Warren Buffett's annual Berkshire Hathaway letter: What to expect

What should Warren Buffett address in annual shareholder letter?

Barron’s associate editor Andrew Bary joins ‘Barron’s Roundtable’ with insight into letter due out Feb. 27

It’s that magical time of year again.

On Saturday, Warren Buffett will release one of the most anticipated financial updates of the year: his annual letter to Berkshire Hathaway shareholders.

The annual report will also include Berkshire’s financial results, in addition to the latest musings from the “Oracle of Omaha.”

Here’s a look at what investors may expect to hear about this year:

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Finally a Berkshire Hathaway dividend?

Some Berkshire investors have been asking for the company to pay shareholders a dividend for years. Could this finally be the year it happens?

Barron’s associate editor and “Buffett watcher,” Andrew Bary said on Barron’s Insight last week that it’s something Berkshire “could easily afford.”

“The company’s sitting on about $150 billion in cash right now and it has $25 billion of earnings power,” he said. “And Buffett has not found a lot to do with Berkshire’s earnings the last couple years in terms of buying businesses or stock market investments.”

Bary suggested a 2% dividend as “a good start.” However, Buffett has long resisted paying a dividend.

“He thinks investors should simply sell a portion of their Berkshire holdings every year rather than have Berkshire pay a dividend, but I think the time may now be coming for him to pay it,” he said.

Recent stock moves

JOHANNES EISELE/AFP via Getty Images

WARREN BUFFETT, BERKSHIRE HATHAWAY UP STAKE IN THIS HEALTH CARE COMPANY

Buffett will likely have something to say about some of the companies he has invested in this year.

Berkshire has upped its stake as the largest shareholder in DaVita Inc., a health care company that specializes in combating kidney disease, according to a recent company Securities and Exchange Commission filing. Berkshire owns 33% of the business.

Another SEC filing shows that Berkshire has upped its stakes in other pharmaceutical companies like AbbieVie, Bristol Meyers Squibb and Merck, but sold shares in Pfizer.

Berkshire also bought more stock in companies like Verizon, Chevron and TV broadcaster E.W. Scripps, FOX Business previously reported.

Gold today, gone tomorrow

Berkshire picked up more than 20 million shares of Canadian mining firm Barrick Gold, a company SEC filing from June shows.

As the coronavirus spread across the U.S. last year, Berkshire Hathaway sold off significant portions of its stakes in banks including Wells Fargo, JPMorgan Chase and PNC Financial Services.

At the same time, Berkshire picked up more than 20 million shares of Canadian mining firm Barrick Gold, a company SEC filing from June shows.

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The move drew headlines as it was reportedly Buffett’s first investment in gold or related assets.

However, Berkshire didn’t hold onto its precious investment for long. By the end of the year, it had sold the entirety of its Barrick Gold investment.

Many investors may be curious to learn Buffett’s thinking behind the moves.

Berkshire Hathaway succession?

Todd Combs and Ted Weschler are investment managers at Berkshire Hathaway. Warren Buffett has spoken highly of them. (Getty Images/Reuters)

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It’s no secret that the 90-year-old Buffett and 97-year-old Berkshire vice chair Charlie Munger aren’t getting any younger. Buffett even addressed their eventual departure in his 2020 letter to shareholders, writing that the company is “100% prepared.”

“Charlie and I have very pragmatic reasons for wanting to assure Berkshire’s prosperity in the years following our exit: The Mungers have Berkshire holdings that dwarf any of the family’s other investments, and I have a full 99% of my net worth lodged in Berkshire stock,” Buffett wrote. “I have never sold any shares and have no plans to do so.”

But who could fill the shoes of the Oracle of Omaha and his right-hand man?

Two likely candidates are Todd Combs and Ted Weschler, investment managers at Berkshire since 2010 and 2012, respectively. Both are responsible for portfolios that were reportedly worth $13 billion each as of 2019, among other responsibilities.

The pair were behind Berkshire’s investment in Apple, its largest stock holding valued at about $120 billion at the end of 2020.

Buffett has previously spoken highly of both men.

“They’ve done a good job at managing marketable securities,” Buffett said in 2017, per The Wall Street Journal. “They’ve made more money than I would have.”

Moats and elephants

Berkshire has wholly owned the business since 1996, and as of 2019 it insured more than 28 million vehicles. (iStock)

Buffett’s unique jargon shows a glimpse into the factors he’s thinking about when he makes an investment. They may also reveal why the company is sitting on about $150 billion in cash.

As FOX Business previously reported, Buffett said in his 1995 letter that he looks for “economic castles protected by unbreachable ‘moats.’” These businesses sit protected against weaker businesses that can’t compete on the same level.

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Buffett’s example at that time was the insurer GEICO. Berkshire has wholly-owned the business since 1996, and as of 2019, it insured more than 28 million vehicles, according to GEICO’s website.

In 2018, Buffett shared another type of investment he seeks: an “elephant,” a business that Berkshire can buy outright and permanently own.

“Just writing about the possibility of a huge purchase has caused my pulse rate to soar,” Buffett wrote.

However, Buffett lamented that prices were “sky-high for businesses possessing decent long-term prospects.”

Considering the company still has such a large cash stockpile, it appears that Buffett still hasn’t found any reasonably-priced elephants. But perhaps he will grace the public with another expression for another type of business he looks for in this year’s letter.

Berkshire Hathaway’s 2020 annual report is scheduled to be posted online at about 8 a.m. Eastern Time Saturday.

FOX Business’ Lucas Manfredi and Suzanne O’Halloran contributed to this report.

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