Investing

5 Takeaways Warren Buffett Has For Shareholders This Week

Gerelyn Terzo

Published: April 30, 2024 12:09 pm

Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) will hold its 2024 Shareholder Meeting this weekend, unfolding from May 3-4. If this year is anything like before, tens of thousands of shareholders will gather in Omaha, Neb. to hear Warren Buffett, who bought his first stock in 1942, reflect on past performance of the company in which he took the reins in 1965. But one person whose absence will be felt from this year’s event is the person Buffett credited with being the architect of Berkshire Hathaway – Charlie Munger, who passed away last year at the age of 99.

Buffett, at 93 years old, is expected to carry on and speak for hours about Berkshire’s latest wins and losses, while also sharing his affection for the community he calls home.

The elephant in the room will be Buffett’s succession plan, as the Oracle of Omaha nears his sixth decade at the helm of Berkshire. Shareholders, many of whom have been loyal to the company for generations, will seek answers to questions about the company’s future and the role that Buffett will play. They can expect just that, as one thing Buffett has proven over the years is that he doesn’t shy away from difficult questions from Berkshire investors. 

1.) Life Without Charlie

Munger, who grew up in the same community as Buffett, was a steady presence in the Berkshire CEO’s life for decades. The pair didn’t meet until Buffett was 35, but they were inseparable from there in part because Munger, whom the boss thought as both a brother and loving father, wasn’t afraid to tell his business partner what he thought. With the passing of Charlie Munger this past year, a big focus will be again shift to the next leaders of Berkshire.

One area where they were “of the same mind” was in their responsibilities to shareholders. As Dolly Parton would say, Munger was the wind beneath Buffett’s wings, and Berkshire is making the fourth edition of “Poor Charlie’s Almanack,” comprising the “wit and wisdom” of Buffett’s “brother,” available to investors at the meeting.

2.) BRKs Golden Star on Net Income

Buffett is not a fan of net income and believes it’s “worse than useless” as a financial metric. He much prefers operating earnings, which he Buffett says are more sensible for mainstream investors. We could see why, as with certain capital gains or losses excluded, they tell a different story about Berkshire’s performance over the last few years. It’s not that capital gains aren’t relevant, as he expects they’ll be a “very important component of Berkshire’s value accretion in the decades ahead.” It’s just he prefers to measure performance on a longer-term basis.

Net Earnings

• $90 billion for 2021
• ($23 billion) for 2022
• $96 billion for 2023

Operating Earnings

• $27.6 billion for 2021
• $30.9 billion for 2022
• $37.4 billion for 2023

Here’s a breakdown of how individual Berkshire segments faired last year: 

• Insurance Underwriting: $5.4 billion in 2023 vs. a loss in 2022 
• Insurance-Investment Income: $9.5 billion in 2023 vs. $6.4 billion in 2022 
• Railroad: $5 billion in 2023 vs. $5.9 billion in 2022 
• Utilities and Energy: $2.3 billion in 2023 vs. $3.9 billion in 2022 
• Miscellaneous: $14.9 billion in 2023 vs. $14.5 billion in 2022

3.) What Stocks Could Be Purchased Next

• Buffett is a loyal  investor, as evidenced by his commitment to stocks like Coca-Cola (NYSE: KO) and American Express (NYSE: AXP). Ever though Berkshire didn’t add to those positions last year, shareholders can expect those two names to remain in the portfolio for the foreseeable future. Buffett is fully expecting both companies to increase their dividends in 2024. 
• Even though Buffett has been tech averse, he makes exceptions for stocks like Apple (Nasdaq: AAPL), which comprises nearly 6% of the Berkshire portfolio. It’s entirely possible that Berkshire would add to its Apple stake if he sees a bargain. Bernstein analysts, which just upgraded the tech stock to an “outperform” rating, told investors to “be like Buffett” and “buy Apple shares while cheap.” 
• Berkshire owns nearly 28% of Occidental Petroleum’s common shares and growing. After scooping up more shares last year, Berkshire plans to hold them “indefinitely,” as Buffett touted the company’s U.S. oil and gas holdings. Buffett is a big believer in energy independence and therefore it would not be surprising to see Berkshire increase its Occidental position.
• Buffett claims there is no needle movers out there and will not be looking overseas for new businesses to buy. With over $180 billion in cash, will Buffett stay put and collect yield from government bonds? 

4.) With No Growth Options, What’s Next for Shareholders? 

Berkshire’s class-A shares have gained 12% year-to-date, surpassing the S&P 500’s 7% gain. Last year, Berkshire stock increased 14.7%. Berkshire’s class-B shares have advanced by 13.2% year-to-date. Given the massive size of its equity portfolio, and its traditional ways, it might seem like Berkshire Hathaway is as predictable a stock as you can get. Nevertheless, it is a holding in over 100 hedge fund portfolios as well as the Gates Foundation Trust.  

UBS is bullish on Berkshire shares and recently increased their price target on the stock to $481, suggesting the stock has 18.3% upside potential in the near term. UBS analysts pointed to positive catalysts including Geico and rail system BNSF, which also led them to increase their Q1 EPS estimates for Berkshire. Buffett insists Berkshire’s insurance business has “much room to grow.” Yet even with a market cap of roughly $800 billion, Berkshire might not ever be worth $1 trillion unless the future of the conglomerate is much more focused on growth stocks.

5.) Succession Plan

Berkshire Hathaway is a massive conglomerate overseeing a $360 billion equity portfolio. And Buffett seems to like it that way, as there are no apparent plans to break up the portfolio. While other large companies like Pfizer (NYSE: PFE) , Johnson & Johnson (NYSE: JNJ) and General Electric (NYSE: GE) all pursued spin-offs at some point, Berkshire Hathaway is cut from a different mold.

Nevertheless, it’s entirely possible that the post-Buffett era will look a lot different in other ways. Stock pickers Todd Combs and Ted Weschler, both of whom were hired by Buffett years ago, currently oversee approximately 10% of the equity portfolio and as part of succession planning could potentially take the reins over the entire thing.

In addition to Buffett, all eyes will be on Greg Abel, Buffett’s likely successor, who is expected to share the stage with his boss at the meeting.