Warren Buffett admits Berkshire’s days of ‘eye-popping’ gains are over

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Warren Buffett has warned Berkshire Hathaway shareholders that his sprawling $905bn conglomerate has virtually “no possibility of eye-popping performance” in the years ahead, laying bare the challenges that will confront his successors.

The so-called Oracle of Omaha said in his annual letter on Saturday there were very few deals that offer the kind of transformative impact past takeovers have had, such as its purchases of insurers Geico and National Indemnity or the BNSF railroad.

“There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others,” he said. “Outside the US, there are essentially no candidates that are meaningful options for capital deployment at Berkshire.”

It is a problem that Buffett has been staring down for almost a decade as the growth of Berkshire’s operations and cash levels have compounded.

The company spent billions of dollars acquiring truck-stop operator Pilot Flying J and insurance conglomerate Alleghany in recent years, adding them to a portfolio that includes ice cream purveyor Dairy Queen and utility behemoth Berkshire Hathaway Energy.

But those outlays put only a minimal dent in Berkshire’s cash pile, which continues to climb. It hit a record $167.6bn at the end of 2023, up $39bn over the course of the year.

“Size did us in, though increased competition for purchases was also a factor,” Buffett said. “For a while, we had an abundance of candidates to evaluate. If I missed one — and I missed plenty — another always came along. Those days are long behind us.”

The 93-year-old Buffett, who lost his longtime investment partner Charlie Munger last year, said Berkshire should continue to “do a bit better” than the average US company “and, more important, should also operate with materially less risk of permanent loss of capital”.

He added: “Anything beyond ‘slightly better’, though, is wishful thinking.”

The passing of Berkshire’s acerbic vice-chair has turned investors’ attention towards the company’s prospects, without Buffett at its helm. Greg Abel, Buffett’s anointed successor, and Todd Combs and Ted Weschler, his investment deputies, are lined up to steer the giant.

They have a tough act to follow. Since 1964, Berkshire shares have returned 4.4mn per cent, far outstripping the 31,233 per cent gain by the benchmark S&P 500.