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Warren Buffett’s annual shareholder letter is always one of the most anticipated reads in the financial world. His 2024 edition, marking 60 years since he took control of Berkshire Hathaway, offers a mix of candid reflections, investment wisdom, and insights into the company’s future. This year’s letter stands out for its discussions on capital allocation, mistakes, and the growing importance of insurance and international investments.

For the uninitiated, Berkshire Hathaway is one of the most unique and diverse conglomerates in the world. It began as a struggling textile company before Buffett transformed it into a powerhouse conglomerate. Today, Berkshire owns 189 operating businesses across a vast array of industries including insurance, energy, transportation and consumer goods. It also holds significant equity stakes in some of the most recognisable publicly listed companies in the world, such as Apple, American Express, and Coca-Cola. This broad mix of industries makes Berkshire a microcosm of corporate America, reflecting trends in energy infrastructure, transportation, consumer spending, and insurance risk.

Source: Value Hunter

Buffett opens the 2024 edition with a rare level of honesty about mistakes, admitting that capital allocation errors are inevitable. He reflects on misjudgments in both stock investments and full acquisitions, emphasising that the real failure is in delaying necessary corrections.

With that in mind, Buffet notes that 53% of Berkshire’s 189 operating businesses saw earnings declines throughout 2024. Despite this, operating earnings grew 27% to US$47.4 billion thanks to increased interest revenue from US Treasury Bills. Other key contributors to earnings included insurance business GEICO and big gains in Japanese investments. 

On insurance, Buffett spends considerable time discussing Berkshire’s property-casualty (P/C) insurance operations, calling it the company’s "core business." The key insight here is that insurance allows Berkshire to collect cash upfront while paying out claims much later—creating a "float" that can be reinvested. This is especially valuable in high-interest rate environments whereby highly liquid and short-term T-Bills are yielding over 4%. 

Buffett does acknowledge that climate change is increasing risks, with pretax losses of ~US$1.3 billion from the LA wildfires, but believes short-term policies (renewed annually) allow insurers to adjust pricing accordingly and warns against underpricing risk just to maintain market share, calling it "corporate suicide."

Source: Google Finance

Finally, at 94 years old Buffett is mindful that Greg Abel will soon take over as CEO. He expresses full confidence in Abel’s ability to uphold Berkshire’s culture of transparency and disciplined capital allocation. Importantly, Buffett reiterates that Berkshire’s future remains tied to equities, primarily American businesses. Despite holding US$272 billion in marketable securities, he downplays concerns about their large cash position, saying they will always favour business ownership over cash equivalents.

Buffett’s tone this year is notably more reflective and forward-looking than in prior letters. Key differences from past editions include:

• More Transparency on Mistakes – Buffett has always been candid, but this year he goes further in highlighting errors.
• More Attention to Insurance Risks – Past letters focused on opportunity; this year, there’s a stronger emphasis on managing climate-related risks.
• Greater Recognition of Berkshire’s Tax Contribution – While Buffett has discussed taxes before, he underscores just how critical Berkshire has become to U.S. government revenues at a time when the focus is on government deficits and debt. 

Buffett’s 2024 letter is another lesson from the Oracle of Omaha on long-term investing, capital discipline, and corporate governance. Shareholders are reminded that mistakes are inevitable, but failing to correct them is a choice. He also makes a compelling case for sticking to high-quality equities over cash or bonds, a philosophy that has served Berkshire well for decades. However, it remains to be seen when/how the record US$334.2 billion cash pile will be allocated. 

As the Buffett era nears its transition, one thing remains certain: Berkshire Hathaway’s legacy as the ultimate long-term investment vehicle is firmly intact.

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