Warren Buffett’s Berkshire Hathaway: Slightly Better Than Average Company Performance

Warren Buffett, the legendary investor and CEO of Berkshire Hathaway, has shared his thoughts on the company’s potential performance in his annual letter. Buffett, who is known for his shrewd investment strategies and his ability to identify undervalued companies, acknowledged that Berkshire Hathaway’s sheer size and the lack of significant buying opportunities may limit the company’s ability to deliver eye-popping performance.

Berkshire Hathaway, which owns a diverse range of businesses from BNSF Railway to Dairy Queen and a 6% stake in Apple, is the largest American business by net worth. The company’s net worth now represents 6% of the total S&P 500 companies. Buffett wrote that there are only a handful of companies in the United States that can truly make an impact on Berkshire Hathaway’s performance, and these companies have been extensively analyzed by the investment community.

The last major deal Berkshire Hathaway made was the acquisition of insurer and conglomerate Alleghany for $11.6 billion in 2022. Buffett also acquired a 28% stake in energy giant Occidental Petroleum, but ruled out buying the whole company. These deals, while significant, did not meet the expectations of an “elephant-sized” acquisition that Buffett has been seeking for years.

Berkshire Hathaway held a record $167.6 billion in cash in the fourth quarter of 2023. Buffett stated that outside the United States, there are no meaningful options for capital deployment at Berkshire Hathaway. He acknowledged that the company has no possibility of delivering eye-popping performance.

Despite these challenges, Buffett believes that Berkshire Hathaway’s group of diversified, quality businesses should provide “slightly better” performance than the average American corporation. He emphasized that anything beyond “slightly better” is wishful thinking. Berkshire Hathaway recently hit consecutive record highs, trading above $620,000 for Class A shares and boasting a market value above $900 billion. The company’s stock has gained about 16% in 2024, more than double the S&P 500’s return, and 16% in all of 2023.

Buffett’s investment philosophy has always been focused on buying undervalued companies and holding them for the long term. He has been successful in implementing this strategy throughout Berkshire Hathaway’s history. However, the current market conditions and the company’s size may limit the opportunities for significant gains.

Buffett’s approach to investing is based on a value investing strategy, which involves buying stocks that are undervalued by the market. He looks for companies with strong fundamentals, a competitive advantage, and a reasonable price-to-earnings ratio. Buffett’s investment style has proven to be successful over the long term, but it may not be as effective in a market where valuations are high and opportunities for undervalued stocks are scarce.

Despite these challenges, Buffett remains optimistic about Berkshire Hathaway’s future. He believes that the company’s diverse portfolio of businesses and its strong financial position will enable it to weather any market conditions. Buffett also intends to continue investing in quality businesses, both in the United States and abroad, that have the potential to deliver solid returns for Berkshire Hathaway’s shareholders.

In conclusion, Warren Buffett’s Berkshire Hathaway is a company with a strong track record of delivering solid returns for its shareholders. However, the company’s sheer size and the lack of significant buying opportunities may limit its ability to deliver eye-popping performance in the future. Buffett remains optimistic about the company’s future and intends to continue investing in quality businesses that have the potential to deliver solid returns. Berkshire Hathaway’s group of diversified, quality businesses should provide “slightly better” performance than the average American corporation, but anything beyond that is wishful thinking.