Greg Abel praises Warren Buffett and promises that Berkshire Hathaway will not back down from investing

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Greg Abel praises Warren Buffett and promises that Berkshire Hathaway will not back down from investing

OMAHA, Neb. (AP) — Greg Abel paid tribute to his predecessor Warren Buffett when he promised in his first shareholder letter that Berkshire Hathaway would not pull back on investments or make significant changes to its operations.

Abel said he will always maintain Berkshire’s financial strength but investors should not view the company’s $373.3 billion in cash as a sign that it is not interested in new investments. The number is actually down slightly from $382 billion in the third quarter. Abel said the money serves as “dry powder” to ensure Berkshire is ready to act quickly.

“Our balance sheet is a strategic asset that must be used at the right time. It allows us to take decisive action, invest when others hesitate or panic, and stand strong when financial storms hit,” Abel wrote.

But Abel said Berkshire would avoid buying any businesses that “undermine the foundation of the community or could jeopardize Berkshire’s reputation” without specifying which companies it might exclude. CFRA Research analyst Cathy Seifert said she wonders if Abel will consider AI companies to be undermining society.

Abel previously admitted that “Warren is obviously a tough act to follow,” and he didn’t try to match Buffett’s mindset. However, investor Adam Mead said he thought Abel was correct in his letter, which appeared to be designed to provide information that Berkshire’s largest shareholder would want to know.

“I have no doubt in my mind that he had Warren in mind the whole time he was writing this book,” said Mead, who wrote “The Complete Financial History of Berkshire Hathaway.”

Abel discussed Berkshire’s large investments in Apple stock and American Express and explained how it multiplied its capital on paper through its investments in five Japanese trading houses. But Berkshire took a $4.5 billion writedown on its stake in Kraft Heinz and Occidental Petroleum. He also said that Berkshire’s other investment manager, Ted Weschler, only owns about 6% of the portfolio. The rest will be Abel’s career, which raises questions because he has never made a living as a stock picker.

The gains on Berkshire’s investment portfolio kept the company’s net income at $19.199 billion in the fourth quarter close to $19.69 billion a year ago.

But Buffett and Berkshire have long argued that operating income is a better measure of performance because it excludes investment gains and losses, which can skew the numbers even when Berkshire doesn’t sell most of its stock. At that rate, Berkshire’s operating income fell nearly 30% to $10.2 billion, or $7,092.09 per Class A share. Four analysts surveyed by FactSet Research had forecast earnings of $8,259.23 per share.

Abel praised several Berkshire companies such as Geico and Precision Castparts, but said BNSF needs to improve more because its profitability lags behind other railroads and its utilities need to deal with the risks associated with wildfire liabilities. He said PacifiCorp will pay damages if it is responsible, but will continue to fight lawsuits for fires that did not start its equipment.

Berkshire also did not repurchase any of its shares in the fourth quarter. Abel told shareholders not to expect him to start commenting on the quarter because Berkshire is taking a long-term approach. Seifert said she appreciates his authentic approach to the book.

“He’s coming into this role with a very different perspective. He wasn’t a construction guy. He has to take charge of this,” Seifert said.

Investors are closely watching any changes he might make, but Abel and Buffett said there would be no significant changes to how Berkshire operates. because it has worked very well for the last sixty years.

And Buffett remains chairman and largest shareholder, so he still helps guide the Omaha, Nebraska-based conglomerate he built. But now Abel writes annuals that have always been known as one of the most read business reports out there because many investors admired and followed Buffett because of his amazing track record and wisdom and home advice.

Abel announced several changes to the agenda for the shareholders’ meeting in May. The first question and answer session will feature Abel alongside Berkshire’s Vice Chairman of Insurance, Ajit Jain. Then the second panel features Abel answering questions with BNSF CEO Katie Farmer and NetJets CEO Adam Johnson, who helps oversee all of Berkshire’s consumer, service and retail businesses.

The only initial changes so far are some management moves Abel made when he took over, and a filing in January that suggests Berkshire is considering selling part or all of its 325 million shares of Kraft Heinz. But Buffett may have supported the move because he had commented on Berkshire’s overpayment when he helped Heinz merge with Kraft, and he was critical of the food giant’s plan to split into two companies. Many investors have tried to copy the moves Buffett made in Berkshire’s large stock portfolio.

But Berkshire is powered by the many companies it owns In addition to insurance, utilities and manufacturing firms, Berkshire has well-known brands such as Dairy Queen and See’s Candy as well as some of the companies that provide what other industries need such as Precision Castparts, Lubrizol and Iscar Metalworking.

Abel already knows many of Berkshire’s companies well because he has managed all of the non-insurance companies since 2018, and executives who report to him have praised his insight into their various businesses.