Warren Buffett’s highly anticipated annual letter to Berkshire Hathaway shareholders is set to drop this weekend, which means traders and fans of one of Wall Street’s greatest investors are speculating about what he might divulge.
Some of the biggest topics on investors minds include: the succession plan at Berkshire as the CEO and co-founder turns 90, any acquisitions that may be on Buffett’s radar, the firm’s move away from its longtime holding of Wells Fargo stock and a slew of other topics.
Buffett’s Annual Letter Could Reveal a Successor
Buffett will celebrate his 90th birthday in August, but he still hasn’t dropped any real hints for who will be his successor as CEO of Berkshire. He has mentioned the next in line will come from within the company, and Barron’s thinks it will be either Greg Abel or Todd Combs.
Abel, 57, is one of Berkshire’s vice chairs and he also chairs one of the company’s utility businesses, Berkshire Hathaway Energy. Combs, 49, has been running part of the firm’s equity portfolio for nine years. He was also named CEO at Geico, the insurance giant owned by Berkshire, at the end of 2019.
As soon as the retirement of L Brands CEO Les Wexner, 82, takes place, Buffett will be the longest-tenured CEO of any S&P 500 company.
Reports today about the pending sale of Victoria’s Secret say Wexner will soon step down but remain as chairman emeritus on the board of L Brands.
Berkshire’s Performance
Maybe Buffett will go in-depth on two concerns for investor surrounding Berkshire’s own stock: its lack of a dividend and its lagging trend of late. The stock only garnered an 11% increase in 2019, which pales in comparison to the S&P 500’s meteoric 31.5% rise in the same time frame. According to Barron’s, last year’s performance was one of the widest annual margins during Buffett’s 55-year tenure.
The company has also never offered a dividend, despite it now sitting on over $128 billion in cash while it waits for the perfect acquisition opportunity.
“Prices are sky-high for businesses possessing decent long-term prospects,” Buffett lamented in his 2019 note on the acquisition environment.
Reducing Berkshire’s Stake in Wells Fargo
It will be interesting to see if Buffett touches on the company’s slashed holding of banking giant Wells Fargo (NYSE: WFC). In his 2015 letter, Buffett included the bank in one of his “Big Four” investments alongside Coca-Cola (NYSE: KO), IBM (NYSE: IBM) and American Express (NYSE: AXP). Since then, Buffett has sold off his entire stake of IBM, and the same fate may be coming for Wells Fargo.
Berkshire reduced its holdings of Wells Fargo by 28% last year. Berkshire’s latest 13-F filing showed it sold off 55.2 million shares in the fourth quarter of 2019, and it now only owns a 7.8% stake in the bank, which is still worth over $15 billion in total.
Charlie Munger, Berkshire vice chair and Buffett’s right-hand man, may have provided some insight into the decision to part ways with Wells Fargo in an interview with Bloomberg last week. Munger called Wells Fargo’s newly minted CEO Charles Scharf’s decision to live in San Francisco and commute to New York “outrageous.”
“Anybody should move for a big job like that,” Munger added.
It will be interesting to see if Buffett goes more into Berkshire’s portfolio, which some could argue is being propped up by such a strong position in Apple Inc. (NASDAQ: AAPL). As of the latest 13-F filing to the Securities and Exchange Commission, Buffett owns 245,155,566 shares of Apple that are worth almost $80 billion. That’s almost one-third of Berkshire’s total portfolio, which is worth just over $250 billion.
Whatever Buffett’s letter says, we’ll be sure to have a breakdown of it here on Money and Markets next week.
