Buffett discusses Berkshire's cash ambition, its reinsurance business, and his succession plan.

Becky Berkman

2018-02-23 09:35:00 Fri ET

Warren Buffett releases his annual letter to Berkshire Hathaway shareholders as of February 2018. Buffett discusses Berkshire's core cash ambition, its reinsurance business, the recent increase in corporate net worth, and his succession plan. First, Buffett highlights the importance of *float* for insurance companies like Berkshire Hathaway, i.e. the company collects insurance premiums that have not been paid out as claims. Buffett and Munger can invest the float as these premiums absorb losses gradually throughout the life of each insurance policy. As this reinsurance counterbalances long-tail losses, Berkshire grows its float to extraordinary levels over time.

Second, corporate cash stockpiles surge to $116 billion, so Buffett prefers to keep this cash position for near-term mergers and acquisitions (instead of dividends and share repurchases). However, Buffett considers most recent takeover targets with no sensible purchase prices at the current stage of the real business cycle. Also, Buffett emphasizes the fact that debt-free investors can better take advantage of short-term stock market crashes such as Black Monday in 1987, the Asian financial crisis in 1997, and the global economic recession in 2008.

Berkshire experiences a one-time hefty increase in net worth by $65 billion or 23% due to the Trump tax cuts. The tax credits not only strengthen Berkshire's current fortress balance sheet, but also allow Buffett and Munger to cast a broader net of potential M&A deals.

Third, Buffett declares that Berkshire's next CEO will oversee company operations while the other half of this job will be given to stock-pickers who specialize in asset management. On the latter investment front, the likely successors are Todd Combs and Ted Weschler. The high-skill money managers both have successfully grown their assets under management (AUM) to $25 billion in early-2018.

Under this succession plan, Combs and Weschler will continue to implement the value investment philosophy in the post-Buffett reinsurance business structure.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

President Trump refreshes his public image through his presidential address to Congress.

Daisy Harvey

2017-02-01 14:41:00 Wednesday ET

President Trump refreshes his public image through his presidential address to Congress.

President Trump refreshes his public image through his presidential address to Congress with numerous ambitious economic policies in order to make America g

+See More

Facebook, Google, and Twitter attend a U.S. House testimony on whether these tech titans filter web content for political reasons.

Amy Hamilton

2018-07-15 11:35:00 Sunday ET

Facebook, Google, and Twitter attend a U.S. House testimony on whether these tech titans filter web content for political reasons.

Facebook, Google, and Twitter attend a U.S. House testimony on whether these social media titans filter web content for political reasons. These network pla

+See More

Bidenomics better balances fiscal deficits and government expenditures with new corporate and capital income tax hikes.

Apple Boston

2021-08-01 07:26:00 Sunday ET

Bidenomics better balances fiscal deficits and government expenditures with new corporate and capital income tax hikes.

The Biden administration launches economic reforms in fiscal and monetary stimulus, global trade, finance, and technology. President Joe Biden proposes s

+See More

Net neutrality rules continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation.

Becky Berkman

2018-05-15 08:40:00 Tuesday ET

Net neutrality rules continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation.

Net neutrality rules continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation. Republican Senate passes the

+See More

America expects to impose punitive tariffs on $7.5 billion European exports due to the recent WTO rule violation of illegal plane subsidies.

Apple Boston

2019-11-07 14:36:00 Thursday ET

America expects to impose punitive tariffs on $7.5 billion European exports due to the recent WTO rule violation of illegal plane subsidies.

America expects to impose punitive tariffs on $7.5 billion European exports due to the recent WTO rule violation of illegal plane subsidies. World Trade Org

+See More

Capital structure choices for private firms

James Campbell

2022-09-15 11:38:00 Thursday ET

Capital structure choices for private firms

Capital structure choices for private firms The Kauffman Firm Survey (KFS) database provides comprehensive panel data on 5,000+ American private firms fr

+See More