Warren Buffett’s approach to investing has always been rooted in simplicity and long-term thinking. His annual explanations of Berkshire Hathaway’s performance were famously crafted as if he were speaking to his sister, ensuring clarity for those without specialised financial expertise. Buffett emphasised investing with a ‘margin of safety,’ buying assets at prices below their intrinsic value and maintaining a patient, long-term investment horizon. Berkshire Hathaway is a multinational conglomerate holding company engaging in various business activities, including insurance, freight rail transportation, energy, and manufacturing. The company is known for its value investing approach and long-term holding periods.
Buffett prioritised attracting shareholders who shared his philosophy, favouring minimal trading in Berkshire’s stock. He questioned CEOs who sought high stock activity, arguing that such activity often indicates instability among the company’s owners. This long-term perspective and focus on economic fundamentals, rather than short-term market fluctuations, have been hallmarks of his leadership.
Currently, Berkshire Hathaway is sitting on a record $US382 billion in cash. This substantial cash reserve and a relatively small allocation to the technology sector have resulted in Berkshire’s stock portfolio returning approximately 4.9 per cent this year, compared to the S&P 500’s 17.7 per cent gain. However, Buffett would likely caution against overemphasising a single year’s performance, urging investors to focus on long-term economic outcomes rather than volatile market results.
Buffett has always advised using a five-year test as a reasonable measure of economic performance. As Greg Abel prepares to lead Berkshire into the future, the question remains whether the company will continue to uphold Buffett’s values and expectations. While Abel may provide insightful analysis, Buffett’s unique perspective and investment wisdom will be difficult to replicate.
