Warren Buffett’s Annual Letter to Shareholders
Warren Buffett released his annual letter to Berkshire Hathaway shareholders on Saturday. In this communication, the investor discussed Berkshire’s tax contributions and urged the government to utilize these funds judiciously. He praised Todd Combs for the significant improvements made at GEICO and commended the decisive actions of Greg Abel.
The 94-year-old investing legend highlighted the enormous sum of taxes paid by Berkshire Hathaway, asserting the importance of wise government spending. Buffett reminisced about a time when his conglomerate paid no income tax in 1965, the year he assumed control of the company. “That sort of economic behavior may be understandable for glamorous startups, but it’s a blinking yellow light when it occurs at an established pillar of American industry,” he stated. “Berkshire was on a path to failure.”
Fast forward to 2024, and Berkshire paid $26.8 billion in taxes, a record amount for any US company, representing about 5% of the total American corporate income taxes that year, according to Buffett. Cumulatively, the company has now contributed over $101 billion in income tax to the US Treasury.
Buffett urged the federal government to use these funds effectively to combat poverty, while cautioning officials against reckless spending that could destabilize the dollar. “Spend it wisely,” he advised. “Take care of the many who, for no fault of their own, draw the short straws in life. They deserve better. And always remember the necessity of maintaining a stable currency, which requires your wisdom and vigilance.”
The billionaire philanthropist also commented, “Paper money can lose its value if fiscal irresponsibility takes hold. In some nations, this unstable practice has become routine, and the US has flirted with similar consequences in its brief history. Fixed-coupon bonds offer no defense against soaring inflation.”
GEICO, Stocks, and Cash
In his letter, Buffett praised Todd Combs for revitalizing GEICO since his appointment as the insurer’s CEO in 2020. GEICO’s pre-tax underwriting earnings soared to $7.8 billion last year, reflecting significant improvements in premium pricing, lower claim frequencies, and enhanced operational efficiency. “GEICO was a traditionally valuable asset in need of substantial refinements,” Buffett noted, describing last year’s performance as “spectacular” while emphasizing that challenges remain.
Across the board, Berkshire’s operating income rose by 27% to $47.4 billion last year, even as earnings faltered in 53% of its 189 operating units. Buffett and his team recorded a net sale of $6.7 billion in stocks last quarter. For the entire year, they purchased $9.2 billion worth of stocks and liquidated $143 billion, leading to a net offloading of $134 billion in stocks. Notably, no Berkshire stock was repurchased in the fourth quarter; total buybacks for the year stood at $2.9 billion, a sharp decline from $9.2 billion in 2023 and $7.9 billion in 2022.
This boost in operating earnings, alongside stock sales and minimal buybacks, contributed to an increase in Berkshire’s cash reserves to a historic $334 billion by December 31 (or $321 billion when accounting for $12.8 billion in payable for Treasury bill purchases), nearly double the $168 billion recorded at the end of 2023.
Additionally, Buffett highlighted Greg Abel, his designated successor as CEO, for demonstrating keen decisiveness when investment opportunities arose. He also pointed out that Berkshire’s massive scale means exiting positions in its stock portfolio can take considerable time. “We can’t move in and out quickly,” he remarked.
In a lighthearted manner, the “Oracle of Omaha” acknowledged his lack of talents outside investing, stating, “Lacking attributes such as athletic prowess, a beautiful singing voice, medical or legal expertise, or any remarkable skills, I have had to depend on equities for my success throughout life.”
