"It is a bad mistake for investors with long-term horizons - among them, pension funds, college endowments and savings-minded individuals - to measure their investment "risk" by their portfolio's ratio of bonds to stocks", Buffett wrote. "The remaining $29 billion was delivered to us in December when Congress rewrote the US Tax Code", he wrote.
Those increases, however, masked declines in operating profit, which Buffett considers a better gauge of overall performance, and which fell 18 percent a year ago to $14.46 billion.
The company's often-impressive pace of acquisitions had slowed past year, he noted, when the prices asked for businesses 'hit an all-time high, ' amid what he called 'a purchasing frenzy'.
Buffett has always been highly critical of the high fees charged by hedge fund operators.
"There is simply no telling how far stocks can fall in a short period", Buffett said.
"In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price", wrote Buffett.
All told, the S&P 500 had an overall gain of 125.8 percent while the group of five hedge funds - which have never been publicly named - gained between 2.8 percent and and 87.7 percent. "Fees never falter", he wrote.
Buffett supported President Trump's Democratic rival, Hillary Clinton, during the 2016 election. This year's letter was no different. And he's found himself at odds with Trump on several policy issues.
Berkshire owns more than 90 subsidiaries, including clothing, furniture and jewelry firms.
Speculation about Buffett's successor has swirled for years.
In his much-anticipated annual letter to shareholders, Buffett explained that the company's net gain of $65.3 billion in 2017 was only partly due to his employees' efforts.
Both are considered candidates to eventually replace Buffett, 87, as Berkshire's chief executive.
Berkshire made headlines in January when it teamed up with Amazon and J.P. Morgan Chase and announced that it plans to form an independent health care company with the goal of lowering medical-related costs for its employees. Both of us believe it is insane to risk what you have and need in order to obtain what you don't need. "Each has been with Berkshire for decades, and Berkshire's blood flows through their veins".