The 5 a.m. Buffett Breakfast ClubAn awesome piece from MoneyBeat:
They’re rich. They’re cheerful. They’re morning people.
The annual missives that billionaire investor Warren Buffett writes to shareholders of his Berkshire Hathaway Inc. are always carefully scrutinized by big-name investors and small-time stock-pickers alike. But this year’s letter promises to get even more attention.
That’s because this year’s letter has been five decades in the making.
It was in 1965 that Mr. Buffett and his vice chairman, Charlie Munger, took over a troubled textile company called Berkshire Hathaway and began transforming it into the massive conglomerate it is today. Along the way, the “Oracle of Omaha” has amassed a fortune, built a following, and become a celebrated figure in many corners of the world. Mr. Buffett has promised that this year’s letter would look back on the past five decades, and speculate on the next five.
The MoneyBeat team is providing analysis on the letter in real time as we read it Saturday morning. Join us as we dive in.
- 6:07 am
- Welcome
- by Erik Holm
Welcome aboard. The Berkshire letter due out in about an hour has been 50 years in the making, but it’s also been many months in the writing.
In the very last paragraph of last year’s letter, Warren Buffett piqued the interest of his most ardent followers—the ones who read all the way to the end of his annual missives—with this line:
Next year’s letter will review our 50 years at Berkshire and speculate a bit about the next 50.It wasn’t a promise Mr. Buffett took lightly. In December, Mr. Buffett told the Journal that he’s already written 20,000 words of the upcoming letter. In normal years, the letter runs about 15,000. We’re going to have a lot of reading to do today.
- 6:11 am
- Hearing from Munger
- by Anupreeta Das
Berkshire shareholders and those who follow the conglomerate’s activities will get a bonus this time around: Berkshire Vice Chairman Charlie Munger is also writing down his vision for Berkshire for the next 50 years. Shareholders love Mr. Munger’s sometimes bruising wit and deadpan delivery, but his voice has been absent from last letters.
Mr. Buffett said in December that he and Mr. Munger had agreed not to read each other’s accounts until shortly before today’s publication. The letter will contain a note from Mr. Buffett stating that neither he nor Mr. Munger changed a word of commentary after reading the other’s piece.
- 6:16 am
- What to Expect
- by Erik Holm
So now that the letter is finally arriving this weekend, what can Berkshire shareholders and Buffett acolytes expect? We covered that in detail in this post on Friday, but we’ll hit some of the key point as we wait for the letter to land.
(And don’t think we didn’t try to find the letter on Berkshire’s website already . It’s not there yet, but it should be at this link when it goes live.)
- 6:19 am
- Together or Apart?
- by Erik Holm
As he looks 50 years into the future, we expect Mr. Buffett will address the question of whether Berkshire should stay together–and perhaps, how it could be organized under his successor.
At a time when more and more companies are spinning off operations to narrow their focus and make their operations easier to value, Mr. Buffett will likely say Berkshire works better as a conglomerate. Berkshire’s insurance units, including car insurer Geico Corp., fueled Berkshire’s growth over the past five decades by giving Mr. Buffett funds to invest elsewhere. Barclays analyst Jay Gelb said in a research note this week that Mr. Buffett is likely to argue that “excess cash from Insurance and other operations can be effectively and tax-efficiently deployed” to grow other parts of the company.
That’s not unalloyed good news for all Berkshire shareholders. Some of them think the company is so massive that some crown jewels of the company aren’t being fully appreciated by the market. Mr. Gelb says that “means substantial value could remain unlocked for several major units.”
- 6:25 am
- About that Dividend
- by Erik Holm
How will Berkshire use its capital in the future? Mr. Buffett has made it clear that Berkshire is very unlikely to pay a dividend in his lifetime. He argues that he can use the money that would be spent on a dividend to grow Berkshire instead–and he has the track record to prove it.
A small but vocal group of shareholders has long tried to push Mr. Buffett to pay one, but a vote on the topic at last year’s annual meeting was roundly defeated. In fact, it attracted so little support that it likely set back the cause.
Yet at that same meeting, when asked what Berkshire will look like in 20 years, Mr. Buffett acknowledged that there would come a time when the company has more capital than it knows what to do with.
“What I do know is that we will have more cash than we can intelligently invest in the future,” he said. “It’s not on a distant horizon. The number is getting up to where we can’t intelligently deploy the amounts coming in.”
Does that mean Mr. Buffett could revisit the dividend question this weekend as he peers into his crystal ball? Perhaps. But he may instead focus on the topic of share repurchases. Berkshire has already instituted a program of buying back stock when shares fall below a specific target (which is adjusted each quarter). There’s a chance he could discuss Berkshire’s target and argue for making it less restrictive.
- 6:34 am
- The Next Buffett
- by Erik Holm
Mr. Buffett likes to joke that he’ll continue to run Berkshire via seance after he’s gone. Joking aside, though, the question of who will take over the role of chief executive is the biggest topic hanging over the company and its shareholders. Mr. Buffett has said it’s the most important thing that Berkshire’s board discusses when it meets.
That said, the chances that Mr. Buffett will name his successor in the CEO role today are essentially zero. I’m confident making that prediction even though I could be proven horrible wrong in under half an hour. It’s just not going to happen....
In case you missed the link:
Warren Buffett's Letters to Berkshire Shareholders
Updated February 28, 2015
