For the past two years, during the last weekend in February, I have been travelling in Italy – Rome last Feb, Milan this Feb. This is also one of the weekends in the year that I really look forward to, since the annual Berkshire Hathaway shareholder letter is released.
Chugging up the Alps in a train going through the Bernina pass, one of the most breath-taking railways in the world, coffee in hand, and perusing the latest shareholder letter. Life couldn’t get any better.
Greg Abel begun the letter talking about the culture and values of Berkshire Hathaway, vowing that nothing would change in this regard under his leadership.
At most corporates, including Toyota where I currently work, most companies have three-to-five-year business plans, which then inform the strategies and plans for the year ahead for the year. What struck me at Berkshire, is they don’t do any sort of strategic planning with their businesses. Instead, they focus on minimizing bureaucracy, to provide their managers the independence to focus relentlessly on their businesses, in return expecting accountability and integrity. This creates a fly wheel which attracts exceptional people to Berkshire.
Our culture begins with a partnership attitude. Our shareholders are our partners whose trust we have earned and must work to keep. Their interests are at the center of our decision-making.
We seek the best managers to run our operating businesses, who in turn lead talented teams. We operate a decentralized model with autonomy grounded in deserved trust. We minimize bureaucracy to provide our managers the independence to focus relentlessly on their business. In return, we expect accountability and integrity in performance. This autonomy attracts exceptional people to Berkshire.
Employees embrace an ownership mindset, managing shareholders’ assets as if they were their own. We think in decades, act with discipline, and uphold our commitments.
One of the most talked about topics of Berkshire recently is their levels of cash and US treasury holdings, which currently exceed $370bn. Last week, Greg Abel announced the company will start to repurchase shares, and Greg himself will purchase about $15m worth of shares from his salary. No dividends will be paid, so long as a dollar retained in the business leads to more than a dollar of market value created.
Operating earnings were $44.5bn in 2025, slightly below the $47.4bn in 2024, and 19% above the 5 year average $37.5b. Produced $46b of cash from operating activities, compared to 5 year average of over $40bn. The earnings quality is clearly excellent with an excess of cash generated than earnings reported. The current P/E ratio is 16 and P/B of 1.5/1.
The combined ratio is 87.1% across the property and casualty business in 2025, better than 5 year average of 90.7% and 10 year average of 93%. The combined ratio is a key insurance KPI, and is an inverse ratio, where the lower the number the better. The ratio is calculated as incurred losses plus underwriting expenses divided by earned premiums.
The improved insurance outcome was helped by an unusually quiet year in terms of hurricanes, as well as the continued trend of increased insurance pricing since 2022, which has benefited margins. Despite the improved performance, Abel conceded they lost some customer retention as competitors have begun to compete on price, and Berkshire companies will not write business if they aren’t able to price the risk correctly.
GEICO continues to invest in tech to better segment customers according to their risk. This is something Ajit spoke about at the Berkshire annual meeting last May, where their use of telematics has greatly improved their ability to price auto customers according to their specific risk. Reinsurance businesses have become more competitive as increased capital from traditional and alternative markets enter the industry.
They focus on growing underwriting profit sustainably, not volume, even if that means missing out on opportunities to temporary spike market share. The insurance float remains at $176bn at year end. With cash of $371bn, and insurance float of $176b, this leaves cash of $195bn. With a market cap of around $1trn, this means around 37% of the market cap is currently held in cash.
Moving onto the electricity business, Abel notes the industry has entered a significant investment cycle, driven by rising demand from artificial intelligence computing. Berkshire will continue to invest in growth in this area, so long as the users, the hyperscalers and data centres, can pay the prices to generate adequate returns on capital for Berkshire.
2025 continued to be a challenging macro-environment for industrial products, although an improved performance came from Precision Castparts, as the airline industry has recovered post COVID. Pilot travel centres continues to improve, though interestingly Greg concedes a mistake was made to only gain management control in 2023, after the initial investment was made in 2017. A mistake, he says, that will never be made again.
Two significant acquisitions were made during the year, including OxyChem and Bell Laboratories. OxyChem produces caustic soda and chlorine, whilst Bell produces rodent control products.
Moving onto the quoted equity investments, the top 4 US holding (Apple, American Express, Moody’s and Coca-Cola), have $159bn market value, $1.7bn dividends, implying a current dividend yield of 1.07%.
Their investments in Japan have $35.4bn market value, (5 stocks with roughly 10% ownership in each), producing $862m dividends, with a dividend yield of 2.4%, highlighting the relative cheapness of Japanese stocks compared to US stocks, from a dividend yield perspective.
Berkshire hedges their Japanese Yen currency exposure, by borrowing Yen at 1.2% annual interest, whilst receiving a dividend yield of 2.4%.
CFO Mark Hamburg, whom I have never heard of, is to retire. Berkshire will hire their first General Counsel at Berkshire, Mike O’Sullivan, and Adam Johnson becomes President of Consumer Products, Service, and Retailing Businesses.
Berkshire market value increased by 10.9% in 2025, compared to 17.9% for the S&P500 including dividends, and over 60% for gold.
In all, a reasonably quiet year for Berkshire, Warren’s final year as CEO, quietly continuing to compound earnings, and an opportunity for Greg Abel to prepare to take over the reins.
Expect to see continued buybacks during 2026 as they deploy some of their cash into buying their own share. This indicates that the share price is approaching a level where management estimate the intrinsic value of the share to be equivalent to or exceeding the market value per share, in other words, a cue for investors to start thinking about buying the share. How can the share perform long term? As Buffett has argued for years, and Greg alluded to in his letter, the company is so big now, that it will be increasingly difficult to “move the needle”, in terms of generating returns similar to those of the past, i.e. close to 20% compounded annual returns. But for a relatively safe stock, with a beta of less than 1, I am a fan of Berkshire. When the market goes down, Berkshire tends to outperform.
We don’t know what will happen during the year, but should there be a large correction, or period of stress in the market, then Berkshire will be able to step in and invest aggressively.