Get Ready For Berkshire’s Annual Letter To Shareholders

Get Ready For Berkshire’s Annual Letter To Shareholders
  • Billionaire investor Warren Buffett's annual letter to shareholders will come out on Saturday.
  • Berkshire's stock returned just 11% in 2019.
  • Investors could demand the $125 billion cash hoard be put to better use.

Legendary billionaire investor Warren Buffett and his Berkshire Hathaway fund will release this weekend its annual letter to shareholders. The letter comes at a time of growing friction and dissatisfaction as some shareholders are less than pleased with Berkshire’s cash hoard that could be allocated towards buying back stock or paying a dividend.

Underperforming S&P 

According to The Wall Street Journal, Berkshire’s stock return over the past decade has fallen short of the broader S&P 500 index. Some investors are even asking themselves if the investment fund is simply too big to win. For example, despite pouring $36 billion into Apple’s stock in 2018 and watching it appreciate 86% in 2019, and another 10% so far in 2020, investors would have been better off investing in an S&P 500 index ETF.

Part of the the strong Apple gains have been at least partially offset by notable high-profile losses. As an example, Berkshire owns a 27% stake in food giant Kraft Heinz which lost 25% in value in 2019 and is down so far another 15% in 2020.

Berkshire’s Class A stock ended in 2019 with a gain of just 11% and is just 1.3% since the start of 2020. The company’s growing cash pile rose above $125 billion as of the end of Sept. 30 and Berkshire could face pressure to put the capital to good use.

What’s Next For Apple?

Buffett has many rules for investing, many of which focus on not overpaying for stocks and only investing in companies that are easy to understand. The billionaire has notably stayed away from investing in tech stocks and his firm’s investment in Apple was dictated by a high-ranking lieutenant, either Ted Weschler or Todd Combs.

Buffett even said at the 2018 annual meeting Apple’s investment qualities have more to do with the “nature of consumer behavior,” according to WSJ.

So what’s next for the true all-star in Berkshire’s portfolio? The “Oracle of Omaha” prefers to hold a large diversity of stocks but some think he might be looking to sell shares and bolster up the firm’s cash — something it doesn’t really need.

“What’s surprising is how fast it increased,” Doug Kass, president of Seabreeze Partners Management told WSJ. “It seems to me that it would be prudent for [Mr. Buffett] to be peeling out of some stock,” he said.

On Saturday when Buffett’s letter is released, investors may have a clearer answer if Berkshire’s cash balance will soar even higher or could be put to better use.

By Jayson Derrick
Jayson Derrick has been writing professionally about stocks since 2011. He is particularly interested in alternative investments, hedge funds, and activist investing. He is a big fan of NHL hockey and lives in Montreal, Canada with his wife and four year old daughter.
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