Berkshire Hathaway, led by its CEO and famed investor Warren Buffet, recently delivered its fourth-quarter 2024 earnings report. In the fourth quarter of 2024, Berkshire Hathaway sold more stocks than it bought, growing its record cash and cash-equivalents holdings to $334 billion.
The company’s quarterly earnings reports are critical information for shareholders. Every year, Buffet writes a letter to the company’s shareholders. Unfortunately, the letter did not give much insight as to why Buffett has seemingly become more defensive. Many pundits have opined that the investing guru has concerns about an overvalued stock market; Buffet has agreed that it has become more challenging to find buying opportunities.
In the 12-page letter, Buffet explained, “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.” The letter also offers investors insights into portfolio positioning, risk management, and long-term wealth accumulation.
1. The power of patience and long-term thinking
Buffett’s letter reiterates Berkshire Hathaway’s unwavering commitment to long-term investing. He highlights that while short-term market movements are unpredictable, the long-term growth of strong businesses is near certainty.
Investor takeaway: Investors should avoid the temptation to react to market volatility and instead focus on accumulating shares of high-quality businesses. Those who take a years-long approach rather than fixating on daily price swings stand a better chance of achieving superior returns. I try to accelerate planned purchases when the stock market pulls back.
2. Cash as a strategic asset
Berkshire Hathaway increased its holdings of Treasury bills and other highly liquid securities in 2024. However, Buffett clarifies that this is not a long-term investment strategy but rather a tool to maintain flexibility. Despite the prominent cash position, Buffett underscores that equities remain the core of the company’s portfolio.
Investor takeaway: While holding some cash for opportunities and emergencies is prudent, long-term investors should prioritize equities over cash equivalents. Inflation erodes the purchasing power of idle cash, making equity ownership in strong businesses a better option over time. I have raised cash strategically during previous stock market crashes to deploy it later.
3. Emphasizing high-quality companies
Buffett reminds us that Berkshire Hathaway’s most extensive public equity holdings share common characteristics: strong brands, high returns on capital, and resilient business models. He also notes that exceptional businesses are rarely available for purchase in their entirety but can often be acquired in small amounts through the stock market.
Investor takeaway: Investors should seek companies with durable competitive advantages, strong cash flows, and prudent management teams. These kinds of businesses can compound wealth over the long term. Investing in large-cap stock market indices has historically been an effective way to ensure that the most significant companies are in your portfolio.
4. Risk management and the role of insurance
Buffett discusses the importance of risk management, particularly in Berkshire Hathaway’s insurance businesses. He highlights the unpredictable nature of catastrophic events and underscores the importance of pricing risk appropriately.
Investor takeaway: Investors should assess risk carefully. This includes avoiding overleveraging, maintaining a diversified portfolio, and ensuring that potential investments are not priced optimistically. I have used so-called “buffer funds” and other hedging instruments as a form of account-value insurance.
5. Selective and opportunistic investing
Buffett emphasizes that compelling investment opportunities are rare but should be seized when they arise. Investments should be made only after careful evaluation and at attractive valuations.
Investor takeaway: Investors should cultivate patience and only deploy capital when valuations are favorable. Keeping a watchlist of high-quality businesses and waiting for market dislocations can lead to superior long-term returns. For example, I invested in artificial intelligence (AI) exchange-traded funds when Deep Seek dragged down the equity markets.
6. The importance of U.S. equities and capitalism
Buffett remains a staunch believer in American capitalism, highlighting the country’s unmatched ability to generate wealth and opportunity. He notes that American businesses have continuously created value despite occasional economic turbulence over centuries.
Investor takeaway: Investors should maintain confidence in the long-term trajectory of the U.S. economy. While diversification is essential, U.S. equities should remain a significant portion of an investor’s portfolio due to their historical resilience and innovation. One of my most considerable investment positions is in the S&P 500 stock market index. The companies in that index are domiciled in the United States, but more than one third of their revenues are derived from foreign customers.
7. Avoiding the pitfalls of speculation
Buffett warns against speculation and highlights the dangers of short-term thinking. He contrasts Berkshire Hathaway’s disciplined investment approach with the risks taken by speculators who attempt to time the market or chase momentum stocks.
Investor takeaway: Avoid speculative trading strategies. Instead, focus on buying quality businesses and holding them for the long term. It is more important to me that I do not lose money than it is to reach for a few extra percentage points of gain.
8. Reinvesting for compounded growth
A notable aspect of Buffet’s investment success is its policy of reinvesting earnings. This reinvestment strategy has allowed Berkshire to compound its wealth significantly over decades.
Investor takeaway: “The first rule of compounding: Never interrupt it unnecessarily.” – Charlie Munger
Warren Buffett is often considered one of the world’s best investors. Part of his success comes from some big winners within a diversified portfolio. However, perhaps a more critical part of his success comes from patience. In today’s world, where patience seems to be a forgotten virtue, calmness and moderation could be an edge for investors.
Allen Harris is an owner of Berkshire Money Management in Great Barrington and Dalton, managing more than $700 million of investments. Unless specifically identified as original research or data gathering, some or all of the data cited is attributable to third-party sources. Unless stated otherwise, any mention of specific securities or investments is for illustrative purposes only. Advisor’s clients may or may not hold the securities discussed in their portfolios. Advisor makes no representations that any of the securities discussed have been or will be profitable. Full disclosures here. Direct inquiries to Allen at AHarris@BerkshireMM.com.
