Alex Morris（TSOH及《Buffett and Munger Unscripted》作者）谈2024年Berkshire年度信

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All right, hello and welcome to Yet Another Value Podcast. I’m your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, subscribe, and review wherever you’re watching or listening to it. With me today, I’m happy to have Alex. Do you know what number time it is?

Oh gosh, I don’t. It’s got to be at least 5, right?

Do you have the shirt yet?

No. You’ve never sent me this shirt.

Okay, well, we’re going to say it’s the 5th time, and he’s getting the 5-time-club shirt for this one. With me today, I’m happy to have my friend Alex Morris from The Science of Hitting. How’s it going?

Good, thanks. I haven’t spent enough time talking about Berkshire lately with this book, so let’s talk about it.

Alex is front-running the host, but that’s why he’s on here. We’ll talk about that in a second.

Before we get started, a quick disclaimer: Nothing on this podcast is investing advice. We’re going to talk about Berkshire today, so we might hit a lot of companies. I have a small position in Berkshire from some legacy accounts over here. Alex, I’m pretty sure The Science of Hitting has a position as well, so there you go. You’ve got the disclaimer and the bias out of the way.

Alex wrote a book on Berkshire, Buffett & Munger Unscripted, so that’s why I figured he was the perfect person to have on. Berkshire released its 2025 annual letter last Saturday, and Alex is joining us to talk about it for 30 or 45 minutes.

I guess this happens every year now, as time goes by. The letter is interesting. This one in particular seemed to cover a lot of ground—interesting ground. There were some tried-and-true shareholder-letter discussions, and there were other things that seemed interestingly placed in the letter, or interesting simply because they appeared in the letter at all.

There were also a couple of Warren Buffett things that, for the groupies—the people like us—we nitpick. From his perspective, I appreciate that he sees himself as writing to a broader audience, but there are some of the typical Warren things where you read it and think, “Come on, man. We would have loved a little bit more here.”

You hit on several interesting things I want to talk about, but let me ask you this first. You’re in a unique position. You spent a lot of the past year writing or editing a collection of Berkshire annual-meeting transcripts, and you’ve spent most of the past month or 2 doing the podcast circuit promoting and talking about Berkshire. You’ve been thinking about Berkshire a lot.

Most of us don’t have Berkshire top of mind 365 days a year. As somebody who has had Berkshire top of mind for much of the recent past, was there anything different when you read this letter that jumped out at you? Was there something he’s always harping on, or was there a new point he made? Was there anything different about how you read it this year?

Again, I’d have to go back and read most of the recent letters. I feel like the most recent letters have trended in this direction more so than they did in the past.

There are particular words or comments that I find interesting in the letter. For example, when he’s talking about the Japanese investments, he uses the phrase, “Our holdings of the 5 are for the very long term, and we are committed to supporting their boards of directors.” I always find it interesting when he says something like that. Who is he talking to when he says it, and what is the thought process behind it? I find all those things very interesting. I’m sure there is logic to it from his perspective.

It all comes back to the idea that he’s writing to an audience that is more general than probably a lot of the people listening to this podcast. We’re a little bit more in the crazy-fan category.

He opens the letter by saying that a report has a certain amount of area it needs to cover and that it goes beyond the required minimum. I love when he then talks about something that is turning in the right direction. With something like GEICO, when he talks about Todd Combs and a little gem that needed major repolishing, as he puts it, I would love to hear more on what happened there.

I have a general idea in terms of telematics and some other things, but I’d love to hear a discussion about what Berkshire missed, what they could have done differently, and what role he played in that, if any. Those discussions would be really interesting. It doesn’t necessarily have to be about things that are negative. It could even be something that is turning around and working well. Why is it working well?

The Rational Walk had an update on Berkshire’s annual results. I think he did a good job of showing GEICO by quarter, and I got the indication that they’re now starting to ramp up and pick up policies again after a period of really getting their butts kicked over the last several years. Over the past 5 years or so, they’ve gotten demolished by Progressive on a relative basis.

Again, those discussions would be really interesting for people who are deep in the business. He doesn’t have to do it in a way that overshares or is negative, but that’s just not the way he wants to do it.

