What was in Warren Buffett’s latest shareholder letter? – Plus 3 share ideas

We’d be remiss to talk about Buffett’s investments without giving a mention to Apple. Despite trimming his stake over the year, it’s by far his largest holding – representing 28% (or around $75.1bn) of his equity portfolio at the end of 2024.

Buffett’s well-renowned for only investing in businesses which he understands – terming it, sticking within his circle of competence. But because tech industry isn’t his strong suit, many eyebrows were raised when he started building his position in Apple back in 2016.

However, it’s not really the tech side of Apple that’s the key attraction for Buffett. It’s some of the other aspects like strong brand power, healthy cash flows and a management team that focuses on what consumers want.

The whole Apple ecosystem of products and services are purpose built to complement each other and work seamlessly together. And as far as we’re concerned, they’ve repeatedly hit the nail on the head. Apple’s made itself an indispensable part of many people’s lives – evidenced by the extreme brand loyalty its consumers show when it’s time to upgrade their phone.

Upgrade cycles have slowed in recent times – gone are the days when each new iPhone was so packed with new features that consumers felt obliged to upgrade every year. The rollout of Apple Intelligence should help on this front, but it’s still in its infancy so it’s not having a material impact yet.

In the meantime, growth in its Services segment is picking up the slack. Services include things like the App Store and Apple Music. This area of the business is higher margin because adding new users doesn’t involve the same costs as building a new iPhone or MacBook.

Overall, Apple’s strong brand provides a level of revenue visibility that some of its tech peers just don’t have. That’s earned the group a premium rating relative to peers, which looks well deserved in our eyes. But it does add pressure to deliver, and there’s no guarantee that new AI features will be a success.

If you’d rather gain exposure to Warren Buffett’s investment philosophy on autopilot, owning shares in Berkshire Hathaway is one way to do it.

Operations can be divided into four main buckets.

Firstly, insurance is the main game at Berkshire. The insurance model is also rather rare. Most other businesses incur costs to build a product or service and then receive money later when it sells.

Insurance flips that dynamic on its head, gaining money up front and finding out much later what the product has cost when policyholders make claims.

We must caution that successfully pricing insurance contracts is difficult, and costs can mount quickly if disasters occur – think wildfires or hurricanes.

Secondly, the money-up-front model has also allowed Berkshire to invest large sums of cash until claims are made, earning a tidy return in the meantime. This cash is typically invested in large, liquid securities like Apple or Coca-Cola, or even short-term government debt due to the high interest rates currently.

Thirdly, there are the large railroads and utilities businesses like BNSF Railway and Berkshire Hathaway Energy. Although these can cost a lot to operate, they’re strong assets with stable cash flows, which should hold up relatively well even if economic conditions deteriorate.

Finally, there are the more than 180 manufacturing, retail and service businesses that Buffett has scooped up over the years. These are private companies, which tend to have some kind of economic moat and strong pricing power.

Standard accounting measures fall short on a company like this. Luckily, Buffett provides a measure called ‘operating earnings’, which better reflects the underlying business performance. In 2024, operating earnings rose 27% to $47.4bn, largely due to increased profits from its insurance operations.

While we’re positive on the outlook, succession risk is something to be mindful of. We think Buffett’s put the right people in place to continue his philosophy. But even still, sentiment could sour when he steps away for good.

We like Berkshire and its underlying businesses, which look to be standing the test of time. Dividend payments are unlikely and potential investors should approach this company with a long-term view. But as always, there are no guarantees and ups and downs should be expected.

Occidental Petroleum is a large oil and gas producer, with its operations spread across the US, Middle East and North Africa. Its primary focus is looking for and producing natural oil and gas, which helped bring in $26.9bn revenue in 2024.

Back in 2019, Occidental (Oxy) loaded up on debt as part of its $57bn acquisition of Anadarko Petroleum. Part of this deal was financed by Berkshire Hathaway, which received an equity stake in Oxy in return for its cash injection. Since then, Berkshire has upped its stake and now owns around 27% of the company.

The Anadarko deal left Oxy with a lot of debt at an inopportune moment – right before the pandemic sent oil prices spiralling downwards. This made it difficult to repay debts and the dividend was slashed to free up cash. To steady the ship, the group was forced to cut back spending, sell assets and streamline processes.

Fortunately, oil prices have since recovered. Coupled with respectable margins, Oxy has been able to significantly reduce its debt to more sustainable levels. And shareholders are benefitting from a growing dividend and continued share buybacks, the latter of which Buffett is a big fan of. But remember, shareholder returns are never guaranteed.

With business being dominated by the extraction and sale of fossil fuels, its near-term fortunes will likely wax and wane alongside commodity prices – over which it has no control.

Looking ahead, the Oxy Low Carbon Ventures (OLCV) segment offers a potential growth opportunity, while also diversifying income streams.

It builds carbon capture facilities, taking carbon out of the air and selling the associated CO₂ tax credits – boosting the bottom line from a ‘greener’ angle.

OLCV has signed deals with major companies including Amazon and BlackRock, and we’re cautiously optimistic that demand for its services will continue to rise. But with a new president in office, we can’t rule out favourable tax credits being changed in some way.

All in, we think there are a lot of positives. The valuation looks attractive, trading well below its long-run average on a forward price-to-earnings basis. But fortunes will be closely tied to oil prices and the economic outlook, which are outside of the group's control and have the potential to deteriorate.