Dig deep into the annual report of Berkshire Hathaway (BRK.A) (BRK.B) , the insurance and industrial conglomerate built by Warren Buffett and his late partner Charles Munger, and you find this:
Cash and equivalents: $167 billion, spread between its insurance and related businesses and its railroad, utilities and other businesses. That's up from $157 billion in Q3, and nearly $130 billion one year ago.
Cash, in short, remains king until it makes sense to invest.
Warren Buffett's rules of the game
It is an enormous horde of resources waiting to be invested. But in his letter to shareholders, released Saturday, CEO Warren Buffett offers just a faint hint of where it might go:
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"There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can’t. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance."
The operative phrase in terms of whether Berkshire might want to buy: "They have to be attractively priced."
That means Berkshire won't pay a premium to get a company. But it won't be looking for the companies on the cheap. Buying junk, as Buffett learned from Charlie Munger, means you own junk. Munger believed in paying appropriately for strong companies.
Berkshire Hathaway offers no hint at all in the letter of a company it is building a stake in. Berkshire has received Securities & Exchange Commission permission to keep building the position so as not to disrupt markets.
Much Wall Street speculation centers on banking giant JPMorgan Chase (JPM) .
So, look for Berkshire to look for smaller profitable companies, decently run, well positioned to prosper in good times and bad. Like railroads and electric utilities. Like insurance companies.
Like Pilot Travel Centers, the nation's largest chain of travel centers, primarily catering to truckers.
Berkshire bought in phases for more than $11 billion and a lawsuit. (The lawsuit was over a valuation dispute that was settled in January.) The business has more than 650 locations and generates more than $45 billion in revenue and was generating more than $1 billion in pre-tax earnings.
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And we can't forget investments in oil companies: Berkshire owns 27.8% of Occidental Petroleum (OXY) and has warrants that can "materially increase our ownership at a fixed price."
Buffett and Berkshire like Occidental's domestic reserves and technical expertise and "leadership in carbon-capture initiatives."
They don't want to buy Occidental. They just want to be an investor. As they are in Chevron (CVX) . The company now owns 126.1 million shares worth $1.5 billion.
Never forget compound interest
Part of the reason for being an investor? A primary rule governing what it does: "Never risk permanent loss of capital," Buffett's letter said. "Thanks to the American tailwind and the power of compound interest, the arena in which we operate has been — and will be — rewarding if you make a couple of good decisions during a lifetime and avoid serious mistakes."
He does chide investors looking for a quick buck:
"Though the stock market is massively larger than it was in our early years, today’s active participants are neither more emotionally stable nor better taught than when I was in school. For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants."
Berkshire's business is built around insurance, especially Geico, and utilities, energy and related industries. It also owns See's Candies.
It is a big investor in Coca-Cola (KO) , and American Express (AXP) , both profitable and stable.
The philosophy has worked. The company earned $96.2 billion in 2023, up from a loss of $22.8 billion, with insurance and investment profits and $9.6 billion in investment income offsetting declines in its giant railroad and utilities businesses.
Operating earnings were up 21% to $37.4 billion from 2022. Buffett likes this measure because it strips out paper gains and losses.
The Class A shares are up 15.9% this year at $628,930.19. The class B shares are up 17% at $417.22
There was no mention in the report if Berkshire plans to trim its holdings of Apple (AAPL) . In the fourth quarter, Berkshire sold 1% of its holdings in Apple and still holds 95.6 million shares.
The succession plan seems to be in place
Meanwhile, Buffett remains Buffett, and he does not appear ready to retire, even at age 93.
He is still listed as chairman and CEO. He finds managing the company "mostly fun and always interesting."
And experience pays: "We now have a small cadre of long-time managers who never muse about going elsewhere and who regard 65 as just another birthday."
When the company holds its annual meeting in Omaha, Neb., on May 4, he will be joined on the stage by Vice Chairman Greg Abel and Vice Chairman Ajit Jain.
Abel runs the non-insurance side of Berkshire and, in the letter, Buffett says the Canadian-born Abel "in all respects is ready to be CEO of Berkshire tomorrow."
Jain runs the insurance and investing business.
Buffett's tribute to Charlie Munger
Missing at the annual meeting, of course, will be Charlie Munger, Berkshire's long-vice chairman, who passed away in November at age 99.
The annual report begins with Buffett's tribute to his partner. In it, he says "Charlie was the 'architect' of the present Berkshire, and I acted as the 'general contractor' to carry out the day-by-day construction of his vision."
Their relationship was "part older brother, part loving father," Buffett wrote. "Even when he knew he was right, he gave me the reins, and when I blundered he never — never — reminded me of my mistake."
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