Greg Abel praises Warren Buffett and promises Berkshire Hathaway won’t retreat from investing

In his first shareholder letter, Berkshire Hathaway’s new CEO Greg Abel pledged continuity while acknowledging the challenge of following Warren Buffett, whose leadership transformed the conglomerate into one of the world’s most respected investment vehicles.

“Our balance sheet is a strategic asset to be deployed at the right time. It allows us to act decisively, invest when others are tentative or fearful, and stand firm when financial storms roll through,” Abel wrote, addressing concerns about the company’s substantial cash reserves of $373.3 billion, slightly down from $382 billion in the third quarter.

Abel emphasized that this cash position represents “dry powder” for future opportunities rather than investment hesitancy. However, he noted that Berkshire would avoid businesses “that undermine the fabric of society or could jeopardize Berkshire’s reputation,” a statement that prompted CFRA Research analyst Cathy Seifert to question whether certain technologies like AI might fall under this exclusion.

The new CEO openly acknowledged the formidable legacy he inherits. “Warren is obviously a very hard act to follow,” Abel wrote, opting for a more straightforward approach than Buffett’s characteristic wit. Adam Mead, author of “The Complete Financial History of Berkshire Hathaway,” observed that Abel appeared to write with Buffett as his intended audience.

Abel highlighted some of Berkshire’s significant investments, including its holdings in Apple and American Express, and noted how the company more than doubled its paper profits on investments in five Japanese trading houses. However, Berkshire also took a $4.5 billion write-down on its Kraft Heinz and Occidental Petroleum stakes.

The letter revealed that Ted Weschler, one of Berkshire’s investment managers, controls only about 6% of the portfolio, with Abel assuming responsibility for the remainder. This arrangement has raised questions given Abel’s background in operations rather than stock selection.

Berkshire’s fourth-quarter net income remained relatively stable at $19.199 billion compared to $19.69 billion the previous year, bolstered by paper gains on investments despite the write-downs. However, operating earnings—which Buffett has long emphasized as a more reliable performance indicator—fell nearly 30% to $10.2 billion, or $7,092.09 per Class A share, missing the $8,259.23 per share predicted by analysts.

In his assessment of Berkshire’s diverse business portfolio, Abel praised companies like Geico and Precision Castparts while acknowledging that BNSF railroad needs “significant improvement” as its profits lag behind competitors. He also addressed challenges facing PacifiCorp regarding wildfire liabilities, stating the utility would pay damages when responsible but would contest claims for fires it didn’t cause.

Notably, Berkshire again abstained from share repurchases in the fourth quarter. Abel also informed shareholders not to expect quarterly commentary from him, reaffirming Berkshire’s long-term investment philosophy.

For the upcoming shareholder meeting in May, Abel announced a modified format. He will first appear alongside Vice Chairman for insurance Ajit Jain for questions, followed by a second panel with BNSF CEO Katie Farmer and NetJets CEO Adam Johnson, who now oversees Berkshire’s consumer, service, and retail businesses.

Administrative changes have been minimal thus far under Abel’s leadership, though a January filing suggests Berkshire may divest some or all of its 325 million Kraft Heinz shares. This potential move aligns with Buffett’s previous comments that Berkshire overpaid when facilitating the Heinz-Kraft merger.

While investment strategies receive significant attention, Berkshire’s core strength lies in its diverse operating companies spanning insurance, utilities, manufacturing, and consumer brands including Dairy Queen and See’s Candy. Abel brings valuable operational perspective, having managed Berkshire’s non-insurance businesses since 2018, earning praise from executives for his business acumen across various industries.

As the conglomerate transitions to its post-Buffett era, Abel’s measured approach suggests evolutionary rather than revolutionary change at one of America’s most closely watched companies.