The annual Berkshire Hathaway (BRK-B:NYSE) shareholder letter is eagerly awaited by investors looking for insights and clues into Warren Buffett’s next big move.

This year’s missive throws a bucket of cold water on the idea of finding businesses to buy which might be ‘transformational’ for Berkshire, whose market capitalisation is closing in on $1 trillion.

‘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’, says Buffett.

‘Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.’

While that may disappoint shareholders, Buffett believes Berkshire’s current mix of businesses should do ‘a bit’ better than the average American corporation.

More importantly, says Buffett, Berkshire should operate with ‘materially’ less risk of permanent loss of capital. ‘Anything beyond “slightly better,” though, is wishful thinking.

‘I believe Berkshire can handle financial disasters of a magnitude beyond any heretofore experienced. This ability is one we will not relinquish.’

The dearth of buying opportunities is reflected in the conglomerate’s burgeoning cash pile, which grew by $39 billion during 2023 to a new record of $167.6 billion by year-end. Buffett describes the cash hoard as being ‘far in excess of what conventional wisdom deems necessary’.

The good news is interest rates have shot up, meaning interest earned at the company’s insurance operations has contributed around $6 billion in interest to the group over the last year.

An increasing amount of cash generated is being deployed into share buybacks, and the company spent over $9 billion buying back its own shares in 2023.

Buffett is quick to caveat the wisdom of share buybacks: ‘All stock repurchases should be price-dependent. What is sensible at a discount to business-value becomes stupid if done at a premium’, he cautions.

The implication is Buffett believes the valuation of Berkshire is, or at least was during 2023, trading around fair value. The shares have outperformed, gaining 37% over the last year compared with a 28% gain in the S&P 500 index.

Berkshire also reported its annual results which showed a 21% jump in operating earnings to $37.4 billion driven by the insurance businesses, which delivered record sales, float and underwriting profits. 

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