Bloomberg
Buffett’s letter to break months of silence amid US turmoil
(Bloomberg) – While 2020 was raging, Warren Buffett mainly held his tongue. He was quiet during a heated presidential election, a racial arrangement that sparked protests across the country and an exuberance for actions that won over millions of Americans. Not to mention a global pandemic. Now, the billionaire chief executive of Berkshire Hathaway Inc. has a chance to break his silence with the release of his annual letter on Saturday. “If this letter does not address some of the problems, people will be disappointed,” Cathy Seifert, an analyst at CFRA Research, said in a telephone interview. “There is an appetite for your thoughts.” The letter is an annual tradition for the 90-year-old CEO, a chance to share wisdom with his loyal followers of worthy investors. And Buffett is generally not ashamed to share that wisdom, even though he has campaigned in the past for controversial politicians, including Hillary Clinton. His annual missive before the 2016 presidential election touched on politics, suppressing the negative beat of the candidates. It has been different since he spoke at last year’s annual meeting in May, when he said that his near-record pile of money was not so big when considering the possibilities of the Covid-19 pandemic “worst case”. The CEO has since shared few, if any, of his views, even last year, when President Joe Biden and former President Donald Trump clashed in one of the most controversial elections in the history of the United States. The 2020 letter made no mention of the matter. “Maybe he just decided that there was no point in getting into that fight,” said Seifert. “He was a little more open when the level of general speech was much more civilized, and I can certainly understand a desire to pack his tent and go home and not share. It is no longer a parlor game. It is a bloody sport. ”Long ListIf he decides to weigh, there are many topics he could discuss. How did he see the riot at the United States Capitol in early January? What did he say to Biden during his chat, weeks before the election? What investors should do with the recent drama involving GameStop Corp. short sellers. and other actions? And the rising stock market? And how should companies deal with racial inequality? His business partner, Charlie Munger, did not hesitate to talk about stock market speculation on Wednesday at the Daily Journal Corp. annual meeting, where he is president. He criticized brokers like Robinhood Markets Inc., saying that they were essentially offering gambling services – a “dirty way” to make money. There are also more basic questions for Buffett. Despite having easily beaten the S&P 500 in more than 50 years at the helm of Berkshire, Buffett underperformed the index for at least a decade. And his cautious stance last May at Berkshire’s annual meeting prompted questions from some who wanted to see him more aggressive when making new investments. Fort Knox swing. “The fact that he was more cautious was perfectly acceptable,” said Pollock, portfolio manager at Cheviot Value Management LLC, which has Berkshire as its largest stake. “It is better to miss an opportunity and remain in good financial condition than to hit big, and to miss and attack.” Berkshire is also plagued by its size. The company has grown so much that only massive acquisitions can move the needle. But it has been difficult to find them amid high prices and competition from buyers like private equity firms. Even the company’s $ 6 billion in Japanese stock purchases last year would represent just 4% of Berkshire’s cash at the end of the third quarter. Buffett can now add the recent boom in SPACs, or special purpose acquisition companies, as another competitor that is flooding the trading space. “There are so many things now that I think the market would benefit, in terms of its wisdom,” Jim Shanahan, an analyst at Edward D. Jones & Co., said in a telephone interview. He listed the rise of SPACs, as well as “GameStop, short-selling, Reddit and the entire episode. But even things like poor stock performance, inflation, stimulus – the size and perhaps the need for another stimulus. ”It’s a long list. Here are more topics that may come up on Saturday: Succession While Buffett has given no indication that he is stepping down anytime soon, investors are always looking for clues as to how the nonagenarian is doing. He usually uses the letter to joke and reassure investors. Last year, Buffett said he and the vice president of Berkshire Munger, 97, long ago entered the “emergency zone” in terms of age. But he tried to reassure investors that the company is well prepared for when the pair eventually leave. In fact, the company’s future has been wired for some time. Buffett elevated Greg Abel and Ajit Jain to vice presidents in 2018, promotions that were called “part of the movement towards succession”. He promised to give the pair another platform to answer questions at last year’s annual meeting, but that changed when Covid-19 forced the meeting into a virtual format and limited the participation of Buffett and Abel, who lives near Omaha, Nebraska. , where Berkshire is based. Pollock said investors would benefit if Buffett used Saturday’s letter to share more about the influence of his investment deputies, Todd Combs and Ted Weschler. One of them was instrumental in Berkshire’s bet on Apple Inc., which is now considered the largest investment in the company’s common shares, but the company usually does not say which executive is responsible for a particular investment. It is known, however, that Combs and Weschler pushed Berkshire into more technology-focused opportunities, such as their recent investment in cloud computing company Snowflake Inc. All MoneyBuffett’s have been blessed in recent years with a high-class problem: too much money . Berkshire continues to pull more funds than its CEO can quickly invest in higher-yielding assets, leading to a pile of cash that reached $ 145 billion in late September. Although he did not make any of the “elephant-sized” acquisitions he so longs for, Buffett was still active last year distributing funds. Berkshire ventured into Japan by taking stock in several commercial companies. The company also purchased some natural gas assets from Dominion Energy Inc. And Berkshire recently spent months accumulating an approximately $ 4.1 billion stake in Chevron Corp. and a $ 8.6 billion stake in Verizon Communications Inc. What Bloomberg Intelligence says “We believe in the record buyback of 2020 reflects the lack of other options and Buffett’s conservatism in uncertain times. The company would need a big deal to move the results pointer. ”- Matthew Palazola, senior analyst Chevron and Verizon bets are more profitable ways for Berkshire to park some of its money instead of holding more Treasury bills, according to Pollock. Chevron and Verizon are now among the top three bets on Berkshire common shares with the highest dividend yield, according to data compiled by Bloomberg. Still, Buffett is focusing mainly on family areas. Berkshire is well aware of the energy space and had previously invested in Verizon. One of his biggest purchases last year was in the conglomerate’s own territory: buying Berkshire shares. This cost about $ 15.7 billion in the first nine months of 2020 alone, already making it a record year for repurchases. The signs point to even more buybacks in the fourth quarter, with a record indicating that he bought back enough shares in late October to bring the annual total to at least $ 18 billion. “If he had made a $ 18 billion acquisition, we would have considered it sizable,” Shanahan of Edward Jones said. Total repurchases from last year to the end of October are “very significant”, although the company is limited in how much it can repurchase due to the lack of liquidity in Berkshire shares, according to Shanahan. MarketsBuffett was first asked about a year ago about its thoughts on the coronavirus in China. The pandemic would spread across the United States and the rest of the world, pummeling stocks in March and early April. Buffett, who told investors to be greedy when others are scared, remained strangely cautious in those early months, even abandoning the airline’s shares and claiming that the world had changed to that sector. U.S. stocks rebounded widely in the last few months of 2020 and rose even further earlier this year with the Reddit-induced craze around certain stocks, such as GameStop. Buffett’s loyal investment fans may want to know what he thinks of the recent market turmoil, depending on whether he wrote this year’s letter before or after the phenomenon arose. The newly discovered exuberance of retail investors dates back to the dot-com bubble craze in 2001, when Buffett ridiculed some investors’ understanding of the market in a way that could easily resurrect 20 years later: “It was like a virus,” wrote Buffett in its annual letter released that year, “competing wildly among investment professionals as well as amateurs, induced hallucinations in which stock values in certain sectors are detached from the values of the companies that support them.” For more articles like this, visit us at bloomberg.comSubscribe now to stay on top of the most trusted business news source. © 2021 Bloomberg LP