Let me start with a few things that were not notable to me. I read the letters once and then I never read them again, so maybe if you read a letter once a year for 20 years, you start to remember it. But you might distort it or something.

One thing that jumped out to me was that he said Berkshire did better than he expected in 2024, even though 53% of its 189 operating businesses reported a decline in earnings. I wanted to match that up with all the talk about Berkshire’s record cash position. He’s not buying a lot of stock these days, and I see lots of debate about whether Buffett is bearish or whether this is just the new Berkshire.

When he said 2024 was better than he expected, even though over half of their businesses reported declines, my thought was, “It does feel like Buffett is bearish.” He’s saying it was better than expected, so he was probably thinking more businesses would decline. He was probably thinking we would have a recession and he’s not deploying cash. I wanted to pause there and get your thoughts on that macro take. Do you think I’m off, or would you say something different?

No. This hints at a line that reminded me of something he said about Apple’s repurchases a couple of years ago. He almost framed it as if it were free money, effectively—not actually accounting for the fact that Apple was obviously using its cash to make it happen. He does this every once in a while with the way he discusses certain things.

The topic of how much of Berkshire’s cash or assets is in businesses overall has become a talking point. The quote I saw in the annual report that stood out to me was: “While our ownership of marketable equities moved downward last year from $354 billion to $272 billion, the value of our non-quoted controlled equities increased somewhat and remains far greater than the value of the marketable portfolio.”

The “far greater” part isn’t really relevant to the question of what that bucket is doing. They’re 2 distinct things. He says the value increased somewhat. My point is that in a year when the market went up very significantly, Berkshire’s publicly traded equity portfolio decreased very significantly, and it’s not as if the value of the non-quoted controlled equities increased substantially.

It’s just one of those things where—and I understand it to some extent—he really avoided having the conversation and used a reason that’s not entirely logical to walk himself away from that discussion. I do understand what he’s getting at: You have to think about Berkshire in the context of an entity worth a lot more than just the quoted value of the publicly traded equity. I understand why he doesn’t want to go into some of these discussions in too much detail.

Let me ask you a big question. If we were clipping something out as a hot take and needed a 1-minute clip to attract people, this is probably what I’d clip.

Ignoring death—which Buffett is 93 right now, and death is certainly a possibility in the next year—if I told you that Buffett is alive next year but doesn’t write the annual letter, would it shock you if this was his final one?

It wouldn’t shock me. You mentioned hot takes. As I was getting prepared for this, I was listening to Jeff Gannon and Andrew talk about the shareholder letter earlier this morning. I started thinking that maybe he announces at the meeting that he’s retiring.

As I thought more about some of the things that have come out in the press lately, some of the things he mentioned, and how he wrote the letter, I started to think about that a little bit more. Maybe I’m reading into all of this way too much, but I started to walk away thinking that perhaps the plan is to make an announcement in the morning at the meeting, as they normally do with the earnings results. He would have the opportunity to talk about it a little bit, and then it would be him and Greg on stage in the afternoon as a way to give it the proper treatment.

If he’s alive next year, would he come back on stage? Who knows. But maybe this is the way to formally do it.

It certainly seems like—how many times in the last 6 months has there been some mention of his age? He seems to have been involved in 3 or 4 of those discussions. It wasn’t lost on me. I’ve never heard or seen—although I’m sure people knew—that he’s 93. This is not a surprise. He’s walking with a cane, and he mentions the cane thing. He’s definitely setting himself up as older.

It struck me that there was the line, “It won’t be long before Greg replaces me as CEO and we’ll be writing the annual letters.” He’s said things like that before, but that was pretty direct. Then this letter—not that it’s some incredible finale, but if this was your final letter, it would make a lot of sense.

He says the future of Berkshire is insurance. He talks about the insurance business and how to think about it. He lays out the culture. He mentions the RV dealership they bought and how they partnered with the owner. They didn’t really haggle over it; they bought it for a fair price, gave him a salary, and let him grow the earnings. They talk about trusting partners.

