5 questions investors want Oracle of Omaha to answer
Buffett is star of Berkshire Hathaway stockholders’ meeting
Billionaire Warren Buffett brings the “Woodstock of Capitalism” back to Omaha this weekend for the annual Berkshire Hathaway stockholders’ meeting, known for its straight talk and party-like atmosphere.
As always, the 87-year-old investment guru dubbed the Oracle of Omaha will be the ringmaster of the threeday event, which has skyrocketed in popularity in recent years and is again expected to draw tens of thousands of Buffett devotees to his hometown.
As usual, the chairman and CEO of Berkshire Hathaway, along with righthand man Charlie Munger, 94, will field and answer questions from investors for up to six hours on topics ranging from stocks he likes to succession planning. Buffett also will socialize with attendees from around the globe and likely be seen sipping his trademark Cherry Coke and competing in his “newspaper tossing challenge.”
But that doesn’t mean there aren’t major questions that loom over the meeting for Buffett and Berkshire, which owns scores of businesses ranging from battery-maker Duracell to ice cream retailer Dairy Queen to auto insurer Geico.
Here are five questions investors will seek answers to Saturday during the Q&A session:
“My sense is Buffett will expand on the succession question.”
Cathy Seifert Analyst at CFRA, a Wall Street research firm
1. When will Buffett retire?
The billionaire CEO, whose name is synonymous with Berkshire Hathaway, isn’t getting any younger. The topic of who eventually will replace him has gained greater urgency since January, when Buffett took a step toward announcing his successor when he promoted two longtime Berkshire executives, Greg Abel and Ajit Jain, as vice chairmen.
Investors are hungry for more details about the timing of Buffett’s departure, as well as whether the two executives on the fast track to replace him will be introduced in a public way to Berkshire shareholders at the high-profile event. Some Wall Street pros would like to see Abel and Jain join Buffett and Munger on stage and field questions so shareholders can get a better feel for both men’s management style, as well as their views on markets, investments and how they would lead Berkshire if they were to take the helm.
“My sense is Buffett will expand on the succession question,” says Cathy Seifert, an analyst at CFRA, a Wall Street research firm. “A surprise element to this year’s meeting would be if Buffett and Munger share the stage with them.”
2. What’s the acquisition strategy?
At the end of 2017, Berkshire was sitting on roughly $116 billion in cash that can be used to acquire other companies. That’s more “dry powder” than some of the big private equity firms have at their
disposal, Seifert says.
While Buffett likes to have a big cash hoard to ride out tough times and buy when prices are lower, holding too much cash is muting Berkshire’s results. Buffett long has said he’s always searching for “elephants,” or mega-deals. But Berkshire hasn’t taken part in the recent dealmaking boom on Wall Street, nor has it closed a big deal since 2015, when it bought Precision Castparts for $32 billion.
Investors will also want to know if Buffett will give in and give some of the cash back to shareholders through dividend payouts or lower the bar he now has in place to buy back shares.
3. What’s the fascination with Apple shares?
At the end of last year, Berkshire Hathaway owned 166.7 million shares of Apple, which made it the second-big- gest holding behind Wells Fargo, according to Buffett’s 2017 letter to shareholders released this year. At current prices, the investment in the iPhone maker is nearing $30 billion, up from just $1 billion in early 2016 when Berkshire first bought the stock.
Morgan Stanley analyst Kai Pan wonders why once tech-stock-shy Buffett thinks the investment in Apple will turn out better than his admitted mistake buying IBM. Questions Pan would like to ask Buffett: “What are the characteristics of Apple that will make the thesis play out in a way it didn’t for IBM? Why not just stay away from tech?”
4. How’s the U.S. economy doing?
Berkshire owns so many companies in so many different businesses that it has a good view of the broader economy’s health. Berkshire runs railroads and sells insurance, paint, ice cream, manufactured homes and batteries, among other businesses.
Given all the big events impacting the economy recently, ranging from lower tax rates for corporations to trade friction and tariffs to rising interest rates, “investors want Buffett’s take on the state of the U.S. and global economy,” Seifert says.
5. Are you worried about Geico and Wells Fargo?
Auto insurer Geico, one of the busi- nesses Berkshire Hathaway owns, is under threat from the shift towards driverless cars, which likely would lead to less need for auto insurance. Buffett, in an interview with Yahoo Finance, acknowledges that driverless cars — “if they’re safer” — will reduce the need for auto insurance and also push down premiums.
The offset, Buffett says, is that less accidents mean less insurance claim payouts.
Still, Seifert says “Geico and auto insurance is the big elephant in the room.”
Buffett may also have to answer for the ongoing bad news at his biggest holding, Wells Fargo. The bank has been embroiled in turmoil and controversy since its 2016 unauthorized accounts scandal and more recent troubles, such as a $1 billion fine from regulators related to mortgage and auto loan violations that harmed customers. Investors, including Seifert, wonder if Buffett and Berkshire, given their clout, “will push for change.”
Other investors will be watching to see if Buffett is considering selling his huge stake in the bank.