On the evening of February 24th Beijing time, "Stock God" Warren Buffett released his annual letter to shareholders.
Every February, Buffett writes a letter to review the gains and lessons he has learned from his investments over the past year. This letter to shareholders, attached to Berkshire Hathaway's annual report, has been regarded by many investors as the "Bible" for providing value investment, and is currently Buffett's 46th shareholder letter.
What did Buffett say in his letter this year? How do various sectors comment on this?
"Appropriate epitaph"
This is Buffett's first shareholder letter after Charlie Munger's death in November 2023. At the beginning of his shareholder letter, Buffett used "Charlie Munger - Designer of Berkshire Hathaway" as the title, and in the form of a separate article, he deeply commemorated this influential partner who had a profound impact on himself and Berkshire.
Buffett said, "Charlie never tried to fight for honor for him as a creator, but instead allowed me to receive all the applause and praise. To some extent, his relationship with me is both brother and father. Even if he knows he's right, he gives me control. Even if I make a mistake, he never blames me in return."
"In the real world, people often associate great architecture with architects, and those who pour concrete or install windows are quickly forgotten. Berkshire has become a great company, and I have always been responsible for architecture, while Charlie will always be Berkshire's designer," Buffett wrote in his letter.
Reuters reported that James, the head of Henry H Armstrong Associates in Pittsburgh, said the letter is an appropriate epitaph for Munger and his significance to Berkshire, as he has held Berkshire stocks for over 35 years.
"Charlie's influence was enormous," Armstrong said. "The public may not understand, but now they understand."
Edward Jones analyst Jim Shanahan, who studies the business of Berkshire Hathaway, said this is a "profound compliment" from what can be said to be the world's most respected investors.
"Buffett believes that Berkshire's success and his personal success are inseparable from Charlie Munger's great trust," Shanahan said. "Without his wisdom and guidance, Buffett would not have been so successful."
After reaching a new high in cash holdings
Buffett reminded Berkshire Hathaway shareholders in his shareholder letter that his $905 billion company is unlikely to achieve stunning performance in the coming years, according to a report by the Financial Times, which exposed the challenges his successor will face.
Buffett pointed out that few transactions have had the transformative impact of past acquisitions, such as acquiring insurance companies Geico and National Independence or BNSF Railway.
"Only a few companies in this country can truly drive Berkshire's development, and we and others constantly choose them," Buffett said. "Outside the United States, there are basically no candidates who can be meaningful choices for Berkshire's capital deployment."
"With the growth of Berkshire's business and the intensification of cash levels, Buffett has been paying attention to this issue for nearly a decade," according to a report by the Financial Times.
In recent years, the company has spent billions of dollars to acquire truck stop operator Pilot Flying J and insurance group Alleghany, including them in investment portfolios including ice cream supplier Dairy Queen and utility giant Berkshire Hathaway Energy.
But these expenses only had a small impact on Berkshire's cash reserves, which continue to rise. At the end of 2023, this number reached a record breaking $167.6 billion, an increase of $39 billion for the entire year.
The Financial Times believes that the company's investment decisions are closely monitored in search of clues to Buffett's market views, and his inaction is often seen as his belief that certain parts of the US stock market are overvalued.
According to a Reuters report, Bill Smead, a long-term Berkshire investor at Smead Capital Management, said, "His letter warns other investors that they may have paid exorbitant prices for stocks and businesses."
The Financial Times further pointed out that Buffett's letter, his comments at the annual meeting, and hundreds of interviews over the years constitute a standard manual for those who will one day serve as executives at Berkshire Hathaway and manage the company's board of directors.
In the shareholder letter, Buffett emphasized that the "extreme fiscal conservatism" that has long been the guiding principle of the group will undoubtedly continue to exist.
"One of Berkshire Hathaway's investment rules has not changed and will not change: never take the risk of permanent capital loss," Buffett wrote. "Thanks to the favorable winds and compounding power of the United States, if you make some right decisions and avoid serious mistakes in your life, the field we operate in has already and will be beneficial."
Concerns about successors
Munger's death once again reminds people that one day Berkshire will have to continue moving forward without the current 93 year old Buffett at the helm.
Berkshire has developed a succession plan and stated that Vice Chairman Greg Abel will one day succeed Buffett as CEO, while the company's other two investment deputies, Todd Combs and Ted Weschler, will take over the stock investment portfolio. Since 2018, Abel has been responsible for overseeing many of Berkshire Hathaway's non insurance businesses, and the managers of these companies have stated that investors should not worry about Abel's ability to lead the company. To a large extent, Berkshire allows its company to operate on a daily basis, while headquarters decides where to invest all the cash it generates.
Buffett told investors in his letter that Abel "is ready in all aspects to become Berkshire's CEO tomorrow.".
The Associated Press report shows that the comments about Abel are reassuring, but the question is whether he is prepared to take advantage of this significant opportunity when there is a financial panic, as Abel may be concerned that his first major investment will fail.
"I have no doubt. Considering his operational background, he could intervene and run Berkshire today, but I don't know if he's ready to invest a lot of money," Shanahan said.
Cathy Seifert, an analyst at CFRA Research, said that Berkshire does have "truly strong and stable second - and third line managers" who have not received much attention, but investors are hoping to hear more about Abel and the vice chairman who runs the insurance, Ajit Jain. This is understandable, and perhaps this will happen at the shareholders' meeting in May this year.