Warren Buffett’s Real Talk on Impactful Growth
Warren Buffett, in his latest annual letter, acknowledged that Berkshire Hathaway’s vast conglomerate may only marginally surpass the average American company in performance.
The sheer size of the Omaha-based giant, which owns diverse entities such as BNSF Railway, and Dairy Queen, and holds a 6% stake in Apple, boasts the largest net worth that any American company holds. Its net worth has reached 6% of what the aggregate of Standard & Poor’s 500 companies holds together. This was revealed in Warren Buffett’s annual letter, which he released on Saturday.
“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,” Buffett wrote. “Some we can value; some we can’t. And, if we can, they have to be attractively priced.”
The most recent substantial deal for Berkshire was the $11.6 billion acquisition of insurer and conglomerate Alleghany in 2022. Additionally, Berkshire acquired a 28% stake in Occidental Petroleum but refrained from purchasing the entire company, falling short of the “elephant-sized” target Buffett has expressed interest in for years. As of the last quarter, Berkshire held a record $167.6 billion in cash.
Warren Buffett ruled out viable options for capital deployment outside the U.S., stating that there are essentially no meaningful candidates. Despite building a 9% stake in five Japanese trading companies (Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo), intended for long-term ownership, Buffett downplayed the possibility of achieving eye-popping performance.
The 93-year-old investor acknowledged that Berkshire’s diversified portfolio of quality businesses should deliver “slightly better” performance than the average U.S. company. However, he cautioned against expecting anything beyond that, asserting that achieving more than a marginal improvement is wishful thinking.
Although Berkshire’s stock recently reached consecutive record highs, trading above $620,000 for Class A shares and boasting a market value exceeding $900 billion, Buffett remains pragmatic about the conglomerate’s future performance. Despite a 16% gain in 2024, outpacing the S&P 500’s return, Warren Buffett believes that substantial outperformance may be elusive due to the conglomerate’s size and the scarcity of impactful investment opportunities.