It felt to me like he was saying, “We set the culture, the future is insurance, you’re buying the insurance businesses and some great companies, and we largely bet on America.” He even said the American government needs to work to maintain a stable policy, or a fertile field, or something along those lines. I thought, “He’s hoping there are a couple of senators or representatives from Nebraska reading this and remembering that they need to keep things somewhat stable.”

As someone who was hoping to be involved with selling my book at the annual meeting, it also strikes me as slightly notable that, understandably, last year—given what happened to Charlie Munger—“Poor Charlie’s Almanack” was the only book at the meeting.

This year, they’re only going to have 1 book at the meeting again, and it’s essentially a book about the last 60 years of Berkshire. It’s a book about the history of the company. Granted, they did this 10 years ago for the 50-year anniversary, so maybe it’s just time going by and these things happen. But again, I got the sense from reading the letter—and in combination with some of the news we’ve seen lately—that it felt like more of a setting-up-for-the-future letter.

When you go to a baseball game or basketball game, there’s the official merchandise inside, but there’s always somebody hawking the illegal knockoff merchandise outside. You’ve got to be selling those illegal knockoff books outside, hustling: “Hey, man, you want a copy of the Berkshire book?”

Warren’s in his 90s, but he would still probably make sure nobody was doing any economic activity near the meeting without him getting his cut.

One thing that jumped out at me was that he mentions Todd twice when it comes to GEICO but doesn’t mention Ted at all. I can’t remember, but I think this is notable. 3 years ago, he was mentioning Todd and Ted quite constantly, and he’s really backed off that now.

If this is his last letter, part of it might be culture-setting. Berkshire is too big. 5 years from now, Berkshire will still have a portfolio that matters, but it’s going to be operating businesses, property and casualty insurance, and probably dividends and share buybacks. Equity investments won’t matter as much. So maybe, if this is the last letter, he’s setting up the culture.

But when he brought these guys in, it was, “Here are the handpicked lieutenants.” People talked about Todd, particularly given his GEICO role. Could he be the next CEO? Buffett had talked about how these guys were going to allocate capital, but there was no real mention of them allocating capital in the letter. I could speculate endlessly, but I’d love to get your take on that.

I think it’s a fair point. We have a couple of mixed signals. Repurchase activity has completely dried up. In the 4th quarter it was immaterial; in the 3rd quarter it was either $10 million or $100 million—I can’t remember the number now, but it was very small. The last 12 months was the lowest dollar amount of repurchases that Berkshire committed to since it really started repurchasing shares in either the 2nd or 3rd quarter of 2018.

There is some component of that here. I do think, in general, that something is coming in terms of capital allocation that is going to be a pretty significant change from what we’ve seen historically at Berkshire. What exactly that is, I’m not sure.

I wrote a question to Becky, since the letter says you can do so at the end. One of the things I wrote about was Coca-Cola and thinking about the fact that they’ve held the position for the last time Warren touched it, which was in 1994. They’ve held it for more than 30 years without buying or selling a single share.

As we go forward, and I’ll reference the Japanese companies, is this effectively a similar position where Warren’s belief is that they don’t even have to bother looking at it again, and that it’s something they’re going to hold in perpetuity? Or is there some other frame of reference for how Berkshire is going to be managed going forward?

That’s somewhat of an extreme example, but I do think there’s a case to be made that this is a fair knock against Warren to some extent. They’ve set the rules for how they’re going to judge themselves on holding what they call excess cash, with a 5-year test being the number they’ve used previously. I think, in some ways, we’re past that in terms of the amount of cash on the balance sheet that feels above that level.

I struggle to think that, as this passes to the next generation of leaders, that will continue to be the approach Berkshire operates with. It just strikes me as pretty unlikely.

Honestly, it can’t. It is interesting that you say that because Buffett has the old story about somebody sneaking in and getting a dividend out in 1967. He says that shareholders have trusted Berkshire to reinvest the money, so they’ve reinvested it sensibly.

But I think he’s setting the stage for why they can’t do that anymore. If they reinvested everything they did for the next 10 years, just because of the amount of cash this thing generates, Berkshire is going to trade for an enormous conglomerate discount.

At some point, you’re going to say, “This is a $2 trillion company with $800 billion in cash.” That has to trade at a discount. It’s incredibly inefficient. Even in a financial crisis, you can’t deploy $800 billion. So it has to change at some point.

