Bloomberg
Buffett’s letter to break months of silence amid turmoil in the US.
(Bloomberg) – As 2020 raged on, Warren Buffett mostly kept his mouth shut: he kept silent during heated presidential elections, a racial reckoning that sparked nationwide protests and an exuberance for stocks that gripped millions of Americans. Not to mention a global pandemic. Now the billionaire CEO of Berkshire Hathaway Inc. the chance to break his silence with the publication of his annual letter on Saturday. “If this letter doesn’t address some of the issues, people will be disappointed,” Cathy Seifert, an analyst at CFRA Research, said in a phone interview. “There is hunger for his thoughts.” The letter is an annual tradition for the 90-year-old CEO, an opportunity to share wisdom with his loyal following of value investors. And Buffett isn’t usually shy about sharing that wisdom, even campaigning in the past for controversial politicians, including Hillary Clinton. His annual missive ahead of the 2016 presidential election covered politics and denounced candidates’ negative drumbeat. It has been different since he spoke at last year’s annual meeting in May, when he said his near-record cash stack was not that great when considering the “worst case” potential of the Covid-19 pandemic. The CEO has since shared little, if any, of his views, even last year when President Joe Biden and former President Donald Trump hit one of the most controversial elections in US history. The topic was not mentioned in the 2020 letter. “Maybe he just decided there were no benefits,” said Seifert. He was a little more open when the general discourse level was much more civilized, and I can certainly understand a desire to pack your tent a little bit and go home and not participate. It is no longer a party game. It’s blood sport. Long list If he decides to weigh in, there are plenty of topics he could explain. How did he see the riot in the Capitol in early January? What did he say to Biden during his conversation a few weeks before the election? What should investors think of GameStop Corp.’s recent short-seller drama? and other shares? What about the rising stock market? And how should companies tackle racial inequality? His business partner, Charlie Munger, did not shy away from discussing stock market speculation Wednesday at the Daily Journal Corp.’s annual meeting where he is chairman. He slammed brokers such as Robinhood Markets Inc., saying they essentially offer gambling services – a “dirty way” to make money. Buffett also has more crazy questions. Despite beating the S&P 500 at the helm of Berkshire for over 50 years, Buffett has underperformed the index for at least a decade. And his cautious stance at the Berkshire annual meeting last May raised questions from some who wanted him to be more aggressive in making new investments. Still, investors like Darren Pollock said the strategy was admirable in retrospect, given Buffett’s desire to keep Berkshire. Fort Knox “balance.” The fact that he was more cautious was fine, “said Pollock, a portfolio manager at Cheviot Value Management LLC, which considers Berkshire the largest holding.” Better to miss an opportunity and stay in good financial shape than to take a big hit and swing and miss and lash out. ”Berkshire is also plagued by its size. The company has grown so big that only massive acquisitions can move the needle. But they are hard to find amid high prices and competition from buyers such as private equity firms. Even the company’s $ 6 billion in Japanese stock purchases last year would make up just 4% of Berkshire’s cash stack by the end of the third quarter. Now Buffett can cope with the recent boom in Adding SPACs, or specialty acquisition companies, as another competitor that is flooding the deal-making space. ”There are so many things at the moment that I think the market would like you have, in terms of his wisdom, ”Jim Shanahan, said an analyst at Edward D. Jones & Co. in a telephone interview. He listed the rise of SPACs, “GameStop, short-selling, Reddit, and the entire episode. But even things like the underperformance of the stocks, inflation, the stimulus – the size and perhaps the need for another stimulus.” It’s a long list. Here are more topics to cover on Saturday: Succession Although Buffett has given no indication that he will step down anytime soon, investors are always looking for clues as to how the non-Dutch are doing. the letter is often to joke around and reassure investors. Last year, Buffett said he and Berkshire Vice Chairman Munger, who is 97, had long ago entered the “urgent zone” in terms of their age. To reassure that the company is well prepared for the moment the couple finally leave. In fact, the future of the company has been wired for some time. Buffett exalted Greg Abel and Ajit Jain as vice chairmen in 2018, promotions dubbed “ part of the movement towards succession. ” He promised to give the pair more of a platform to ask questions at last year’s annual meeting, but that changed when Covid-19 forced the meeting into a virtual format and limited attendance by Buffett and Abel, who are closer to Omaha, Nebraska, where Berkshire Pollock said investors would benefit if Buffett used Saturday’s letter to share more about the impact of his investments. deputies, Todd Combs and Ted Weschler. One was key to Berkshire’s bet on Apple Inc., which now ranks as the company’s largest investment in common stock, but the company does not typically say which manager is responsible for a particular investment. However, Combs and Weschler are known to have pushed Berkshire into more technology-focused capabilities, such as the recent investment in cloud computing company Snowflake Inc. All MoneyBuffett’s in recent years have been blessed with a first-class problem: too much money. Berkshire continues to bring in more money than its CEO can quickly deploy in higher-yielding assets, leading to a cash stack of more than $ 145 billion at the end of September. While he hasn’t made any of the “ elephant-sized ” acquisitions he craves, Buffett was still actively mobilizing funds last year. Berkshire ventured into Japan by taking up the shares of several trading companies. The company also bought some natural gas assets from Dominion Energy Inc. And recently, Berkshire held an approximately $ 4.1 billion stake in Chevron Corp. for months. and an $ 8.6 billion stake in Verizon Communications Inc. amassed. What Bloomberg Intelligence Says: “We believe the record 2020 share buy-outs reflects a lack of other options and Buffett’s conservatism in uncertain times. The company would need a big deal to put the needle on results.” – Matthew Palazola, senior analyst Chevron and Verizon bets are more lucrative ways for Berkshire to park some of its money instead of holding more treasury bills, Pollock said. Chevron and Verizon are now in Berkshire’s top three common stock bets with the highest dividend yield, according to data collected by Bloomberg. Yet Buffett largely sticks to well-known areas. Berkshire knows the energy space well and had previously bet on Verizon. One of his biggest purchases last year was at the conglomerate’s own property: Berkshire- stock that cost about $ 15.7 billion in the first nine months of 2020, making it already one record year for redemptions. Signs point to even more buybacks in the fourth quarter, with a filing indicating that he had bought back enough stock by the end of October to bring the annual total to at least $ 18 billion. “If he had made an $ 18 billion acquisition, we would have called it significant,” said Edward Jones’s Shanahan. According to Shanahan, total buybacks from last year to the end of October are “very significant,” although the company is limited in how much it can buy back due to lack of liquidity in Berkshire stocks, said Shanahan. MarketsBuffett was first asked about its thoughts on the coronavirus in China nearly a year ago. The pandemic would spread through the US and around the world and put stocks under pressure in March and early April. Buffett, who had told investors to be greedy when others fear, remained unusually cautious in those early months, even ditching the airline. US stocks largely rebounded in the later months of 2020 and climbed even further during the early part of this year with the Reddit-induced mania surrounding certain stocks like GameStop. D Buffett’s loyal investor fans may want to know what he thinks about the recent market turmoil, depending on whether he wrote this year’s letter before or after the phenomenon emerged. The renewed exuberance of retail investors harks back to the dotcom bubble craze in 2001, when Buffett ridiculed some investors’ understanding of the market in a way he could easily revive 20 years later: “It was like a or other virus, “Buffett wrote in his annual letter released that year,” racing wildly between investment professionals and amateurs created hallucinations that disconnect the values of stocks in certain industries from the values of the companies that underlie them. ” Visit us for more articles like this at bloomberg.com Subscribe now to stay ahead with the most trusted business news source. © 2021 Bloomberg LP