When Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) CEO and investing legend Warren Buffett has something to say, Wall Street pays attention. Buffett published his annual letter to Berkshire investors on Saturday, in which he discusses his two potential successors, what he plans to do with all of Berkshire’s cash and a 10-year bet that demonstrates the power of long-term investing.
One of the biggest surprises in this year’s letter was Buffett’s frank discussion about Berkshire Hathaway’s massive $116 billion hoard of cash and U.S. Treasury Bills.
“This extraordinary liquidity earns only a pittance and is far beyond the level Charlie [Munger] and I wish Berkshire to have,” Buffett says in the letter.
He says his goal is to beef up the earnings power of Berkshire’s non-insurance business. “For that to happen, we will need to make one or more huge acquisitions,” Buffett says. “We certainly have the resources to do so.”
Buffett also discusses his $1 million 2007 bet that the S&P 500 would outperform a basket of hedge funds over a 10-year stretch. Buffett, who donated his winnings to a girls’ charity, says investors are not getting what they pay for with active fund managers.
“Indeed, Wall Street ‘helpers’ earned staggering sums,” Buffett writes. “While this group prospered, however, many of their investors experienced a lost decade.”
A couple of issues were also conspicuous by their absence in this year’s letter. Buffett made no specific mention of the Federal Reserve’s recent crackdown on top Berkshire holding Wells Fargo & Co. (WFC). Buffett also did not provide any update on his recently announced health care collaboration with Amazon.com (AMZN) CEO Jeff Bezos and J.P. Morgan Chase & Co. (JPM) CEO Jamie Dimon.
Buffett did, however, conclude the letter by addressing what many investors consider to be one of the most important remaining roles for the 87-year-old. Earlier this year, Berkshire promoted Ajit Jain and Greg Abel to vice chairman positions. Analysts see Abel as Buffett’s most likely successor at Berkshire.
“You and I are lucky to have Ajit and Greg working for us,” Buffett writes. “The character of each man matches his talents. And that says it all.”
If Buffett’s talent at picking stocks is any indication of his talent for picking leadership, Berkshire investors are…
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