This coming weekend will mark the one weekend that the hotels, retailers, and restaurants all look forward to in Omaha, Nebraska… Berkshire Hathaway Inc. (NYSE: BRK-A)(NYSE: BRK-B) has its much-anticipated shareholder meeting and this brings in thousands of wealthy visitors who would have otherwise never spent a day there. While it would be easy to harp on some of the current media issues of today, we want to offer more of a 360-degree preview of what investors should expect in tone and in delivery from Warren Buffett, Charlie Munger, and the rest of the Berkshire Hathaway lot.
Buffett may be even more upbeat this year than last year and probably be 180 degrees better than he was in 2009. Buffett will also have to again explain how Berkshire Hathaway’s book value changes have underperformed the S&P 500 Index during the rally… The 2010 gain was 13.0% at Berkshire versus 15.1% for the S&P 500, while the 2009 gain was 19.8% versus 26.5% for the S&P. Maybe Buffett should just point out the obvious that Berkshire Hathaway looks more and more like the weighting of a bond index AND the S&P 500 Index rather than just the S&P 500…The bird in the hand is that Berkshire Hathaway book value was “only” down 9.6% in 2008 while the S&P 500 suffered a whopping loss of 37% and Berkshire Hathaway’s book value rose more than the S&P 500 Index in 2007, 2006, and even 2005.
As of today, we do not yet have the book value per share for the first quarter. That book value per A-Share was $95,453.00 versus a share price of $120,450.00 at December 31 and versus $124,450.00 as of Tuesday’s closing bell price. We expect the earnings release to come shortly before the annual meeting this weekend, so we’ll expect an updated book value.
Goldman Sachs Group Inc. (NYSE: GS) is a position that Buffett will not have to deal with now. Last year his shareholders acted dumbfounded in silence when Buffett defended Lloyd Blankfein by saying he just wished that Blankfein had a twin brother he could hire. Goldman Sachs has repaid that 10% preferred investment from late-2008, but by our count he still holds those warrants and will use them opportunistically.
General Electric Co. (NYSE: GE) has a longer lock-up period on being able to call away those 10% preferred shares bought in late-2008, and we would expect to hear Warren Buffett telegraph that he expects GE to call the shares away.
The one other big issue we will go ahead and get out of the way is the recent fiasco regarding the David Sokol departure. He went from being considered by Wall Street as a potential Warren Buffett successor to an ‘insider-insiderless’ trading scandal overnight due to his personal stock trading ahead of and into the Lubrizol Corporation (NYSE: LZ) merger. Our take, particularly after seeing the reaction from our own independent reader survey, is that this will simply go away… over 49% said it will only affect David Sokol and over 34% said that neither Sokol nor Berkshire will likely suffer any real damage. The issue, though, is far from settled for now since a Berkshire Board Committee said that Sokol mislead Buffett and other top executives about his stock trading ahead of the Lubrizol deal.
Another portfolio change we expect to hear more about is the BNSF giant railroad acquisition. This transformed the company, and Buffett has claimed on multiple occasions that this acquisition went far better than he expected.
Our take is that Ajit Jain seems to be the favorite, if you trace sentiment internally, as Buffett was quoted in a prior annual letter: “If Charlie (Munger), I and Ajit are ever in a sinking boat – and you can only save one of us – swim to Ajit.” In the most recent annual report, Buffett was quoted as saying, “Ajit has created an insurance business with float of $30 billion and significant underwriting profits, a feat that no CEO of any other insurer has come close to matching. By his accomplishments, he has added a great many billions of dollars to the value of Berkshire. Even kryptonite bounces off Ajit.”
Buffett is also expected to highlight at least some updates to his quarterly holdings, although he is not bound to address anything more for another two and a half weeks when his quarterly filings are required to be made. As of our latest report, the top holdings were The Coca-Cola Company (NYSE: KO), Wells Fargo & Co. (NYSE: WFC), American Express Company (NYSE: AXP), and Procter & Gamble (NYSE: PG).