They still have things they can do. A notable thing from last year was that they bought the remainder of Berkshire Hathaway Energy. It was $3 billion, or $2.9 billion, to buy the last 8% of it.

If it were under Warren’s watch, that would obviously be perceived differently. But if Berkshire went out and tried to buy the remainder of American Express, for example—something in which they own a very significant equity stake and obviously plan on owning for a long time—I struggle to think that any of the new managers, whether it’s Greg or the investment managers, would sign a check for $200 billion 6 months into the job. But maybe it will happen. We’ll see.

American Express is an interesting one because it’s a great brand and there’s going to be a future there. I’ve never doubted that there’s a real place for the credit-card companies, but I have wondered about American Express versus Visa and Mastercard as things move more online and you lose the cachet of whipping out the Amex card. That’s an interesting one.

I do wonder, regulatorily, if they’re already regulated and already huge, but if you throw Amex in there, now you’re a bank. The regulation is a lot different than if you own 21%. You own the whole thing, so you’re systemic. If you own the whole thing and Berkshire has an earthquake in New York City that causes $1 trillion of reinsurance damage, then Amex is at risk, too. That’s a little more systemic than if Berkshire owns 21%, even though they would structure everything appropriately.

I think there would be a lot of thought about how big is too big at that point.

They already own 21% of it, by the way. Their interest in the company is already pretty darn significant.

Apple was really the perfect publicly traded company. Obviously it was a fantastic investment, but it was also the perfect publicly traded company for Berkshire to take a relatively small minority stake in. It was a perfectly sized publicly traded company for them to have a meaningful investment in.

That game is even harder now than it was 9 years ago—maybe 16 or 17 years ago, actually. You’re in the world of investing in publicly traded companies and having an investment that’s meaningful to Berkshire without being a very significant percentage of that company. The size of that universe is just incredibly small.

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Let me ask about a specific name. Earlier, I asked you about the potentially bearish outlook at Berkshire, and one name that jumps out to me is Occidental Petroleum. If you remember, 18 months ago Occidental—the ticker is OXY—had what people liked to call the Buffett put.

Every time Occidental would drop below $60, Buffett was buying hundreds of millions of dollars of stock in the open market. Today, as we’re speaking, Occidental is probably around $45 to $48, somewhere in the mid-to-high 40s. You’re not really seeing any insider buying from Buffett. They’ve stopped. He did a small purchase earlier this month, but 18 months ago it was daily. You were getting 4 or 5 hundred million dollars of purchases. Now it’s once a quarter, and he might buy $10 million for the entire quarter.

I’m interested in that because he’s had very high praise for Occidental’s assets before. The price is a lot cheaper, and Berkshire operates on a much longer time horizon than anyone else. If he thought $48 was a bargain, I don’t think he’s too big to play. I don’t think he’s saying that macroeconomic conditions are going to accelerate or decelerate over the next 6 months. If he thought $48 was a bargain, I feel like he’d be putting the money down. I wanted to ask you about that particular situation because I think it’s very interesting.

I haven’t followed the situation particularly closely, but my 2 best guesses would be, first, that they feel there’s an explicit or some other reason to think they have a limit on how large they can go in terms of ownership of the company. That speaks to what we were talking about earlier.

My other guess—which I don’t know for sure, but I thought I had heard something about—is M&A at Occidental. If they changed the capital-allocation priorities from what they had publicly communicated, I think that’s something Warren would generally look at as a negative. Both of those could be correct.

I’m with you. I haven’t followed it as closely as when it was fun 18 months ago, when the stock would go below $60 and everybody would say, “Now’s the time to buy because Buffett’s coming in.”

But as I was preparing for this, I thought, “Let me go look.” Energy markets have been pretty soft recently, and OXY has a lot of great assets. They have a chemical business and a lot of other things, and he’s not buying. That was surprising.

It looks like they announced an acquisition in late 2023. I don’t know when he stopped buying, but he may have been supportive of that deal for all I know.

