Berkshire Hathaway Inc.'s (BRK.A) annual shareholders meeting in Omaha, Nebraska this weekend will attract tens of thousands of loyal investors, many of whom have become wealthy during the decades that Chair and CEO Warren Buffett built Berkshire into one of the world's most valuable companies with a market value of $530 billion today. So it's no wonder that comments made by Buffett, also a masterful stock picker and market watcher, will be closely watched not only by attendees, but closely parsed and listened to via livestream by investors worldwide.
However, the mood among shareholders in 2019 may be less than exuberant, since Berkshire's stock has lagged the market for most of the last 15 years. The performance gap has been especially wide in 2019, with the S&P 500 Index (SPX) surging by 16.6% year-to-date through the close on May 1, reaching a new all-time high during that day's trading. Berkshire, meanwhile, is up by only 6.5%.
Here's look at the issues that the "Oracle of Omaha" is likely to address, either on his own initiative or in response to questions, as outlined in the table below and in this story.
And investors will have plenty to listen to. Buffett and his famous colleague, Vice Chair Charlie Munger, will answer questions from the audience for more than 6 hours on Saturday in a live Q&A, an almost unheard of example of transparency among Fortune 500 companies.
Questions For Buffett: What Berkshire Shareholders Want to Know
- How he plans to tackle Berkshire's lagging stock performance
- What he plans to do about troubled The Kraft Heinz Co. (KHC)
- Why he sees opportunity in funding the bid by Occidental for Anadarko
- Plans for Berkshire's $112 billion cash hoard
- Will he buy more shares of Apple (AAPL)
- What's behind Berkshire's recent purchase of Amazon shares (AMZN)
- Will he honor his promises to make significant share repurchases
- Will he pay a dividend
- When, if ever, he plans to retire, and what is the succession plan at Berkshire
As noted above, Buffett's reputation as an investment wizard has been tested by Berkshire's subpar performance over the last decade and a half. His plans to effect a long-overdue turnaround in performance are bound to be the paramount question among investors. Part of the answer should involve Kraft Heinz.
The Kraft Heinz Mess
Berkshire's investment portfolio includes 325.6 million shares of Kraft Heinz, worth $10.7 billion as of the close on May 1, per CNBC. The stock has plummeted by 49.2% from its 52-week high, slashing the value of Berkshire's 26.7% ownership stake by $10.6 billion. Under new GAAP accounting rules, such mark-to-market losses flow into Berkshire's reported earnings.
Starting with an investment in Heinz, Buffett later helped engineer its $49 billion merger with Kraft Foods in 2015. "We overpaid for Kraft," he told CNBC earlier this year, but asserted that he does not plan to sell. "It's still a wonderful business in that it uses about $7 billion of tangible assets and earns $6 billion pretax on that," he added.
The $112 Billion Cash Pile
Sitting on a massive pile of cash amid historically low interest rates has been another factor dampening Berkshire's performance. The deal with Occidental is an example of how Buffett occasionally acts as a banker, earning an enhanced return on his cash, this time also with an option to make an equity investment at a set price.
However, a $10 billion capital infusion into Occidental would leave another $102 billion to deploy. Unless Buffett finds an attractively-priced "elephant-sized acquisition," as he wrote in his latest annual letter to shareholders, he may receive increased calls to repurchase shares more aggressively and/or pay a dividend.
"When stock can be bought below a business's value it probably is its best use of cash," he wrote in that letter, adding, "Berkshire will be a significant repurchaser of its shares, transactions that will take place at prices above book value but below our estimate of intrinsic value." Berkshire trades at 154% of book value, per Yahoo Finance.
The longstanding failure of Buffett to announce a formal succession plan at Berkshire has been an ongoing source of concern. With his 89th birthday coming up on Aug. 30, this is increasingly imperative.
Early in 2018, Buffett put Ajit Jain in charge of Berkshire's insurance operations and Greg Abel at the head of all other operations. "These moves were overdue. Berkshire is now far better managed than when I alone was supervising operations. Ajit and Greg have rare talents, and Berkshire blood flows in their veins," Buffett wrote in his annual letter. Why Buffett insists on remaining the sole public face of Berkshire, rather than sharing the limelight with these executives, is a related issue.
Views of Trump
Buffett has "long been a supporter of liberal causes and candidates," including higher income taxes on high earners, and he has offered both verbal and financial support for the presidential campaigns of Barack Obama and Hillary Clinton. Indeed, he was a harsh critic of Donald Trump during the 2016 presidential campaign.
However, he did acknowledge that the tax reform bill pushed by President Trump is "a huge tailwind" for American business, including Berkshire. It may be interesting to see how he responds to any questions about Trump.