On Saturday, 2.22.25, Berkshire Hathaway Inc. filed its annual report, which, of course, begins with Warren Buffett’s much anticipated introductory letter to shareholders. I highly recommend at least reading Buffett’s letter.
Berkshire’s annual operating earnings increased to approximately $47 billion from approximately $37 billion the year before. The bulk of the gain was from insurance underwriting and insurance investment; with the exception of energy, other segments were mostly flattish.
2024 2023
Insurance-underwriting . . . . . . . . . . . . . . . . . . . . . $ 9,020 $5,428
Insurance-investment income . . . . . . . . . . . . . . . . 13,670 9,567
BNSF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,031 5,087
Berkshire Hathaway Energy . . . . . . . . . . . . . . . . . 3,730 2,331
Other controlled businesses . . . . . . . . . . . . . . . . . 13,072 13,362
Non-controlled businesses* . . . . . . . . . . . . . . . . . 1,519 1,750
Other** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,395 (175)
Operating earnings . . . . . . . . . . . . . . . . . . . . . . . . $47,437 $37,350
BRK-B flew, today (2.24.25), on heavy volume, piercing $500 per share for the first time in history, and closing at $498.42 as gains for the market and BRK-B faded in the last half hour of trading when the U.S. President announced that tariffs against Mexico and Canada would commence next week.
At any rate, I decided to sell long-dated, slightly in the money calls against a large chunk of our BRK-B holdings, today. The sale netted us a meaningful five figure premium that was immediately deposited into our account. That deposit was a wonderful way to start the week!
Hopefully our BRK-B shares are not called away. The best outcome would be appreciation of the shares to a point below my strike so in addition to our premium collected, we would keep the shares and enjoy the appreciation.
Another possible scenario includes the share price appreciating beyond my strike price, and thus my shares would be called away. In that case, my gain would be limited to the premium collected and the appreciation to the strike price. To that I would adopt the attitude of my Great Uncle Freeman. Freeman was an early investor in Sedona, Arizona real estate. When asked about selling property there at a profit only to have the buyer sell it subsequently for more money, Freeman responded, “What do I care? I made money.”
Of course there’s the possibility that the share price declines. In that case, I keep the shares, and my premium from these calls and prior calls would possibly still keep me in the green or reduce losses, depending on the size of the decline. I can live with that.
In some ways, I see the covered call strategy, here, similarly to investing in T-bills. While not risk-free with a guaranteed rate of return like T-bills, a covered call strategy against the rock of Berkshire Hathaway is very low risk and provides a calculable rate of return. An advantage of the Berkshire covered call strategy over T-bills is that the rate of return on the call premiums dwarfs that of T-bills. Further, the call premium is collected up front, unlike the T-bill payment for which one must wait until the T-bill maturity date.
Unlike an investment in T-bills held to maturity, an investment in BRK-B could result in losses. However, those losses would almost assuredly be temporary–Berkshire is not going out of business in our lifetimes. Provided we would not need to sell, which is a good assumption to make in our case, we would just hold on for a brighter days, ahead. Note that Berkshire owns hundreds of billions of dollars of T-bills, hundreds of billions of dollars of marketable securities, and hundreds of billions of dollars worth of diversified, wholly owned or controlled companies. Thus, even if the BRK-B share price were to decline, the intrinsic value of Berkshire Hathaway would be solid, and eventually the share price would return to rationality.
God bless Warren Buffett and Charlie Munger for the conglomerate they built!
With Love,
P. Gustav Mueller, author of The Present