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

Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion.

Laura Hermes

2017-11-13 07:42:00 Monday ET

Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion.

Top 2 wealthiest men Bill Gates and Warren Buffett shared their best business decisions in a 1998 panel discussion with students at the University of Washin

+See More

Artificial intelligence continues to push boundaries for tech titans to sustain their disruptive innovations and competitive advantages.

Chanel Holden

2020-11-01 11:21:00 Sunday ET

Artificial intelligence continues to push boundaries for tech titans to sustain their disruptive innovations and competitive advantages.

Artificial intelligence continues to push boundaries for several tech titans to sustain their central disruptive innovations, competitive moats, and first-m

+See More

Global climate change can cause an adverse impact on long-term real GDP economic growth.

Dan Rochefort

2019-10-27 17:37:00 Sunday ET

Global climate change can cause an adverse impact on long-term real GDP economic growth.

International climate change can cause an adverse impact on long-term real GDP economic growth. USC climate change economist Hashem Pesaran and his co-autho

+See More

Hong Kong billionaire Li Ka-Shing announces his retirement in March 2018 with an incredible rags-to-riches life story.

John Fourier

2018-03-11 08:27:00 Sunday ET

Hong Kong billionaire Li Ka-Shing announces his retirement in March 2018 with an incredible rags-to-riches life story.

At 89 years old, Hong Kong billionaire Li Ka-Shing announces his retirement in March 2018. With a personal net worth of $35 billion, Li has an incredible ra

+See More

The Phillips curve becomes the Phillips cloud with no inexorable trade-off between inflation and unemployment.

Fiona Sydney

2019-08-02 17:39:00 Friday ET

The Phillips curve becomes the Phillips cloud with no inexorable trade-off between inflation and unemployment.

The Phillips curve becomes the Phillips cloud with no inexorable trade-off between inflation and unemployment. Stanford finance professor John Cochrane disa

+See More

Our fun podcasts deep-dive into the current global trends, topics, and issues in support of better stock market investment decisions.

Daphne Basel

2026-02-14 11:26:00 Saturday ET

Our fun podcasts deep-dive into the current global trends, topics, and issues in support of better stock market investment decisions.

Our AYA fun podcasts deep-dive into the current global trends, topics, and issues in macro finance, political economy, public policy, strategic management,

+See More