Warren Buffett’s Berkshire Hathaway has achieved its second consecutive record annual profit, with net income reaching a staggering $96.2 billion. The rising stock market played a significant role in boosting the value of Berkshire’s $354 billion equity portfolio, with half of it invested in Apple.
In his annual letter to Berkshire shareholders, Buffett highlighted the exceptional performance of the company’s insurance businesses, particularly Geico. Geico’s improved underwriting quality helped it reverse previous losses and contribute to the overall success of the conglomerate. This success helped offset declining profits at BNSF railroad and Berkshire Hathaway Energy.
Buffett reassured investors that Berkshire’s “extreme fiscal conservatism” would continue to serve them well. The company currently holds a record $167.6 billion cash stake, which provides a solid foundation for future investments. Operating profit for the fourth quarter rose 28% to $8.48 billion, surpassing analyst forecasts. For the entire year, operating profit increased by 21% to $37.4 billion.
Edward Jones analyst Jim Shanahan praised Berkshire’s diversified collection of operating businesses, emphasizing the benefits of Geico’s strategic approach to market share and advertising expenses. Additionally, Berkshire’s insurance businesses benefited from the cash stake, generating 38% more investment income in the quarter due to increased short-term interest rates.
Berkshire’s success also includes earnings from its stake in Occidental Petroleum, as well as investments in oil company Chevron. Buffett’s defensive portfolio strategy, combined with investments in oil stocks, has proven to be a winning combination.
The fourth-quarter net income more than doubled to $37.57 billion, while the annual profit of $96.2 billion surpassed the previous record set in 2021. However, Buffett considers net results misleading as they include gains and losses on investments that Berkshire has not sold.
Berkshire has been actively repurchasing its own stock, spending approximately $2.2 billion in the fourth quarter and an additional $600 million in the first six weeks of 2024. Despite this, the cash stake grew due to Berkshire’s net selling of stocks, selling $24.2 billion more than it bought in 2023.
Buffett has been discreetly building new holdings after obtaining SEC approval for confidentiality, preventing other investors from copying his moves. Analysts speculate that these holdings may come from the bank, insurance, and finance sector, where Berkshire invested around $3.6 billion in the second half of 2023.
Buffett acknowledged a “costly mistake” in not considering changes in the regulatory environment for utilities, including those related to climate change. Additionally, Berkshire faces significant costs from wildfires in Oregon and northern California, with charges already amounting to $2.4 billion.
Berkshire Hathaway’s diverse portfolio includes industrial parts and chemical companies, a real estate brokerage, and well-known retail brands such as Dairy Queen, Fruit of the Loom, and See’s candies. The company’s stock has outperformed the market in 2024, rising 16% compared to the S&P 500’s 7% gain.
Overall, Berkshire Hathaway’s impressive financial performance, driven by its insurance businesses and strategic investments, solidifies its position as a leading conglomerate. With Warren Buffett’s conservative approach and a strong cash stake, the company is well-positioned for continued success in the future.