Berkshire Hathaway’s remarkable performance in 2024, showcased by the company’s Class A shares surging by 25.5%, stands as a testament to Warren Buffett’s strategic foresight and the durability of his investment philosophy. In a year where the Standard & Poor’s 500 index returned 23.3%, Berkshire not only surpassed this benchmark but also achieved its best annual performance since 2021, marking the ninth consecutive year of positive returns for its shareholders.
A significant observation regarding Berkshire’s performance is its reliance on robust operating earnings rather than stock buybacks, which Buffett suspended as shares became increasingly expensive. This decision reflects a strategic pivot in response to market conditions and valuation perspectives. Operating segments like investment income and underwriting from Geico, Berkshire’s prized insurance subsidiary, fueled the company’s growth, contrasting with trends in many other corporations that often depend on share repurchases for earnings per share growth.
Buffett’s decision emerges from an acute understanding of market timing. With Berkshire’s cash reserves reaching an astonishing $325 billion by the end of September 2024—almost double from the previous year—Buffett capitalized on higher interest rates, which allowed for competitive returns on this monumental cash pile. The juxtaposition of heightened cash reserves and market uncertainty creates unique opportunities for Berkshire, as it positions itself to acquire undervalued assets while maintaining liquid flexibility.
Central to Berkshire Hathaway’s success in 2024 was Geico, which has often been referred to by Buffett as his “favorite child.” In a remarkable turnaround, Geico posted an underwriting profit of $5.7 billion in the first three quarters of the year, a stark recovery from a $1.9 billion pretax underwriting loss in 2022. This recovery was propelled by strategic investments in technology, particularly in telematics, which enabled Geico to refine its pricing models. This adaptive approach has not only revitalized Geico’s profitability but has also reinforced Buffett’s long-lasting belief in the importance of innovation and data analytics in the insurance sector.
While Geico thrived, the performance of Berkshire’s other insurance segments painted a mixed picture. Notably, both the Berkshire Hathaway Primary Group and the Berkshire Hathaway Reinsurance Group encountered underwriting losses during the same period. This divergence within the company’s insurance portfolio signifies the challenges of maintaining growth amid industry fluctuations while also highlighting Geico’s critical role in stabilizing Berkshire’s overall performance.
Despite the commendable results in 2024, Buffett has been notably cautious in setting expectations for the future. He acknowledged that the sheer scale of Berkshire makes it challenging for any individual investment to significantly influence overall performance. While he believes Berkshire’s diverse portfolio can outperform the average American corporation, he maintains that anticipating anything beyond “slightly better” performance is unrealistic. Such humility reflects Buffett’s grounded outlook and a profound understanding of market dynamics, reinforcing his reputation as a rational and prudent investor.
Buffett’s long-term track record, dating back to the 1960s, speaks volumes. Over the decades, Berkshire has consistently outperformed the S&P 500, and its model—embracing a variety of industries while maintaining a conservative risk profile—remains relevant today. The conglomerate’s operational strategy, which spans across various sectors from BNSF Railway to See’s Candies, ensures that it is well-positioned to weather market uncertainties.
The performance of Berkshire Hathaway in 2024 encapsulates not just the legacy of Warren Buffett but also the adaptability and strategic acumen that underpins the company. As it navigates through the complexities of the economic environment, its reliance on strong operational metrics, particularly in the insurance domain, showcases a robust model for sustained growth. While the future remains uncertain, Buffett’s foundational ethos will likely continue to guide Berkshire Hathaway through uncharted waters, ensuring its status as a leader in the investment sphere for years to come.