My sense, having looked at the annual meetings and thought a lot more about what really drives Warren’s decision-making, is that PetroChina is a prominent example from the industry that fits the same kind of narrative.

If he got a signal that management was changing its capital-allocation priorities, then—even if Occidental had explicitly communicated output-growth targets and caps on how much it was going to grow—he may have decided it was time to pull back a little bit. Generally speaking, people think that output-growth targets are a negative, whereas Warren tends to view discipline as a positive.

Let me give one more thought. I don’t know if I have crazy takeaways, but I’ll give you a mini-anecdote. I really enjoyed the line where he said he’s willing to admit his mistakes. If you read the annual letters of almost any other company, there’s no mistake that gets admitted. He did call out Amazon as a notable exception, which I thought was very interesting.

I like that because I deal in a lot of really small, lousy companies. I was talking to one board, and it was clear to me that the company was a flaming disaster, with a lot of it caused by the board and management team. I wasn’t trying to be mean, but the stock was down 90% in a year, and the call started with 10 minutes of the CEO talking about how great things were and how great operations were.

I thought, “What world are these people living in?” It affected my relationship with them because I was thinking, “You guys are doing fine because everybody on the board makes $200,000 a year, but I don’t know what world you’re living in.” They couldn’t admit their mistakes.

I thought that was refreshing from Berkshire. It was a light repudiation of everyone else who isn’t willing to admit these things.

It speaks to Warren’s position at Berkshire. Speaking of Amazon, it speaks to Jeff Bezos’s idea of a rock concert versus a ballet. You have to run a company to be what you want it to be, and you’re going to get the people you deserve over enough time as a CEO.

That said, a lot of CEOs come into public companies and don’t have that leash, or at least feel like they don’t have that leash. I’m thinking of a company like Match Group, which I follow. They’re under the gun from activist investors. They need to do certain things, and the activist investors are sending a letter to the company saying that the company can’t turn around these results in 6, 12, or 18 months—or whatever the number is—and needs to sell.

When you’re operating from that perspective, it’s not surprising that the CEO turns around and says, “I think I’m going to keep my bad news to myself, and I’m going to talk about things that are going well.”

At one extreme, that’s what happens. Warren has earned the leash, and Berkshire is positioned the way it is because he built it that way. Obviously, his track record has helped, too.

I think that’s a huge part of the way he thinks. Coming back to what I was saying before, I’d really like, as a shareholder who’s obsessed with Berkshire and follows Warren’s actions closely, to have a more concrete understanding of what he means when he says that he’s willing to admit his mistakes.

There are prominent times throughout history. I talk about one in the book where, at the 2006 meeting, he said he made a mistake by not acting on Coors when it traded at a certain price in 2000. There are not a ton of examples like that throughout Berkshire’s history.

That’s not a comment about Coca-Cola; he’s talking about his own actions. I wish he gave himself a little more leeway at times to talk about things of that nature. GEICO is a prominent example in this meeting. Where did the need for major repolishing, to use his words, arise for a company that for so long was the perfect example of a Berkshire gem, trucking along each year toward a better and better place?

There’s a lot to be learned from that. I wish he would do more of it. He does it to some extent at the meetings, which is part of why I wrote the book, but it doesn’t happen as much in the letters or in some other places.

We’ve heard about Dexter Shoe at the meetings so many times. It’s interesting.

I want to ask you quickly about Amazon. He says its 2021 report is a notable exception of someone calling out their own mistakes. I thought it was interesting because Buffett reads very widely; no one doubts that. The space in this letter is precious. He knows it’s going to be read by all of his shareholders, and it’s getting edited heavily. I’m not sure if Carol Loomis is still editing these, but a lot of thought goes into them.

Do you watch Severance?

I do not.

I love Severance. It’s one of those Lost-style mystery shows, and if they take the time to show you something—especially if they show it twice—there’s a reason. Every second is precious.

When you have 13 pages to devote to the letter and you specifically call out Amazon in 2021, 4 years later, was there a reason for that? I was curious why he specifically called out that company.

The short answer is that I still haven’t figured out what the reason was. I’m trying to read the tea leaves. It’s a huge company and a major brand, but I just thought it was interesting that he specifically called it out.

