Buffett still a draw despite Berkshire coming up short

He thinks of himself as a teacher, and to many he is an icon. But to Wall Street, Warren Buffett is something quite different. A disappointment. Tens of thousands of shareholders and fans may think otherwise as they flock to Omaha, Neb., this weekend to see Buffett, 87, and his longtime partner Charlie Munger, 94.

The weekend will celebrate their long-term success running a conglomerate, now with 90-some businesses overseen on a daily basis by two potential Buffett successors, newly-installed vicechairmen Greg Abel and Ajit Jain.

But recent results, relative to what analysts were counting on, were of a sort that might make chief executives at other companies hang their heads.

Berkshire’s operating profit, excluding investments and derivatives, has fallen short of Wall Street forecasts for eight-consecutive quarters, while its cash stake swelled to US$116 billion because Buffett could not find enough companies worth buying.

In contrast, just 21 per cent of Standard & Poor’s 500 companies typically miss forecasts in any given quarter, while 64 per cent beat forecasts.

Berkshire has a chance to break its streak on Saturday morning when it is scheduled to report first-quarter results.

“Obviously, the quarterly results matter, but I care year-to-year about what they’re doing,” said Paul Lountzis, founder of Lountzis Asset Management LLC in Wyomissing, Pa., who has been to more than 20 meetings and is attending this weekend.

“Though you may be upset with all the cash they have, if there is a challenge across the world, or liquidity dries up, he’s going to step in and take advantage,” he added, referring to Buffett.

Predicting results can be hard because Berkshire’s tentacles spread far.

Its products and services include car insurance (Geico), mobile homes (Clayton), wind power (Berkshire Hathaway Energy), cowboy boots (Justin Brands), chocolate (See’s), helium balloon inflators (Western Enterprises) and electronic sow feeding systems (perhaps unsurprisingly, PigTek).

“Berkshire Hathaway is a challenging company to analyze,” and “does not manage its results to meet Street expectations,” Barclays analyst Jay Gelb wrote last week.

Insurance underwriting has dragged on recent results, and Berkshire last year paid out billions of dollars for hurricane losses.

But a tailwind from an improving U.S. economy boosted shipments on the BNSF railroad, and bolstered Berkshire’s building materials and consumer businesses.

Gelb expects operating profit to rise 45 per cent in 2018. That could help Berkshire’s stock price, which closed on Tuesday about 10-per-cent below its peak on Jan. 29.

Questions about Berkshire will likely comprise a majority of the roughly 60 questions that Buffett and Munger will field over five hours at Saturday’s annual shareholder meeting.

“There’s always something to learn,” said Brandon Taylor, managing partner of Taylor Hoffman Wealth Management in Richmond, Va., attending his sixth meeting this year. “Knowledge compounds over time, and the more I expose myself to investors who are better than me, the better off I will be.”

Berkshire sent out slightly more tickets to this year’s extravaganza than in 2015, when an estimated 42,000 celebrated Buffett’s 50th year at the helm. A couple of million may watch Buffett and Munger online this year via Yahoo Finance.

As usual there will also be events across Omaha, including investing conferences and shareholder shopping at Berkshire-owned businesses.

At the jeweller Borsheim’s, for example, silver pens bearing Buffett’s signature fetch US$14, while a 1.93-carat argyle pink diamond can be yours for the bargain price of US$1,046,750 (normally US$1.57 million).

But the meeting remains the highlight.

It may give Buffett and Munger a chance to address progress on Berkshire’s joint venture with Amazon.com Inc. and JPMorgan Chase & Co. to lower employee health-care costs, or the scandals hurting the stock price and reputation of Wells Fargo & Co., one of Berkshire’s biggest investments.

Buffett and Munger will likely also get questions about matters outside their comfort zones, such as bitcoin, or perhaps dysfunction in Washington.

While Buffett is a Democrat and Munger a Republican, both are equal-opportunity critics of short-sightedness and stupidity.

The meeting is “a rejuvenation of all the investment values and principles that Warren and Charlie impart,” Lountzis said.