling investment opportunities within the United States. Buffett states that there are essentially no meaningful options for capital deployment outside of the country. As a result, he believes that Berkshire has no possibility of achieving eye-popping performance.
However, Buffett did make a notable investment in Japanese trading companies, including Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo. He intends to hold these stakes for the long term. Despite this investment, Buffett maintains that Berkshire’s diversified portfolio of high-quality businesses should only provide slightly better performance than the average American corporation.
Buffett emphasizes the importance of operating with less risk of permanent loss of capital. He believes that anything beyond slightly better performance is wishful thinking. Despite this modest outlook, Berkshire Hathaway’s stock has been performing well, reaching consecutive record highs and boasting a market value above $900 billion.
In 2024, Berkshire’s stock has gained about 16%, more than double the return of the S&P 500. This follows a 16% climb in 2023. While Buffett acknowledges the limitations imposed by Berkshire’s size, investors continue to have confidence in the company’s ability to deliver solid returns.
Warren Buffett’s insights shed light on the challenges faced by Berkshire Hathaway due to its immense size and the scarcity of attractive investment opportunities. Despite these limitations, Buffett’s disciplined approach to investing and the company’s diversified portfolio continue to generate positive returns. As investors eagerly await Berkshire’s next move, it remains to be seen whether Buffett can find the elusive “elephant-sized” target he has been seeking.