Buffett plays on a lot of different levels. You’ve seen that in the past. I mentioned the way he gently nudges the U.S. government, saying that we need to keep the dollar sustainable. He’s playing a lot of different games. Calling out Amazon here was interesting.

To your point, it almost would have made more sense for him to write that Andy Jassy, the CEO of Amazon, had been one example of someone who had done this. The fact that he specifically called out 2021 was just interesting. There’s something about it that I’m not sure about, but it seems interesting.

During the letter, he mentions that when he was preparing it, he called up somebody. He called a woman and asked her how far her step-grandfather got in school, and she told him that he got to the 6th grade.

If I asked you how far your grandparents got in school, or your step-grandparents, would you be able to answer that off the top of your head?

No. I was mystified by that. I thought, “Maybe other people have deeper family connections than I do. What’s going on here?”

That section is a good example of how he randomly talked about CEOs and whether they went to Ivy League schools. It’s a funny thing to throw into the letter. I’m not sure what made him decide he wanted to put it in there this year, but he decided he wanted to put it in there.

I want to go on a quick rant. We’ve talked several times about the Japanese holdings, and they’ve been great. He’s nearly doubled his money in about 5 years, and he’s received dividends. It’s been a really nice investment. Anyone would take nearly a double in 5 years, especially at Berkshire’s size.

There was 1 thing I took issue with, though, and I saw a lot of people praising him for it. He said the Japanese investments would generate $812 million in dividends, while the interest cost was $135 million. It’s great—no one doubts that it’s great—but it struck me as the kind of thing I might see on Twitter. Somebody says, “My dividend-yielding portfolio pays for itself. We could borrow on margin.”

Nothing here is financial advice; I’m just illustrating the idea. I took a quick look, and margin at Interactive Brokers is around 4.85%. The 5 highest-yielding companies in the S&P 500, which, if I showed them to you, you would probably say are interesting value stocks, yield about 7% and are growing.

I asked ChatGPT for the top-yielding companies because I’m trying to get better at using it. The list included Altria, Progressive, GEO, Dow, LYB, and Crown Castle. You’ve got some cyclicality in there, but they’re yielding over 7%. For fun, I’ll throw in Verizon at 7% and Pfizer at 6.5%.

We could buy those, put $50 million into them, take out a margin loan, and say, “We’re paying $2.5 million in interest and getting $4 million in dividends, with the dividends growing.” It sounded like something somebody would say on Twitter. I understand why he did it, but it struck me as financially unsophisticated. People just lapped it up.

It’s a fantastic investment, and I’m not doubting that, but I was surprised he put that in the letter.

The structure of the yen-denominated debt that Berkshire raised is slightly different from a margin loan.

True. There’s no call protection, but there’s another issue. With a margin loan, you can pay it down whenever you want. If his investments go to zero and he sells them for any reason, he’s stuck. He can’t just repay the debt with that cash; he has to wait until those bonds become callable.

You could be looking at a scenario where something bad happens to one of those companies, you’re down 60%, you’ve got less cash than the value of the debt, and you have to pay interest on the debt for another 10 years. The reason you’re borrowing at such a great interest rate is because you’re Warren Buffett and you have an incredible credit rating.

I understand that it probably isn’t going to happen, but I didn’t like it. It was an interesting trade, and I understand why he made it. Maybe he’s preparing to buy more in Japan, or perhaps he’s setting the stage for a larger international investment. He did mention several times that most of Berkshire’s investments would be American, with some international investments. Or maybe he just wanted to spike the football one more time.

It takes up basically a page of the 11 pages of the letter’s substantive content. The rest is about the annual meeting, but I’m confused about why it’s there. It’s an interesting thing to update shareholders on, but it’s $23.5 billion of market value out of more than $1 trillion of assets at Berkshire.

It’s fine to talk about this, but I wish that, when we go through sections on Burlington Northern and Berkshire Hathaway Energy, the conversation were more than this: “Berkshire’s railroad and utility operations, its 2 largest businesses outside of insurance, improved their aggregate earnings. Both, however, have much left to accomplish.”

That’s 2 sentences about the railroad and the utility business. I understand that he wants to approach these things in a certain way, but to the extent that this may be the final letter, it would have been nice to have more.

