Berkshire's Q4 operating profit soared 71% above expectations, driven by a significant increase in insurance profits and increased investments in Japan, leading to a record high cash reserve.

Berkshire's fourth-quarter insurance profits surged, driving operating profits up 71%, while reducing stock holdings and reaching a record cash reserve of $334.2 billion. Buffett also said he may "gradually" increase stakes in Japan's five major trading houses. On Saturday, February 22, Berkshire Hathaway released its fourth-quarter and full-year financial reports: Operating profit: Fourth-quarter operating profit was $14.53 billion, exceeding expectations of $9.87 billion, up 71% year over year, setting a record, mainly due to strong performance in the company's large insurance business and increased investment income. Net profit: Fourth-quarter net profit was $19.694 billion, compared to $37.574 billion in the same period last year. Looking at the full-year performance in 2024: Revenue: Total revenue in 2024 was $371.433 billion, compared to $364.482 billion in the same period last year, with market expectations of $371.953 billion. Operating profit: Operating profit in 2024 was $47.437 billion, up 27% year over year, also driven by strong performance in its insurance business. Net profit: Net profit attributable to shareholders was $88.995 billion, down from $96.223 billion in the same period last year, but well above market expectations of $60.706 billion. It is worth noting that operating profit is the most important indicator for Buffett, reflecting the real growth of the company's diversified core businesses, while net profit includes "financial investment gains and losses that are not meaningful for a specific period," which often fluctuate significantly. Insurance profit growth The growth in fourth-quarter operating profit was mainly due to a significant increase in insurance investment profits. In the backdrop of rising interest rates, insurance investment operating profit increased by 48% to $4.1 billion, reaching a record $9.02 billion for the full year. Fourth-quarter insurance underwriting operating profit also increased by 302% year over year to $3.41 billion, totaling $13.67 billion for the full year. In addition, BNSF's operating profit in the fourth quarter was $1.28 billion, and Berkshire Hathaway Energy's operating profit was $729 million. Other controlled business operating profit was $3.26 billion, and non-controlled business operating profit was $695 million. Buffett's shareholder letter stated: Berkshire performed better than my expectations in 2024, even though 53% of our 189 operating businesses reported a decline in profits. With the increase in U.S. Treasury yields, we received help from predictable large investment income, and we significantly increased our holdings of these highly liquid short-term securities. Our insurance business also achieved significant profit growth driven by GEICO's performance. Selling stocks, continuing to suspend buybacks Berkshire Hathaway's financial report shows that as of December 31, 71% of its equity investments' total fair value were concentrated in American Express, Apple, Bank of America, Chevron, and Coca-Cola. Investment income in the fourth quarter slowed significantly to $5.167 billion from $29.093 billion in the same period last year. Over the past year, Berkshire has significantly reduced its holdings of Apple and Bank of America. The financial report shows that Berkshire sold $10.1 billion in stocks and bought $3.4 billion in the fourth quarter of 2024, marking the ninth consecutive quarter of net sales of stocks. In the fourth quarter of 2024, Berkshire did not further reduce its holdings of Apple, but in the second and third quarters, Berkshire significantly reduced its holdings of Apple. By the end of the third quarter, Berkshire's holding of Apple shares had dropped from 905 million shares at the beginning of last year to 300 million shares, a decrease of nearly 67%. Buffett mentioned in the shareholder letter that the value of marketable stocks held in 2024 decreased from $354 billion to $272 billion, but the value of non-listed controlled equity holdings increased and remained significantly higher than the value of the marketable stock portfolio. Regarding the reduction in holdings over the past year, Buffett stated in the shareholder letter: Berkshire shareholders can rest assured that we will always invest most of their funds in stocksmainly U.S. stocks, many of which will have significant international operations. Berkshire will never prefer ownership of cash and cash equivalents assets over owning good businesses, whether controlled or partially owned. In addition, Berkshire has refused to repurchase its own stock for the second consecutive quarter in the fourth quarter, repurchasing only $2.9 billion worth of stock in 2024, the lowest annual repurchase total since 2018. This indicates that Buffett believes the stock is trading above its intrinsic value, with Berkshire's market value hovering above $1 trillion since the end of last month. Cash reserves reach record high for the tenth consecutive quarter While reducing stock holdings, Buffett continues to increase cash reserves. Berkshire Hathaway raised its fourth-quarter cash position to $334.2 billion, setting a new record high, with its cash reserves growing for the tenth consecutive quarter. It is worth noting that its cash represents 29% of total assets, reaching a new high in decades. Buffett's shareholder letter states that in 2024, holdings of short-term U.S. Treasury bonds were significantly increased, leading to significant and predictable investment income growth. Increasing investments in Japan In addition, Berkshire Hathaway's annual report stated that it had increased its investments in Japan. Buffett mentioned in the shareholder letter that Berkshire may "gradually" increase its stake in the five major Japanese trading houses. Buffett stated that Berkshire initially agreed to keep its ownership stakes in Itochu Corporation, Marubeni Corporation, Mitsui & Co., Mitsubishi Corporation, and Sumitomo Corporation below 10%. However, as its ownership stakes approach this limit, these companies agreed to "moderately relax" the ownership limit. Buffett also stated that in the future, Berkshire will seek other ways to "efficiently cooperate" with these companies. This article is excerpted from "Wall Street News," by Zhao Ying; GMTEight Editor: He Yucheng.