Good Saturday. Welcome to a special DealBook Briefing of Berkshire Hathaway’s annual meeting. Sign up here to get the DealBook Briefing in your inbox each morning.
Welcome to ‘the Woodstock for Capitalists’
Omaha, Neb., is not typically the center of the financial world. But once a year, that is what it becomes, attracting hedge-fund managers, business executives and mom-and-pop investors to the annual meeting of Warren Buffett’s Berkshire Hathaway.
Over the past five decades, the meeting has transformed from a small gathering of shareholders in the cafeteria of National Indemnity into “Woodstock for Capitalists.”
Tens of thousands of shareholders fill the CenturyLink Center in Omaha each year to ask Mr. Buffett and Charles T. Munger, Berkshire’s vice chairman, questions about the conglomerate, investing, the economy and politics. And between bites of See’s toffees and sips of Cherry Coke, the pair dole out their brand of folksy wisdom and corny jokes.
DealBook will be here through it all providing analysis.
What to watch from the meeting
By some measures, Berkshire had a quiet year. The company failed to announce any major acquisitions since Mr. Buffett and Mr. Munger took the stage a year ago.
Still, in January, Berkshire did team up with Amazon and JPMorgan to form an independent health care company, and two longtime executives were promoted, positioning them as possible successors.
Also, shares of Berkshire surpassed $300,000 in December for the first time. To put that in perspective, Mr. Buffett paid $7.50 a share for his initial stake.
Succession: Mr. Buffett has faced persistent questions over the years about who will succeed him as chief executive of Berkshire. Mr. Buffett has largely sidestepped the questions. This year, though, the issue should draw greater attention. In January, Mr. Buffett named the longtime Berkshire executives Gregory E. Abel and Ajit Jain, as vice chairmen. “It’s part of a movement toward succession over time,” Mr. Buffett said in an interview on CNBC at the time.
Berkshire’s health care joint venture: Mr. Buffett has warned regularly for years about the risk of rising health care costs to American businesses, calling it “the tapeworm of American economic competitiveness.” There is a lot still unknown about Berkshire’s decision to set up a joint venture with JPMorgan and Amazon to lower their health care costs. The first priority, as Mr. Buffett said in February, is to hire a chief executive.
Apple: Mr. Buffett famously avoided investing in tech companies because he didn’t understand them. There now seems to be one exception to that rule. Berkshire continues to snap up shares of Apple. Since Berkshire first took a stake in the iPhone maker about two years ago, the investment has grown into Berkshire’s largest holding. At the end of the first quarter, Berkshire owned $40.7 billion of Apple’s shares.
Deal making: Mr. Buffett admits that Berkshire is in the midst of a deal-making dry spell. The company made no big acquisitions in 2017, and that streak has continued into this year. In his annual letter, Mr. Buffett said acquisitions have gotten too pricey. That “proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high. Indeed, price seemed almost irrelevant to an army of optimistic purchasers,” Mr. Buffett wrote. The problem is Berkshire has become so big that spending on large acquisitions has become key to its growth. Some investors in Berkshire may become impatient with the lack of acquisitions, especially as the company’s cash pile had increased to $116 billion by year end.
Wells Fargo: The Federal Reserve in February imposed unusually harsh penalties on Wells Fargo, and last month the bank agreed to pay two federal regulators $1 billion to settle an array of investigations into its mortgage and auto-lending practices.
Berkshire first invested in Wells Fargo nearly three decades ago, and is currently the bank’s biggest holder. Though Mr. Buffett has criticized the bank over the scandals around its sales tactics, he has also stood by the company’s management. Berkshire investors may ask why.