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
Leon Cooperman points out that the current Trump stock market rally now approaches normalization.
Amy Hamilton

2017-10-27 06:35:00 Friday ET

Leon Cooperman points out that the current Trump stock market rally now approaches normalization.

Leon Cooperman, Chairman and CEO of Omega Advisors, points out that the current Trump stock market rally now approaches normalization. The U.S. stock market

+See More
Yale economist Stephen Roach warns that America has much to lose from the current trade war with China for a few reasons.
Joseph Corr

2018-07-13 09:41:00 Friday ET

Yale economist Stephen Roach warns that America has much to lose from the current trade war with China for a few reasons.

Yale economist Stephen Roach warns that America has much to lose from the current trade war with China for a few reasons. First, America is highly dependent

+See More
The Trump administration still expects to reach a Sino-U.S. trade agreement with better intellectual property protection and enforcement.
Apple Boston

2019-05-11 10:28:00 Saturday ET

The Trump administration still expects to reach a Sino-U.S. trade agreement with better intellectual property protection and enforcement.

The Trump administration still expects to reach a Sino-U.S. trade agreement with a better mechanism for intellectual property protection and enforcement. Pr

+See More
Apple upstream suppliers such as Foxconn and Pegatron experience sharp share price declines during the Christmas 2017 holiday quarter.
Jacob Miramar

2018-11-21 11:36:00 Wednesday ET

Apple upstream suppliers such as Foxconn and Pegatron experience sharp share price declines during the Christmas 2017 holiday quarter.

Apple upstream suppliers from Foxconn and Pegatron to Radiance and Lumentum experience sharp share price declines during the Christmas 2017 holiday quarter.

+See More
Global stock market investors foresee the harbinger of a major economic downturn.
Monica McNeil

2019-09-17 08:33:00 Tuesday ET

Global stock market investors foresee the harbinger of a major economic downturn.

Global stock market investors foresee the harbinger of a major economic downturn. Many stock market investors become anxious due to negative term spreads an

+See More
House Judiciary Committee summons senior executive reps of the tech titans to assess online platforms and their market power.
Peter Prince

2019-08-18 11:33:00 Sunday ET

House Judiciary Committee summons senior executive reps of the tech titans to assess online platforms and their market power.

House Judiciary Committee summons senior executive reps of the tech titans to assess online platforms and their market power. These companies are Facebook,

+See More