Warren Buffett delivered his last annual letter as CEO to Berkshire Hathaway (NYSE: BRK.B) shareholders earlier this week.
“As the British would say, I’m ‘going quiet‘,” he wrote.
Buffett may be going quietly, but his tremendous investing record will go on speaking for itself. Between 1965 and 2024, Berkshire’s compound annual return was near-20%.
Put another way, every $1,000 invested back then would be worth more than $32m today!
There are no shortage of lessons to take away from the Oracle of Omaha’s letters. Not just around business and investing, but on parenthood, friendship, psychology, ageing, history, and more.
Sticking to investing though, one quote from the letter worth highlighting is: “Because of Berkshire’s size and because of market levels, ideas are few — but not zero“.
Here are three things I take away from this.
The limits of scale
Today, Berkshire’s market-cap is above $1trn, putting it in an elite group of just nine S&P 500 firms to have hit that milestone. However, as Buffett points out by mentioning Berkshire’s size, this dramatically narrows the range of opportunities.
In other words, he’s acknowledging the law of large numbers. It isn’t as easy as it was to find investments that truly move the needle. Berkshire needs elephant-sized opportunities, and these are rare beasts.
This is why it’s interesting to follow Berkshire’s moves, but not necessarily copy them. What works for a small portfolio doesn’t for a giant conglomerate.
For example, if a £5,000 investment went up tenfold in my portfolio, it would make a massive positive contribution to overall returns. But for Berkshire, a $500m investment doing the same would barely make a dent.
This means everyday investors have a much wider range of options — small-caps, mid-cap stocks, and investment trusts — to build wealth.
As Buffett once pointed out: “It’s a huge structural advantage not to have a lot of money“.
Understanding where the market is
The second bit where the billionaire investor refers to “market levels” is also worth mentioning. Right now, the Nasdaq Composite is priced very expensively, with a fair amount of speculation going on in certain parts of it. The S&P 500 is also very high.
Now 95, Buffett has probably witnessed more market cycles than any other person ever. So it’s significant that Berkshire has chosen to amass the largest cash pile ever held by a public company (nearly $400bn!).
While having some cash on the sidelines is always a good idea, I’m not aggressively selling down my own portfolio. But I appreciate the market is frothy right now, so I’m treading more carefully.
There are always opportunities
The last part is interesting though. Buffett says there aren’t many ideas around due to Berkshire’s size and elevated stock prices. But the figure is “not zero“, indicating that there are always opportunities about in any market.
What about Berkshire stock? Do I think that’s worth considering? Potentially, if an investor’s looking for an incredibly diverse holding company with a literal fortress balance sheet.
Of course, Buffett’s departure adds an element of risk. But even without him, I think Berkshire will continue to be one of the best-managed companies worldwide. A steady compounding machine.
Personally though, I’m looking at other opportunities to try and build wealth faster today.
