Warren Buffett's shareholder letter released: 2024 expected return rate 25.5%!

Last Year's Performance

In 2024, Berkshire's performance exceeded my expectations, despite a 53% decline in profits from our 189 operating businesses. We benefited from the predictable massive investment income brought about by rising government bond yields, and we significantly increased our holdings of these highly liquid short-term securities.

Our insurance business also achieved significant profit growth, primarily driven by GEICO's performance. Over five years, Todd Combs has made substantial reforms at GEICO, improving efficiency and modernizing underwriting practices. GEICO is a long-held gem that needed significant polishing, and Todd has been tirelessly working to complete this task. While it is not yet finished, the improvements in 2024 are remarkable.

Overall, in 2024, property and casualty (P/C) insurance pricing strengthened, reflecting a significant increase in losses caused by windstorms. Climate change may have begun to manifest. However, there were no "monster" events in 2024. Someday, any day, there will be truly astonishing insurance losses—and it cannot be guaranteed that they will only occur once a year.

The P/C business is crucial to Berkshire and deserves further discussion later in this letter.

Berkshire's railroad and utility operations, our two major businesses outside of insurance, saw total profits increase. However, both still have a lot of work to do. By the end of the year, we increased our equity in the utility operations from approximately 92% to 100% at a cost of about $3.9 billion, with $2.9 billion paid in cash and the remainder in Berkshire "B" shares.

In summary, we recorded $47.4 billion in operating earnings in 2024. We often—some readers may complain about the endlessness of it—emphasize this metric rather than the GAAP-defined earnings reported on page K-68.

Our metric does not include capital gains or losses, realized or unrealized, from the stocks and bonds we hold. Over time, we believe earnings are likely to prevail—otherwise, why would we buy these securities?—although the annual numbers can fluctuate dramatically and unpredictably. The duration of our commitments is almost always far beyond one year. In many cases, our thoughts involve decades. These long-term holders are purchases that occasionally make the cash register ring like church bells.

Below is a breakdown of what we consider the earnings for 2023-24. All calculations are made after depreciation, amortization, and income taxes. EBITDA is a flawed darling of Wall Street and is not suitable for us.

(Unit: million dollars)

• *Includes certain businesses in which Berkshire holds 20% to 50% ownership, such as Kraft Heinz, Occidental Petroleum, and Berkadia.
• **Includes foreign exchange gains of approximately $1.1 billion in 2024 and approximately $211 million in 2023, which arise from our use of non-dollar-denominated debt.

Surprise, surprise! An important American record has been broken

Sixty years ago, the current management took over Berkshire. This move was a mistake—my mistake—and it haunted us for twenty years. Charlie, I should emphasize, immediately spotted my obvious error: while the price I paid for Berkshire seemed cheap, its business—a large northern textile operation—was heading towards extinction.

The U.S. Treasury, of all places, received a silent warning about Berkshire's fate. In 1965, the company paid not a penny in income tax, which was an embarrassing norm for the company for a decade. Such economic behavior might be understandable for a charming startup, but when it occurs in a respected pillar of American industry, it is a flashing yellow light. Berkshire was heading towards ashes.

Fast forward 60 years, imagine the Treasury's surprise when the same company—still operating under the name Berkshire Hathaway—paid corporate income taxes far exceeding what the U.S. government received from any company—even from the trillion-dollar market cap American tech giants.

Specifically, Berkshire paid the IRS four payments totaling $26.8 billion last year. This accounts for about 5% of all corporate taxes paid in the U.S. (Additionally, we also paid substantial income taxes to foreign governments and 44 states.)

Note a key factor allowing this record payment: during the period from 1965 to 2024, Berkshire shareholders received only one cash dividend. On January 3, 1967, we made the sole payment—$101,755, or 10 cents per A share. (I don’t remember why I proposed this action to the Berkshire board. It now feels like a nightmare.)

For sixty years, Berkshire shareholders have endorsed continuous reinvestment, which has allowed the company to build its taxable income. Cash income tax payments to the U.S. Treasury, negligible in the first decade, now total over $101 billion... and are still increasing.

The huge numbers may be hard to fathom. Let me rephrase what we paid last year: $26.8 billion.

If Berkshire were to send a $1 million check to the Treasury every 20 minutes throughout 2024—imagine 366 days and nights, since 2024 is a leap year—we would still owe the federal government a large sum by the end of the yearIn fact, it won't be until January that the Treasury will tell us we can take a breather, get some sleep, and prepare for the tax payments in 2025.

Where Your Money Is

Berkshire's equity activities are two-pronged. On one hand, we have control over many businesses, holding at least 80% of the shares in the invested companies. Typically, we own 100% of the shares.

These 189 subsidiaries share similarities with marketable common stocks, but they are far from identical. This collection is worth hundreds of billions of dollars, including some rare gems, many good but far from outstanding businesses, and some disappointing laggards. We do not hold any assets that cause significant drag, but we do have some assets that I should not have purchased.

On the other hand, we hold small stakes in about a dozen very large and profitable companies, all of which are household names, such as Apple, American Express, Coca-Cola, and Moody's. Many of these companies earn very high returns on the tangible net assets required for their operations. At the end of the year, the value of the shares we partially own is $272 billion.

It is understandable that truly outstanding businesses are rarely sold in their entirety, but a small portion of these gems can be purchased on Wall Street from Monday to Friday, and occasionally at discounted prices.

We are fair in our choice of equity instruments, investing in these two tools based on where we can best deploy your (and my family's) savings. Typically, nothing looks particularly appealing; we rarely find ourselves in the midst of opportunities. Greg has vividly demonstrated his ability to act when Charlie does.

For marketable equity, it is easier to change course when I make a mistake. It should be emphasized that Berkshire's current size diminishes this valuable option. It takes us a year or more to establish or divest an investment. Additionally, for minority stakes, if needed, we cannot replace management, nor can we control how capital flows are utilized if we are dissatisfied with the decisions made.

For wholly-owned companies, we can decide on these decisions, but our flexibility in dealing with mistakes is much more limited. In fact, unless we face what we believe to be an endless problem, Berkshire almost never sells a wholly-owned business. One compensation is that some business owners seek to partner with Berkshire because of our steadfast actions. Occasionally, this can be a clear advantage for us.

Although some commentators currently believe Berkshire's cash position is unusual, the vast majority of your funds are still invested in equities. This preference will not change.

While our ownership in marketable equities decreased from $354 billion to $272 billion last year, the value of our private equity holdings has slightly increased and remains far greater than the value of the marketable portfolio.

Berkshire shareholders can rest assured that we will always invest the majority of their funds in equities—primarily U.S. equities, although many of these equities will have significant international operations.

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(Continuously updated)