It’s the weekend when thousands of Warren Buffett acolytes make a nearly holy pilgrimage to Nebraska to spend money on ice cream, candy, diamonds and doodads, while also taking the opportunity to listen to the Oracle of Omaha and his faithful sidekick, Charlie Munger, wax poetic on all things investment-related for hours on end.
The Berkshire Hathaway
annual meeting festivities really get under way on Saturday with a six-hour, question-and-answer marathon for shareholders (albeit with a break for lunch). Like last year, the whole thing will be live-streamed on Yahoo Finance, beginning around 10 a.m. Eastern.
Here’s a look at some subjects that are virtually certain to come up during the talkfest:
$100 billion deal?
With around $90 billion in cash sitting on the books, there is growing anticipation that Buffett and company are poised to make a blockbuster acquisition. After all, Buffett has long noted that given Berkshire’s immense size, it takes ever larger transactions to move the needle in terms of investment performance.
“I hate cash,” Buffett said in a CNBC interview that aired Friday, but lamented that low interest rates make it difficult because others are ready to buy with borrowed money “and borrowed money is so cheap.”
Bloomberg noted buzz among Buffettologists and deal mavens of the potential for a whopper of an acquisition focused on a big-name firm that, in line with Buffett’s longstanding criteria, owns a strong competitive advantage and has a line on a solid string of predictable earnings.
But don’t look for Buffett to make a deal just because cash is burning a hole in his pocket. As deals expert Peter J. Clark of University College London has noted, expensive price tags on stocks could mean the timing, deep into the merger cycle, isn’t quite right:
— Peter J. Clark (@pondbridge) May 2, 2017
Warren Buffett, tech maven?
Buffett famously sat out the tech bubble in the late 1990s. But Berkshire has made some interesting investments in recent years, including taking a lackluster performing stake in IBM
that’s drawn some criticism.
More recently, Berkshire has built a big investment in Apple Inc.
In February, Buffett told CNBC he had more than doubled its Apple holdings since the beginning of the year, giving Berkshire a 2.5% stake. Buffett also made clear that the Apple purchase was his decision, rather than an investment by one of his portfolio managers—Ted Wechsler or Todd Combs—as had been suspected.
Buffett told the cable channel that while he doesn’t own an iPhone, the company sells a very “sticky product,” indicating he views Apple as something he understands quite well—a company that makes a product that is highly valued by consumers.
As for IBM, Buffett told CNBC he’s cut his stake by around a third after losing some confidence in the firm.
Wells Fargo woes
Buffett and Munger are both quick to preach about the importance of integrity, so don’t be surprised if the pair get some pointed questions about the sales-practices scandal that rocked Wells Fargo & Co.
last year. After remaining largely silent, Buffett in November called the scandal at one of his favorite firms an “egregious mistake” that resulted from poorly designed sales incentives. Buffett praised the bank’s new chief executive and, in what was seen as a vote of confidence, didn’t sell any shares following the eruption of the scandal. Berkshire, the bank’s largest shareholder, also voted all its shares in favor of re-electing the Wells Fargo board in a contentious ballot last month.
Berkshire did trim its holdings last month to keep its ownership below 10%.
Buffett campaigned for Hillary Clinton and neither he nor Munger had much nice to say about Donald Trump in the run-up to Election Day. At last year’s annual meeting, Buffett was asked if his vocal support for Clinton could come back to hurt Berkshire if Trump won the presidency. Buffett quipped that if Trump won, the impact on Berkshire’s portfolio “won’t be the main problem.”
He then went on to say that he expected Berkshire to be just fine regardless of who won. So far, so good. As of Thursday’s close, Berkshire Class A shares had risen 12.7% since Election Day. And Berkshire stands to benefit from many Trump proposals, including a large cut in the corporate income tax and the president’s pledge to slash regulations across industries.
Expect Buffett to stick to his long-held contention that the U.S. is poised to remain a world beater thanks to its strong institutions and traditions, ensuring a long-term bullish outlook for stocks and the economy.
Hedge funds and active managers
Buffett devoted a significant chunk of his annual investor letter earlier this year to an early victory lap, celebrating an almost-certain win in a 10-year bet that expires this December pitting Buffett’s choice of an S&P 500
-tracking index fund versus the performance, including fees, of a selection of hedge funds.
Buffett, who famously built his fortune picking undervalued stocks, used the occasion to bash active managers in general and to argue that most investors—large and small—should stick to low-cost index funds.
Ted Seides, the former Protégé Partners executive who initiated the bet, pushed back, arguing that he’d be tempted to double down on the bet over the coming 10-year period given the historically high valuation of the S&P 500. It’s a topic Buffett seems to enjoy talking about, so it is likely he’ll have more to say on Saturday.
We already know what MarketWatch readers think:
Hedge funds vs. S&P 500: which will perform better over the next 10 years? https://t.co/gxzsh1lUg6
— MarketWatch (@MarketWatch) April 13, 2017
It’s almost inevitable the 86-year-old Buffett will get asked a question seeking to divine clues as to who will succeed him at Berkshire’s helm. And it is almost inevitable Buffett will remain inscrutable.
Several names are thought to be in the mix, including Ajit Jain, who runs Berkshire’s insurance business, and Greg Abel, who leads the firm’s energy operations, but Buffett has repeatedly said that only Berkshire’s board knows the answer.