Berkshire Hathaway accumulated a record cash reserve of $334.2 billion by the end of 2024. However, in his latest annual letter to shareholders, Warren Buffett reaffirmed the company’s commitment to equities. Buffett used the word “equities” 13 times in his letter, emphasizing his strong belief that investing in stocks is a more reliable long-term strategy than hoarding cash.
Berkshire’s Investment Philosophy: Stocks as Long-Term Assets
Buffett pointed out that despite Berkshire’s record cash position, only a fraction of the company’s assets remain in cash, with the majority still invested in equities. He stated, “Regardless of what some commentators see as an incredible cash position at Berkshire, most of your money is still in equities.” This strategy reflects his confidence in the resilience of high-quality businesses, particularly American companies.
Q2 2024 Financial Performance
- Berkshire Hathaway’s operating earnings reached $47.4 billion, marking a 27% increase from the previous year.
- Despite this growth, 53% of its 189 operating businesses reported earnings growth of less than 2%.
- The company paid $26.8 billion in corporate income taxes, accounting for 5% of all corporate taxes paid in the U.S.
Buffett urged the government to spend tax revenues wisely and emphasized the importance of a stable currency.
Strategic Investments and Cash Allocation
Despite its massive cash reserve, Buffett reassured shareholders that Berkshire’s preference for equities remains unchanged. Key developments include:
- The value of marketable equities declined from $354 billion to $272 billion over the past year.
- The value of non-quoted controlled equities increased.
- Berkshire expanded its investments in five major Japanese trading companies, increasing its holdings to $23.5 billion.
Buffett praised these companies for their strong capital management and shareholder-friendly policies.
Leadership and Future Outlook
Buffett expressed confidence in Greg Abel, his designated successor as CEO, stating that Abel is well-prepared to capitalize on major investment opportunities. He also commended Todd Combs for revitalizing Geico, which saw its pre-tax underwriting earnings more than double to $7.8 billion last year.
Buffett humorously acknowledged his lack of skills outside investing, saying, “Lacking such assets as athletic excellence, a wonderful voice, medical or legal skills or, for that matter, any special talents, I have had to rely on equities throughout my life.”
FAQ
Why does Warren Buffett emphasize investing in equities?
Buffett believes that investing in high-quality companies through equities provides superior long-term value, whereas holding cash can erode wealth over time due to inflation.
How does Berkshire Hathaway manage its massive cash reserves?
While Berkshire maintains significant cash liquidity for future acquisitions and stability, the company primarily invests in equities, either through wholly-owned businesses or marketable securities.
What recent investments has Berkshire made?
Berkshire has increased its stakes in five large Japanese trading companies, with these investments now valued at $23.5 billion.
Who is Greg Abel, and what is his role?
Greg Abel is the designated successor to Warren Buffett as CEO of Berkshire Hathaway. He currently oversees the company’s non-insurance operations and is known for his strategic and decisive management approach.
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