Warren Buffett released his annual letter a few weeks ago, or as he puts it in the opening paragraph of his most recent letter to Berkshire Hathaway shareholders, he sees it more as a report to the company’s shareholders than a letter. There are some interesting themes tucked away in this year’s edition.
First, Greg Abel is Buffett’s heir and future CEO. While a few names have been bandied about over the years, including insurance business head Ajit Jain, Geico CEO Todd Combs and head of equity investments Ted Weschler, it is clear that Abel will take over the mantle. Buffett writes in the latest letter: “At 94, it won’t be long before Greg Abel replaces me as CEO and will be writing the annual letters.” Abel has been joining Buffett on stage for the Q&A segment at the annual meeting in recent years. In recent media interviews Buffett has also publicly espoused his desire for Abel to take over. This succession plan is reiterated in the annual letter.
Second, Buffett discusses the Japanese trading houses. He sees the five Japanese conglomerates he bought into as a significant part of the Berkshire portfolio for many years to come. He has said Berkshire will look to increase its stake in the businesses. He writes: “Our holdings of the five are for the very long term [and] over time, you will likely see Berkshire’s ownership of all five increase somewhat.” He also mentions that Abel has met with the boards and management many times, and nothing says commitment quite like the CEO-designate taking a keen interest in a business.
At 94, it won’t be long before Greg Abel replaces me as CEO and will be writing the annual letters
— Warren Buffett
Third, he talks about the level of corporate tax paid by Berkshire over the decades, which comes in at a truly astounding figure of $101bn. However, the craziest statistic is that of the $101bn, the aggregate corporate tax paid since 1965, $26.8bn was paid in 2024 alone. In other words, more than 25% of all the corporate tax the company has ever paid to the Internal Revenue Service was paid just last year. The $26.8bn also represents just over 5% of all corporate income tax in the US. This also does not include the many other taxes and regulatory fees it pays to federal, state and local governments and regulatory agencies on behalf of its employees and Berkshire’s 189 operating companies.
Fourth, Buffett reiterates his disdain for earnings before interest, tax, depreciation and amortisation (ebitda) as a measure of earnings and prefers to look at what Berkshire calls operating earnings. This is essentially net profit after tax adjusted for swings in the profit and loss on the listed equity portfolio, either realised or unrealised. Buffett sees these movements on the equity portfolio as one-off gains and losses with high levels of volatility from year to year. He prefers to ignore these and focus on what the operating businesses are churning out in after-tax profits. Buffett’s preferred metric produced a tidy $47.4bn for the past year, despite 53% of the 189 operating companies reporting a decline in earnings. Note the careful use of language here. He states a “decline”, not “operating at a loss,” so additional capital to reinvest next year was still generated.
Fifth, Buffett weaves in subtle statements on various topics relating to Berkshire’s Midwestern culture and values of honesty, fairness, hard work and modesty. As mentioned above, he writes in the letter that ebitda is a “flawed favourite of Wall Street, is not for us”. He takes a swipe at the Magnificent 7 regarding their taxes paid; through careful tax planning of their operations, they pay very little US corporate tax. He writes in the letter: “Berkshire Hathaway paid far more in corporate income tax than the US government had ever received from any company — even the American tech titans that commanded market values in the trillions.”
He speaks of the internal culture at Berkshire. He notes Abel “shares the Berkshire creed”. He talks about how Abel has learnt from the best and reflects the same business temperament as his late business partner Charlie Munger when he says: “Often, nothing looks compelling, very infrequently we find ourselves knee-deep in opportunities. Greg has vividly shown his ability to act at such times as did Charlie.” He talks about honesty in managing people’s savings, which are tied to Berkshire. He notes: “Many scoundrels and promoters … seek to take advantage of those who mistakenly trust them with their savings … such malfeasance remains in full force today.”
The Buffett annual letter gives shareholders what they need without all the corporate gobbledegook that permeates many results presentations and reports. Modern financial parlance is replete with corporate jargon. Yet even a high school accounting or economics student could read the Berkshire Hathaway annual report to shareholders and gain a decent understanding of Berkshire’s management, operations, culture and strategy. To quote the great Roman orator Cicero: “Brevity is a great charm of eloquence.”
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