Berkshire Hathaway CEO Warren Buffett (L) and Vice Chairman Charlie Munger attend the 2019 Annual General Meeting in Omaha, Nebraska, on May 3, 2019.
Johannes Eisele | AFP | Getty Images
Warren Buffett will be kicking off Berkshire Hathaway’s annual general meeting on Saturday in full swing. The conglomerate’s stocks are at record levels and the multitude of operations and holdings it has are geared towards capitalizing on the reopening of the U.S. economy through the pandemic.
Due to Covid-19, the event will take place virtually for the second time (1:30 p.m. ET) without attendees. This year, however, the 90-year-old Buffett is taking the meeting to Los Angeles so that he can stand by the side of 97-year-old Berkshire vice chairman Charlie Munger again. Munger lives in Los Angeles and missed the final annual meeting due to travel restrictions. This is the first time the annual get-together has been held outside of Omaha, Nebraska.
While Woodstock for Capitalists will miss the capitalists again, the tone of the gathering is likely more like the old gatherings of shareholders calling for Buffett’s worldview for an unprecedented year.
“I hope the general behavior of the Berkshire people is quite a sharp contrast,” said Cathy Seifert, a Berkshire analyst with CFRA Research. “Last year there was some alarm just because this was an event that was very difficult to assess. It was written on his face. At this annual meeting, the tone should be more relaxed from the underlying operational perspective.”
(You can see last year’s annual meeting and the others in the Warren Buffett Archives.)
The other Berkshire Vice Chairs, Ajit Jain and Greg Abel, will also be on hand to answer questions during the three and a half hour event. Berkshire B shares rose more than 1% over the course of the week, increasing their 12-month earnings to 50%.
Here are some of the big topics that shareholders want answers to:
- Airlines: After revealing his thoughts on the industry at last year’s meeting, he sold his entire stake (with the shares bellowing back afterwards).
- Deploying the $ 138 Billion Stack of Cash: Why he bought back a record amount of Berkshire’s stock instead of making a large acquisition and what his plan is for the future
- Market outlook: His thoughts on the overall valuation of the stock market after the comeback of the pandemic
- Air bubbles ?: Cryptocurrencies and the other possible market manias that have popped into the markets amid the huge onslaught of retail investors
- Life according to Buffett and Munger: Berkshire’s Succession Plan
Dumped Airlines
At its last annual meeting, Buffett announced that Berkshire had sold all of its equity position in the US aerospace industry. This included stakes in United, American, Southwest and Delta Air Lines, which together were worth more than $ 4 billion.
“The world has changed for the airlines. And I don’t know how it has changed, and I hope it corrects itself in a reasonably quick manner,” Buffett said at the time. “I don’t know if Americans have changed their habits now or will change their habits because of the longer time.”
The sale gave the legendary buy-and-hold investor a pessimistic view of the industry. However, many Buffett watchers were disappointed when the stocks of these airlines soon experienced an epic surge, hitting triple-digit numbers from 2020 lows. Even former President Donald Trump weighed on the trade back then, saying that Buffett was right “all his life” but made a mistake selling airlines.
“He could acknowledge that the speed of this recovery has been faster than expected,” said CFRA’s Seifert. “The airline’s disposal may have been a function of their belief that what goes on in the aviation industry can be secular, not cyclical. That is the only subtle distinction investors want it to make.”
While airline stocks have rallied dramatically over the past year, many argue that the industry has indeed changed profoundly because of the economic impact and the road to a full recovery remains bumpy. United Airlines said earlier this month that the recovery from business travel and international travel is still a long way off, even as the economy opens further.
“He may still be right about the aviation industry as travel is slowly returning and there are too many planes,” said James Shanahan, an analyst at Edward Jones. “He could probably still be right about that, but he’s certainly wrong about stocks.”
New stocks move
Berkshire bought back a record $ 24.7 billion in treasury stock last year. Buffett also did some bargain hunting during the market comeback, taking sizable positions with the big dividend payers Chevron and Verizon.
Apple was still the conglomerate’s largest common stock investment through late 2020. The Buffett conglomerate also appeared to be rolling back its exposure to financials. Berkshire left his positions in JPMorgan Chase and PNC Financial late last year, while the Wells Fargo stake cut was trimmed by nearly 60%.
“When you think of the legacy of Berkshire Hathaway and all of its operating companies, including railways, manufacturing, retailing, utilities, they are all old-economy-type companies,” Shanahan said. “The way the portfolio put together after selling airline stocks and selling financial stocks, along with the tremendous performance at Apple, looks a lot more like the new economy now.”
Shanahan estimated that Berkshire bought back an additional $ 5 billion of its own stock in the first quarter, based on proxy filings.
“Elephant-sized” deal?
The conglomerate was still sitting on a huge cash box of more than $ 138 billion at the end of 2020. Buffett has yet to make the “elephant-sized acquisition” he has been heralding for years. At last year’s meeting, the legendary investor gave a simple reason for inaction.
“We didn’t do anything because we didn’t see anything so attractive,” said Buffett. “We’re obviously not doing anything big. We’re ready to do something very big. I mean, you could come to me Monday morning with something that is $ 30 billion, $ 40 billion, or $ 50 billion. And if that’s what we are, really like.” see we would do it. “
The environment for doing business has only become more competitive over the past year due to the rapid rise of SPACs or acquisition companies for special purposes. According to SPAC Research, more than 500 blank check deals worth over $ 138 billion are currently looking for their target companies.
“This is a significant company with a significant liquidity position. Investors have the right to know what they intend to use the cash,” said Seifert. “You have the right to have more than an excuse. Investors get a little tired if it’s just the same old story. But the stock has recovered well so they don’t grumble too much.”
Succession
When it comes to a specific succession plan, shareholders may not get much more from Buffett and Munger, even though they’re both now non-agents.
Abel, vice chairman of the non-insurance business in Berkshire, is considered a top contender to succeed Buffett.
“I don’t expect him to talk about succession in more detail than he has already,” Shanahan said. “Elevating Abel and Jain to the role of vice-chairmen and having them available and attending the annual meeting speaks volumes. I think he doesn’t need to say more about that.”
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