Succession plans in focus after Jain, Abel promotions. Gregory E. Abel, left, and Ajit Jain. Warren Buffett’s Berkshire Hathaway Inc. is adding Gregory E. Abel and Ajit Jain to its board as speculation grows about Buffett’s successor as chief executive office
It’s second only to Berkshire Hathaway’s annual meeting as the most holy day on the calendar for value investors and fans of billionaire investor Warren Buffett.
Buffett is scheduled to release his annual letter to Berkshire HathawayBRK.A, +0.87% BRK.B, +1.01% shareholders at 8 a.m. Eastern on Saturday. The lengthy epistles are closely watched by Buffettologists and other investors, who parse them for clues to the Oracle of Omaha’s investing plans as well as to take in Buffett’s trademark aphorisms and occasional joke. The letters have been an annual exercise for more than 50 years.
Berkshire class A shares delivered a total return of 21.9% in 2017, just slightly above the 21.8% return for the S&P 500 SPX, +1.60%
Here are some potential highlights that investors are anticipating:
The question of who will take over as top honcho at Berkshire Hathaway when Buffett, 87, is out of the picture is a perennial one. It’s also one that’s been left perennially unanswered.
But investors might—and the emphasis is on might—be in for a deeper discussion of the issue in this year’s letter. That’s because Buffett last month elevated two longtime Berkshire executives—Gregory Abel and Ajit Jain—to vice chairman roles. Buffett told CNBC that the move was “part of a movement toward succession over time.”
Jain, who has long been the firm’s most crucial insurance executive, was named vice chairman of insurance operations. Abel, chief executive of Berkshire Hathaway Energy Co., was named vice chairman of the company’s non-insurance businesses. Both have long been seen by investors as top candidates to run the show in Buffett’s absence.
Investors will look to the letter for any more details on what the shuffling of the management structure means for Berkshire and for any succession plans, but it’s probably a safe bet neither Abel nor Jain will be anointed officially as a front-runner for the position.
Berkshire’s pile of cash hit a record $109 billion as of Sept. 30.
It has been more than two years since Berkshire bought Precision Castparts Corp. for $32 billion, its last major acquisition. Stretched valuations and Berkshire’s gargantuan size are certainly seen as factors. It’s been a source of frustration for Buffett.
“There’s no way I can come back here three years from now and tell you that we hold $150 billion or so in cash or more, and we think we’re doing something brilliant by doing it,” he said at last year’s annual meeting.
Investors will look for clues to Buffett’s take on the deal-making environment, although he has never used the letter to tip his hand.
Analysts say Berkshire may be offsetting the inability to make deals by buying stocks.
Its portfolio of investments has continued to swell and remains relatively concentrated. Berkshire’s top five holdings—Apple Inc. AAPL, +1.74% Bank of America BAC, +1.07% Coca-Cola KO, +1.19% Kraft Heinz KHC, +2.04% and Wells Fargo WFC, +0.61% accounted for more than 60% of its portfolio at the end of 2017, noted Catherine Seifert, equity analyst at CFRA, in a note.
Investors will be on the lookout for more detailed discussions of those holdings, In particular, investors will look to the letter for any remarks on Wells Fargo, of which Berkshire is the largest shareholder, following the Federal Reserve’s order earlier this month curtailing its growth until it takes action to address the scandal surrounding the bank’s scandal regarding the unauthorized opening of accounts and other issues.
Buffett criticised Wells Fargo’s handling of the scandal at Berkshire’s 2017 annual meeting.
Berkshire, Amazon.com Inc. AMZN, +0.99% and JPMorgan Chase & Co.JPM, +2.03% in January formed a new company to lower health care costs for employees. The announcement sent shivers through the health care industry, although the consortium’s intentions remain unclear.
“Since this initiative is in its earliest stages, we would not expect too many details to emerge via the annual report, but investors should probably look for indications of the direction and scale of the initiative in the chairman’s letter,” Seifert said.
Insurance is the beating heart of Berkshire, with the premiums from its operations providing cash that’s used to make long-term investments.
While Berkshire’s insurance operations have been extremely well-run, investors will be looking to see the impact of two major hurricanes on its underwriting results.