It would be reassuring to hear Warren say, in a slightly different way, what he has said for 20 or 30 years. People love the meeting for that reason. But it would be nice to hear him say, “Here’s the lay of the land at Berkshire Hathaway Energy. Here’s what happened last year, and here’s the discussion about wildfires and other things from a regulatory perspective.”

He has to massage the language in a certain way so it’s acceptable to stakeholders in that business, but there’s a way for him to talk about these things while still sticking to his rule of not being overly aggressive by name.

At BNSF, should outside investors be hyper-focused on the gap with Union Pacific? Is the operating-ratio differential consistently 500, 600, or 700 basis points? Or is that the wrong way to think about it? Those things would be really helpful.

To your point, each of the Japanese positions is worth about $4 billion, versus Berkshire’s roughly $75 billion position in Apple. So each Japanese position is worth about the daily move in Apple.

It was an interesting trade, and he spent a lot of time discussing it. He may be preparing to buy more in Japan, or maybe he’s preparing shareholders for the fact that he made an international investment. He’s had a great career, so maybe he wanted to spike the football one more time.

We’ve been talking for about 45 minutes. Have we gone through most of the letter? Is there anything else that jumped out at you that you thought was interesting or that people should be thinking about?

One thing that was discussed a little bit in the letter, and more so in the annual report, was the result in the insurance business. Berkshire has been sitting with a significant amount of liquidity for a long time. If it got to a period where it felt like rates were never going to go up, that would be one thing. But now look at this period.

I pulled the numbers for the insurance business from 2010 to 2020. The average pretax underwriting gain plus net investment income was roughly $5 billion a year over that period. In 2024, that total was $25 billion—5 times higher.

It was a great year in terms of insurance underwriting. GEICO had very impressive results, although Berkshire has made some acquisitions in between now and then as well.

Yes, but it’s huge. It was 1 year that was bigger than the market value of the Japanese positions.

Net investment income from insurance went from around $5 billion in 2020 to nearly $14 billion this year. Again, it’s another thing where Warren said—I believe it was in the 2012 letter—that float probably wouldn’t grow much from there. It might decline 1% or 2% a year.

Fast-forward to today, and float is at $171 billion. At the turn of 2010, it was $66 billion. Float has continued to grow, and it has also been a nice tailwind.

As he noted in the letter, over the long term Berkshire has eked out roughly 3.5 cents per dollar of premium volume in underwriting profit. It is really nice.

The next question will be, to the extent that Ajit Jain is directly responsible for a decent chunk of these businesses, or someone like Todd needs to come in at GEICO, how sustainable are some of these advantages? That will be an ongoing discussion, and some of those discussions will probably become more pointed when Warren is no longer there.

Do you think Warren is okay with the Class A and Class B structure that Berkshire has right now? Or do you think he might try to change it before he dies?

Change it in terms of what? What would be the rationale? Is there a specific reason you would want to do that?

Berkshire is huge; there’s no doubt about that. How many Class A versus Class B shares are there at this point?

Imagine Berkshire is a $2 trillion company. You could imagine that 20 years from now, because Class A shares can be converted into Class B shares—but not the other way around—it’s a $4 trillion company, and 5% of it is Class A stock while 95% is Class B stock.

Let’s make the numbers easy. If it’s a $5 trillion company, 5% would be $250 billion in Class A shares, with $4.75 trillion in Class B shares.

All of a sudden, you have a scenario where an unscrupulous person would need to be quite rich, but I can think of 1 very rich person whom I think is somewhat unscrupulous—could raise $75 billion. If they were worth $75 billion, and if they could raise $75 billion and take on another $25 billion of debt, they could use $100 billion to control $5 trillion of market capitalization.

That creates a lot of leverage. They could install themselves and turn Berkshire into effectively a closed-end fund where they’re charging a 2-and-20 fee, and nobody could stop them.

If I were Warren, I would probably eliminate the dual-class structure before I passed. I know he’s giving the stock to his children, but Warren thinks about the long game, and his children are pretty old as well. I’d be thinking about how to avoid that risk.

