In the ever-turbulent world of finance, Berkshire Hathaway has once again proven its mettle, achieving notable success in 2024. During a year that saw the renowned S&P 500 index wrestle with market volatility, the conglomerate led by Warren Buffett outperformed its benchmark, marking it as one of its strongest performances since 2021. The Class A shares surged by 25.5%, eclipsing the S&P 500’s respectable 23.3% return. This impressive trajectory is not merely a reflection of favorable market conditions but rather the result of calculated strategies and operational resilience.
Berkshire’s remarkable performance was accentuated by its strategic decision to pause stock buybacks. As shares became increasingly valuable, management opted instead to leverage robust operational earnings, delivering a considerable boost to its profitability. Investment income soared as well, particularly from subsidiaries such as Geico—Berkshire’s auto insurance flagship. In the first three quarters of 2024, the conglomerate reported $8 billion in interest and investment income, a striking rise from $4.2 billion the prior year.
A pivotal factor behind this success is Berkshire’s formidable cash reserves, which ballooned to approximately $325 billion by September. This cash cushion, almost double the level seen at the end of 2023, allowed the conglomerate to achieve attractive returns even amid fluctuating interest rates. Importantly, Buffett’s decision to divest from heavyweights like Apple and Bank of America surprised many, but it appears to have been a shrewd move in reinforcing liquidity and strategic positioning.
At the heart of Berkshire’s performance is the turnaround of Geico, which Warren Buffett has often referred to as his “favorite child.” The auto insurer rebounded significantly in 2024, achieving an underwriting profit of $5.7 billion within the first three quarters—more than double its performance in the same timeframe the previous year. This revival stands in stark contrast to its 2022 struggles, where internal challenges, exacerbated by the competition from Progressive, led to a $1.9 billion pretax underwriting loss.
Geico’s success can be attributed, in part, to its strategic embrace of telematics technology. By integrating systems that monitor driving behavior, Geico effectively enhanced its pricing models, allowing them to compete more effectively and regain market share. This shift not only revitalized Geico but also contributed positively to offsetting losses in Berkshire’s broader insurance portfolio.
Despite these successes, Buffett remains a voice of caution. Acknowledging the limitations imposed by Berkshire’s vast size, he expressed that future outperformance relative to the S&P 500 might be challenging. His recognition of the law of diminishing returns highlights the complexity of managing a conglomerate with over 40 industries and 60 subsidiaries, emphasizing a fundamental truth in investing: as a company grows, achieving outsized returns requires increasingly innovative thinking and extraordinary circumstances.
Buffett’s realistic perspective was evident in his commentary from his 2023 annual letter. He articulated that while Berkshire would likely perform slightly better than the average U.S. corporation, the notion of significant outperformance might be “wishful thinking.” This admission not only reflects strategic humility but also reinforces the significance of sustainable growth over speculative elevation.
Nonetheless, one cannot overlook Buffett’s incomparable track record. Since taking the helm in the 1960s, Berkshire Hathaway has consistently outperformed the S&P 500, effectively doubling its annual returns. This legacy is built not solely on the back of stock performance but on the foundation of diversified, quality businesses that can withstand economic turbulence. As Berkshire continues to navigate the complexities of the modern economy, it remains a beacon of resilience, innovation, and strategic leadership in the face of continuous changes in the market landscape.
2024 has marked another successful chapter for Berkshire Hathaway, underscoring the enduring wisdom of Warren Buffett and the conglomerate’s unwavering commitment to operational excellence.