Starting at 10:15 p.m. Beijing time on Saturday, May 4, Warren Buffett, the world's most famous investor and known as the "God of Stocks", will join CEO successor, Greg Abel, the head of Berkshire's non-insurance business, and Ajit Jain, the head of insurance business, to answer shareholders' questions, and is expected to answer 40 to 60 questions in at least five hours.
During the Q&A session at last year's shareholders' meeting, Wall Street News conducted a live broadcast of Chinese pictures and texts.
At that time, Buffett and his old partner Munger talked about the potential impact of the U.S. banking crisis on the economy in early 2023, how Berkshire's auto insurance company Geico and the rail business are dealing with competitive challenges, the changes of artificial intelligence to value investing and society, the future of new energy, whether Berkshire's large holdings in Apple are close to the upper limit of the danger zone, the evaluation of the Federal Reserve and the global economy, and the outlook for companies in the "post-Buffett era".
This year will be Berkshire's first Q&A session since the death of Vice Chairman Munger, who is approaching the age of 100, and with Buffett turning 94 on Aug. 30, discussions about Berkshire's top management transition are bound to be at the top of the list.
The company's earnings and growth prospects, whether to split the business or pay dividends in the "post-Buffett era", comments on the high interest rates and inflation in the United States, and the clarification of investment logic such as reducing the stake in Apple and buying mysterious stocks may all appear in the Q&A.
Berkshire's Class A shares, which have never been divided, have risen nearly 12% this year, well outpacing the S&P 500's 6% gain, which has risen 24% over the past year but is down 4.4% from its all-time high in March. The "more accessible" Class B shares stood at $400 and were valued at 1.54 times the average book value of the past four quarters, slightly higher than the 10-year average of 1.41 times.
Concern 1: Is there a change in the CEO succession plan?
Although Buffett has not explicitly stated his plans to retire as chairman and CEO of Berkshire, it is undeniable that the septuagenarian has worked for at least 20 years longer than most corporate executives.
With Warren Buffett's age, Berkshire's CEO successor has long been the focus of investors' attention, and fears have intensified with Munger's death late last year, and shareholders are eager to know the details of the succession plan.
Two days before this year's shareholder meeting, Ronald Olson, who has been Berkshire's director since 1997, publicly endorsed Vice Chairman Abel as the successor to CEO, saying that the 61-year-old was very strategic and decisive.
This indicates that there are no changes to Berkshire's succession plans. Abel was promoted to vice chairman in 2018 in charge of everything except insurance, and at the 2021 shareholder meeting, Munger said that Abel would be his successor, which was publicly confirmed by Buffett.
According to the long-time Berkshire director, Abel understands all the basic principles that Buffett values, such as letting Berkshire's subsidiaries run their own, maintaining a decentralized structure, and committing to operating conservatively to preserve financial strength:
"The board knows that the next Buffett and Munger will not be found to replace these two, but is confident that Abel will not have a negative impact on the company. He's a digital expert who can dissect a company's balance sheet as quickly and accurately as Warren Buffett, and he's a great listener that people love to work with. However, Abel will not be as funny as Buffett and Munger. ”
The director also hinted that the board will not restrict Abel from making reasonable acquisitions to allocate capital, but the CEO successor may not have the same freedom to spend money as Warren Buffett:
"Compared to our level of confidence in Warren Buffett, it will change against Abel. I don't know how these changes in confidence will evolve when someone takes over, after all, Buffett will be in office for a while, but once the transition happens, it's likely that [the level of confidence mentioned above] will change. ”
There are also analysts who believe that the 53-year-old Berkshire investment manager Todd Combs (Todd Combs) will be the CEO replacement after Abel. Coombs has a good relationship with Buffett and has experience outside of investment, such as joining the board of directors of JPMorgan Chase and serving as CEO of Berkshire's blockbuster auto insurance business, Geico, for the past four years.
In addition, Buffett's eldest son, 69-year-old Howard, a farmer and philanthropist, will become Berkshire's non-executive chairman.
Focus 2: Once the stock god is gone, where will Berkshire go in the "post-Buffett era"?