Maybe he doesn’t care, and maybe that’s for other people to worry about. But Berkshire could very easily trade at a huge conglomerate discount 10 years from now if the people running it aren’t doing the right things. Someone could take control of it and really run amok.

Now that you’re saying that, I’m remembering some of the structures where he quantified a period of time during which the company would be under the control of friendly hands. But to your point, that obviously will change over time.

Honestly, to the extent that it ever gets to a place where that’s necessary, there is a scenario where it would actually be necessary. Not everything that comes in the form of activism or change is necessarily nefarious.

Berkshire is constrained in some pretty significant ways, and it will be up to the next managers to find a way to manage the company in a way that makes sense and works for shareholders. If it doesn’t work better in some other structure, then that’s a problem.

I do think that will probably become a reality over enough time. It’s going to take a while to get there, but I think that will be the reality of the entity.

They also have opportunities at their disposal if they want to get smaller or focus in certain areas. But that’s going to require capital-allocation decisions that are quite different from what Berkshire did for a very long time. Even repurchases have been a relatively small part of Berkshire’s overall capital-allocation priorities over the last decade.

That’s going to be really challenging, and they’re going to have to find a path forward.

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Buffett has historically been an incredible judge of people’s character. There is something to that. But I could imagine a scenario where people are 1 way around Warren while he’s alive, he trusts them, and then he passes the controlling stake to them.

It may not happen instantly, but we’re talking about 2025, and people’s views can be very different from what they were 5 years ago. The person controlling the Class B shares could change their views.

I look at John Malone. He’s been giving a lot of his lieutenants his Class B shares. He said this 4 or 5 years ago. I look at some of the moves Liberty has made over the past year and wonder if Malone was looking around and thinking, “I don’t know if I can trust these people anymore.”

Maybe he was worried they were going to self-deal. Maybe he didn’t think they were as good as he once thought they were, or that they had lost a step. Or maybe he just thought, “Why am I bothering with this? Let’s wrap this all up.” He’s John Malone, the candy shop is always open, and it’s time to sell.

I wonder about that with Warren because Berkshire is going to be a really big company. It’s going to take a large check, but nowhere close to as large a check as the company’s total value to get control. If I said, “Here’s a $200 billion check, Warren. How can you create a lot of value?” one answer would be, “We could take Berkshire over, install a 2-and-20 fee structure, and start paying ourselves.” You can get pretty spicy with that.

This comes back to the question of whom Warren is talking to in certain sections of the letter. I believe The Wall Street Journal had an article about Howard Buffett and the future of Berkshire not too long ago, maybe in the past 6 months.

The first page of the letter includes the line, “A decent batting average in personnel decisions is all that can be hoped for. The cardinal sin is delaying the correction. Mistakes, or what Charlie called thumb-sucking problems, cannot be wished away. They require action, however uncomfortable that may be.”

For Warren to say he’s had a decent batting average when the comment at other meetings has essentially been that no manager has left Berkshire—although they’ve fired some people along the way or asked some to leave—is interesting. Generally speaking, their personnel decisions have probably been pretty good, at least in terms of the really important ones.

It may not be a perfect record, but for him to say “a decent batting average” is an interesting reminder that if things aren’t going the way they should, Berkshire needs someone who is willing to make very tough decisions.

I think he has explicitly said at times that he’s entrusting his son to do that. That is what Berkshire is. If people don’t like it, they should probably take action.

I have the book here somewhere, but it’s under a protein-powder jar and I can’t get it out right now. It still has a lot of markings.

No, I greatly enjoy having you back on the podcast. I’ll be wearing my shirt next time. I’m excited.

All right, I thought I had sent you one. I’m going to make sure we get you one sent. Alex Morris, Buffett & Munger Unscripted—you can buy it at your bookstore, probably Amazon if you’re interested. Check out The Science of Hitting, and thanks for coming on. Looking forward to it. I think we’re talking—I think we’re at least doing a panel of some form on media in the summer, so I’ll talk to you hopefully before then, but people will hear us talk then, if not before. So, cool. Alex Morris, thanks again.

Thank you. Appreciate it. Thank you.

A quick disclaimer: Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.