Investor Warren Buffett believes his company, Berkshire Hathaway, will continue to thrive for decades thanks to its vast and varied collection of “remarkable businesses” and investments, which will help it withstand challenges in any one sector.
Buffett's annual letter to shareholders was posted online Saturday. This year he reflected on 50 years of leading Berkshire and its future.
Buffett reiterated that Berkshire's huge size will keep it from achieving gains nearly as strong as in the past. And he defended Berkshire's decentralized structure as the ideal way to combat bureaucracy and maximize gains.
“I think Berkshire will outperform the average American company, but our advantage, if any, won't be great,” Buffett said.
But Berkshire's financial strength that comes from owning more than 80 companies and holding large stakes in public companies will help the company endure whatever the world throws it. Berkshire also held $63.3 billion cash.
“I believe the chance of any event causing Berkshire to experience financial problems is essentially zero,” Buffett said. “We will always be prepared for the thousand-year flood: in fact, if it occurs we will be selling life jackets to the unprepared.”
Buffett's letter is one of the best-read reports in the business world because of his track record and knack for explaining complicated issues.
“They make a great long-term case for the company,” said author and investor Jeff Matthews, who wrote “Warren Buffett's Successor: Who It Is and Why It Matters.”
The 84-year-old Buffett didn't name his eventual successor, but he did discuss the qualities that person will need. That will only add to speculation about which Berkshire executives are on the short list to be the next CEO.
“My successor will need one other particular strength: the ability to fight off the ABCs of business decay, which are arrogance, bureaucracy and complacency,” Buffett said. “When these corporate cancers metastasize, even the strongest of companies can falter.”
Berkshire said its full-year profit grew 2 percent, to $19.87 billion, or $12,092 per Class A share. That's up from $19.48 billion, or $11,850 per share.
Buffett recommended owning stocks as the key to building wealth over time, but investors must avoid the common mistakes of trading too often and paying high investment fees.
The billionaire investor said there's every reason to expect stocks to perform well long-term, even if prices are volatile.
Buffett said his Berkshire Hathaway Inc. conglomerate benefited over the past 50 years from the S&P 500's growth from 84 to 2,059.
He said no commentator or investment adviser can predict the stock market.
“Market forecasters will fill your ear but will never fill your wallet,” he said
Buffett isn't immune from investing mistakes. He told Berkshire shareholders the company lost $444 million on its investment in British retailer Tesco largely because he was slow to sell the $2.3 billion stake.
Berkshire's subsidiaries make up a varied collection of companies, including those that make clothing, furniture and jewelry, among many other things. It's insurance, utility, railroad, chemicals and manufacturing units account for most of its profits.
The company also has major investments in such companies as Coca-Cola Co., IBM and Wells Fargo & Co., and last year bought NV Energy and a major stake in H.J. Heinz.