According to Barron's, Munger's absence only reinforces the obvious fact that Buffett's role at the helm of the conglomerate, which has been built over six decades, may end in the next few years. Even the "stock god" himself admits this, writing last November that "although I personally feel good, I know that it is overtime".
Since a shareholder meeting is likely to be one of Buffett's few public appearances this year, the company's outlook is bound to be in the spotlight. In addition to financial metrics and whether the new management can prove to be as capable as Buffett, investors will take the opportunity to engage in "soul torture", such as:
Should Berkshire, a conglomerate that is too large to achieve rapid growth, be spun off?
Should Berkshire pay dividends, instead of waiting for investment opportunities with a huge amount of cash in hand like Warren Buffett's era?
Will Berkshire accelerate share buybacks, and does the slowdown in buybacks say anything about the stock?
Warren Buffett doesn't like the overseas layout of funds, and will Berkshire consider expanding the scope of investment in the future?
More index investors and activist investors join the ranks of shareholders, will the "fans" who previously followed Buffett cash out?
In the new era with Warren Buffett at the helm, what does Berkshire need to do to maintain shareholder loyalty and enthusiasm?
Wall Street generally believes that Berkshire in the "post-Buffett era" is most likely to start paying dividends, provided that it is certain that all the cash cannot be put to good use, and investors will no longer tolerate Berkshire holding so much cash.
Berkshire ended 2023 with a record $168 billion, a cash level that has been growing for six consecutive quarters. Warren Buffett believes that the large amount of cash gives him the confidence to trade and make acquisitions at any time, and the $1 paid to shareholders will create more value for him.
Director Olson, who supported Abel's succession, said bluntly this week that the board has not ruled out the possibility of paying dividends at some point in the future, but will not seriously consider approving dividends while Buffett is still at the helm.
And Berkshire's board of directors is very friendly to Buffett and understands his long-term position, and the directors are likely to uphold Buffett's firm opposition to corporate break-ups. He believes that there are advantages to being structured as a large conglomerate, including the ability to quickly leverage Berkshire's insurance business to recover losses arising from major disasters and thus obtain tax benefits.
However, while Buffett believes that the company's stock price will rise the day after his death, there are concerns that Berkshire's stock price could fall by 5% to 10% without Buffett as long-term holders cash out and investors worry that Buffett's magic will disappear.
Focus 3: Will the secret film of the shareholders' meeting be shown in public for the first time to pay tribute to Munger?
Berkshire's press release revealed that the 2024 shareholder meeting will be live-streamed online at 8:45 a.m. CT (9:45 p.m. Beijing time) in addition to the regular live stream of Q&A sessions on the CNBC.com, "whereas in previous years, only those who attended the Omaha meeting in person could watch the annual meeting video." ”
Many fans speculated that this was an ultimate tribute to the late Munger, and it was also the first time in Berkshire history that it was revealed to the public as a secret movie exclusive to shareholder benefits.
Some commented that it would be a tear-jerking and "will be an unforgettable year", and could be a fitting farewell to Warren Buffett's legendary partner Munger, whose "Poor Charlie's Book" will be reprinted and sold at the annual meeting.
It is reported that the mystery movies of the shareholders' meeting in previous years are witty and humorous, and viewers are not allowed to take photos or videos, and Buffett, Munger and many celebrities will participate in cameos. One of the themes of the movie is Warren Buffett and Munger debating whether to invest in "Internet stocks", and there are movie stars who joke about Buffett's name, saying that it is written like a "buffet" and can be "picked up by everyone".
One of the most widely circulated leaked photos on the market shows two of the stars of the popular American drama "Breaking Bad" cooking Berkshire's candy company's signature peanut candy instead of making poison in a secret 2013 movie.
Focus 4: Berkshire's earnings and growth prospects?
Some analysts predict that Berkshire will generate an after-tax operating profit of $40 billion this year, and its market value is expected to exceed $1 trillion after the shareholders' meeting, or it may become the only non-technology company in the United States with a market value of $1 trillion, and its current market value ranks seventh among U.S. stocks.
Warren Buffett does not like to use net profit as a measure of a company's profitability because it includes large changes in unrealized investment gains and losses, which have turned net profit into a loss in 2022, and operating profit that excludes this variable can show a longer-term growth trend.
