At age 94, Warren Buffett can still formulate a shareholder letter like no other. His humility, candor, and wisdom is special. I always make it a point to read these because you don’t know how many more we’ll get the privilege to.
Some Key Points:
1) Mistakes Are Inevitable
Warren writes: “Sometimes I’ve made mistakes in assessing the future economics of a business I’ve purchased for Berkshire – each a case of capital allocation gone wrong. That happens with both judgments about marketable equities – we view these as partial ownership of businesses – and the 100% acquisitions of companies.
At other times, I’ve made mistakes when assessing the abilities or fidelity of the managers Berkshire is hiring. The fidelity disappointments can hurt beyond their financial impact, a pain that can approach that of a failed marriage.”
During the 2019-23 period, I have used the words “mistake” or “error” 16 times in my letters to you. Many other huge companies have never used either word over that span. Amazon, I should acknowledge, made some brutally candid observations in its 2021 letter. Elsewhere, it has generally been happy talk and pictures.“
Not all your stock picks are going to be winners, and every investment strategy is going to come with its own unique set of drawbacks. The goal is not perfection, the goal is to grow your assets over time. If you are looking for the perfect investment strategy, you’ll always be disappointed. If you are looking for the perfect time to invest, you are never going to find it.
Be content with what is possible. Make you goals realistic. It’s easier said than done, I know.
2) Let Your Winners Run
“And our experience is that a single winning decision can make a breathtaking difference over time. (Think GEICO as a business decision, Ajit Jain as a managerial decision and my luck in finding Charlie Munger as a one-of-a-kind partner, personal advisor and steadfast friend.) Mistakes fade away; winners can forever blossom.”
You might feel like every decision you make ends in failure. We’ve all been there at some point. Just know that all it takes is one decision/opportunity to make all the difference. And a difference that can last a life time. Never give up!!!
3) Take What the Market Gives You, Instead of Trying to Guess What the Market May Do
“We were aided by a predictable large gain in investment income as Treasury Bill yields improved and we substantially increased our holdings of these highly-liquid short-term securities.”
Rates on risk free securities increase, take advantage of the opportunity and buy T Bills. Simple. There is no prediction of where rates will go from here. There is no decree to sell all stocks and hide in cash for the storm is coming. He simply sees an opportunity and makes some tactical adjustments in response. No crystal ball needed.
But knowing how the news of his cash pile was going to be received, he offered the following explanation:
“Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities. That preference won’t change. While our ownership in marketable equities moved downward last year from $354 billion to $272 billion, the value of our non-quoted controlled equities increased somewhat and remains far greater than the value of the marketable portfolio.
Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities – mostly American equities although many of these will have international operations of significance. Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.“
So now lets dive into the Buffett portfolio:
Berkshire's (NYSE:BRKb) cash pile almost doubled in 2024, from $167.6 billion to 334.2 billion.
This includes a $10 billion increase in in cash (from $34.3 billion to $44.3 billion) and an increase of $156.9 billion in short-term T Bills (now totaling $286.5 billion)
If we look at this cash pile in relation to the company’s total assets, it jumped to 29% in 2024. The highest its been since at least 1995 (the furthest back I could go).
A sharp increase over 16% in 2023, and more than double the 20-year average of 14%.
Berkshires total amount of equity securities (publicly traded stocks) fell from $353.8 billion in 2023 to $271.6 billion in 2024. Total equity securities as a percentage of total assets fell 24% as a result.
While this was a pretty steep one-year decline, that 24% level is consistent to the 20-year average of 25%. It could just be a reversion to the mean. Plus we can add in the fact that they own a multitude of private businesses that aren’t included in these statistics. So despite the inevitable scary news headlines, I wouldn’t draw any conclusions from this.
That being said, valuations are stretched no matter which way you try to break it down. And we don’t have the benefit of low rates to offset high valuations anymore. TINA is no longer a thing. The economy remains reasonably stable for now, earnings are still decent, but markets have already priced in a lot of good news.