The conglomerate relied on solid operating earnings, boosted by strong investment income and underwriting earnings at auto insurance flagship Geico

January 02, 2025 | 02:08pm

Warren Buffett's Berkshire Hathaway beats S&P 500 in 2024, posts 9th straight up year

The conglomerate relied on solid operating earnings, boosted by strong investment income and underwriting earnings at auto insurance flagship Geico

Warren Buffett's Berkshire Hathaway outperformed the S & P 500 in 2024 and pulled off its best year since 2021. Class A shares of the Omaha-based conglomerate rallied 25.5% last year, beating the S & P 500's 23.3% return. Berkshire shares topped $700,000 during the year and posted their ninth positive year in a row. BRK.A 1Y mountain Berkshire Hathaway The strong performance came even as the "Oracle of Omaha" halted Berkshire's stock buyback program as the share price with the stock getting pricier and pricier. Instead, the conglomerate relied on solid operating earnings this year, supported by strong investment income and underwriting earnings within auto insurer Geico. $325 Billion Cash Interest and other investment income reached $8 billion in the first three quarters of 2024, compared to the prior year's $4.2 billion. A big factor was Berkshire's gigantic war chest — some $325 billion as of the end of September, nearly double the $168 billion level at the end of 2023. Higher interest rates, albeit off their peak, still enabled the conglomerate to earn a competitive return on the cash hoard. The legendary, 94-year-old investor amassed such a jaw-dropping amount of cash in 2024 by selling down his two largest holdings, Apple and Bank of America , a move that surprised many. He was in a selling mood for most of 2024, offloading $133 billion worth of stock in the first three quarters of the year. Winning Geico Geico, Berkshire's insurance crown jewel and what Buffett his called his "favorite child," continued its turnaround story in 2024. The insurer recorded an underwriting profit of $5.7 billion in the first three quarters of 2024, more than doubling the $2.3 billion total in the same period of 2023. As recently as 2022, Geico suffered a $1.9 billion pretax underwriting loss as it sacrificed market share to competitor Progressive due to the slow adoption of telematics . Telematics software programs allow insurers to collect clients' driving data, including their mileage and speed, to help price policies. Geico helped offset the weakness in Berkshire's other insurance operations, including Berkshire Hathaway Primary Group and Berkshire Hathaway Reinsurance Group, which both experienced an underwriting loss in the third quarter of 2024. 'Wishful Thinking' While Berkshire outpaced the S & P 500 last year, Buffett has tempered expectations for future outperformance citing its enormous size. He noted that it's very difficult for any investments to move the needle because of the sheer amount of cash Berkshire is working with. Buffett said Berkshire's group of diversified, quality businesses — from BNSF Railway to See's Candy —should provide "slightly better" performance than the average U.S. company, but anything more than that is unlikely. 'With our present mix of businesses, Berkshire should do a bit better than the average American corporation and, more important, should also operate with materially less risk of permanent loss of capital," Buffett said in his 2023 annual letter. "Anything beyond 'slightly better,' though, is wishful thinking." Still, Buffett's long-term track record is unparalleled. Berkshire, which cuts across 40 industries and 60 companies, has doubled the average annual return of the S & P 500 since Buffett first took control back in the 1960s.

This story originally appeared on: CNBC - Author:Yun Li