But he acknowledged in a February letter to shareholders that Berkshire was already too big to achieve the eye-popping rapid growth it once had, and that such comments on the business outlook would be more compelling than the quarterly report released on Saturday.
Warren Buffett has said that Berkshire needs to significantly outperform the broader market returns of U.S. stocks over time, otherwise investors will switch to other stocks. According to media calculations, Berkshire's total return over the past 10 and 20 years has only been on par with the S&P market's return.
Berkshire also has a portfolio of about $360 billion in domestic operations across many different industries, including railroads, insurance, energy, industrials and consumer goods, making the company's performance a unique window into the state of the U.S. economy, according to analysts.
Investors expect Warren Buffett to comment on the high interest rates and inflation in the United States, as well as the current state of the AI boom, and explain the impact on his investment layout and corporate operation strategy.
Some argue that the Fed will keep interest rates high for longer, putting pressure on a wide range of stock markets and corporate developments, but it may be better than Berkshire alone, as its vast cash holdings are generating incremental coupon yields from buying US Treasuries:
"Berkshire is like a happy depositor, and his money market fund suddenly starts coming back. If high interest rates force owners of other businesses to consider selling, Berkshire's large cash reserves allow it to take over.
While changes in interest rate forecasts have made investors re-examine their risk appetite, Berkshire has a healthy balance sheet and profitability, and its reputation as a safe haven for the stock market is becoming an option for people to put their cash on. ”
Focus 5: Clarifying investment strategies - mystery stocks, reducing holdings in Apple, betting on Japan to start losing money?
While Buffett forbade shareholder meeting questioners to "ask us exactly what we bought and sold," he was expected to explain the blockbuster changes in portfolios over the past few quarters.
One of the biggest questions is: What exactly is Buffett's "secret stock" position that has been filed for two consecutive quarters to keep the SEC secret?
Wall Street speculation is rife that it is a bank stock, as the 13F filing shows that Berkshire's equity holding costs in the "banking, insurance and finance" category have risen by billions of dollars. The last time Berkshire asked for secrecy was in 2020 when it invested in Chevron Oil and Verizon Telecom.
Second, Berkshire reduced its stake in Apple by about 10 million shares in the fourth quarter of last year, which was a surprising decision.
Apple has been Buffett's favorite stock for many years, and even called such holdings the second most important outside of Berkshire's insurance business, and a small reduction in Apple in the fourth quarter of 2020 was called "probably a mistake" by him. But Apple has struggled this year, with its share price falling 10 percent.
There is speculation that Warren Buffett's investment lieutenants, Coombs or Ted Weschler, may have slightly reduced their positions in Apple, accounting for about 1% of Berkshire's holdings. The company still holds more than 900 million shares of Apple, worth more than $174 billion, or nearly 50% of its portfolio. It may be that Apple rose 48% last year, which led them to decide to sell some to fund other investments, and there was a similar operation in late 2018.
Third, Buffett's biggest bet on Japan is a 9% stake each in five Japanese trading companies, ITOCHU Corporation, Marubeni Trading, Mitsubishi Corporation, Mitsui & Co. and Sumitomo Corporation, which could come under pressure in the short term. Analysts expect all of these Japanese companies to see their first-quarter earnings fall due to weaker commodity prices, and some expect the pain to last longer.
Buffett said in February that Berkshire had $8 billion in unrealized investment gains from the five companies at the end of 2023.
In addition, investors are also concerned about how Buffett evaluates the significant reduction in his holdings in Paramount Global and Hewlett-Packard, whether he plans to liquidate his positions, the logic of continuing to increase his holdings in oil stocks such as Chevron and Occidental Petroleum, whether he is engaging in "merger arbitrage" by buying Liberty Media's tracking shares in SiriusXM, a New York satellite broadcaster, and whether he will allow some of his utilities to go bankrupt.
Warren Buffett has said that the regulatory environment in some U.S. states has increased the likelihood of Berkshire's power companies being "zero profitable or even bankrupt", "Berkshire can withstand financial surprises, but it will not deliberately invest a lot of money after bad debts." ”
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