You can read the report here.
I had hoped that Mr. Buffett would share his views on the stock markets. I would have liked him to explain why he continues to increase Berkshire Hathaway’s cash holdings, which amounted to more than $334 billion USD at the end of 2024. To put this figure into perspective, a company with a market capitalization of $334 billion would rank around 25th among all S&P 500 companies, just ahead of Bank of America ($333 billion). Why so much cash?
However, I found nothing in his letter regarding stock markets and their valuation.
That said, I identified two key messages in Mr. Buffett’s letter: one concerning inflation and the best way to combat it, and the other concerning a company’s fairness.
Inflation
For Mr. Buffett, one of the main risks investors face is that the value of their assets could be eroded by inflation. To highlight the risks associated with fixed-income investments (cash, certificates of deposit, and bonds), he writes:
“Paper money can see its value evaporate if fiscal madness prevails. In some countries, this reckless practice has become routine, and in our country’s short history, the United States has come dangerously close to the edge. Fixed-coupon bonds offer no protection against runaway currency.”
By “runaway currency,” Mr. Buffett is likely referring to the risk of a sharp currency devaluation, which invariably leads to high inflation.
Even though Berkshire Hathaway has significantly reduced its investments in stocks over the past year (its stock portfolio was worth nearly $272 billion as of December 31, 2024, down from $353.8 billion at the end of 2023), the company remains fully invested in businesses. In fact, considering both its stock portfolio and our estimate of the value of its wholly owned companies (GEICO, Dairy Queen, NetJets, etc.), the company’s total commitment to businesses amounts to nearly $1.3 trillion!
For Warren Buffett, investing in businesses—whether through the stock market or full ownership—is the best way to protect against the ravages of inflation:
“Businesses, as well as individuals with sought-after talents, will generally find a way to cope with monetary instability as long as their goods or services are desired by the country’s citizens. The same goes for personal skills. Lacking assets such as athletic excellence, a wonderful voice, medical or legal skills, or indeed any particular talent, I have had to rely on stocks throughout my life. In fact, I have depended on the success of American businesses, and I will continue to do so.”
Social Equity
Although he did not comment on U.S. politics, Mr. Buffett did indirectly address the country’s fiscal situation and the importance of distributing wealth fairly among the population. In 2024, Berkshire made four tax payments to the U.S. federal government, totaling $26.8 billion:
“So thank you, Uncle Sam. One day, your nieces and nephews at Berkshire hope to send you even larger [tax] payments than those we made in 2024. Spend them wisely. Take care of the many people who, through no fault of their own, draw the wrong cards in life. They deserve better. And never forget that we need you to maintain a stable currency, and that result requires both wisdom and vigilance on your part.”
On this subject, I recently read an article in The Wall Street Journal that pointed out that individuals whose incomes place them in the top 10% in the United States (annual earnings above $250,000 USD) account for 49.7% of all consumer spending in the country. In 1989, this percentage was closer to 36%. Conversely, these statistics indicate that lower-income and middle-class Americans are becoming poorer.
Even though I would have liked to learn more about Mr. Buffett’s opinion on the stock markets, his latest letter is an insightful read for any investor.
Please note that I will be taking a break next week. Enjoy your Spring break!
Philippe Le Blanc, CFA, MBA
Chief Investment Officer at COTE 100
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