Warren Buffett’s annual letter: What investors will be looking for

March 4, 2014 Leave a comment

Warren Buffett’s annual letter: What investors will be looking for

Josh Funk, Associated Press | February 28, 2014 5:29 AM ET
OMAHA, Neb. — Berkshire Hathaway Inc. investors will be looking for details of how the conglomerate performed and the best advice CEO Warren Buffett has to offer in his annual letter this Saturday.

The world famous investor released a few tips from his annual shareholders’ letter early. Check them out

Buffett’s letter is always well-read because of his track record, but this year he released a section focused on investing advice early so there may not be many surprises.

“The letters have been straighter (in recent years),” said Andy Kilpatrick, who wrote “Of Permanent Value: The Warren Buffett Story.” ”I think he’s trying to give his thoughts on the businesses.“

But with more than 80 companies within Berkshire and an investment portfolio worth significantly more than $100 billion, Buffett still has plenty of material to work with.

WHAT TO WATCH FOR: Berkshire’s purchase of half of ketchup maker Heinz as part of a $23.3 billion deal was the company’s biggest transaction of 2013. But Buffett hasn’t said much about the investment’s performance.

Berkshire also completed its $5.6 billion purchase of Nevada’s biggest utility, NV Energy, just before the end of last year.

So investors will be looking for more details on both of those deals and several smaller ones Berkshire subsidiaries completed.

Buffett will also discuss why the growth in Berkshire’s book value per share likely failed to beat the S&P 500 index’s performance last year. Buffett has said Berkshire’s size makes hard to continue beating the market because huge deals are needed to significantly improve results.

KBW analyst Meyer Shields said Berkshire’s size and complexity also makes it hard for investors to evaluate.

“Because it’s bigger, it’s harder for any one person to understand what’s going on,” he said.

Shields said he hopes Buffett will disclose more details about Berkshire’s insurance liabilities, particularly for asbestos which has been troublesome for other insurers. Berkshire carries significant asbestos liability because it agreed to take that on for other companies through reinsurance.

BNSF railroad is another important contributor to Berkshire’s profits. Buffett said earlier this week that BNSF is earning about $10 million a day, but regulators have been scrutinizing the railroad industry’s shipments of crude oil.

Many investors would like to see more details about who will take over as Berkshire’s CEO after the 83-year-old Buffett is no longer available, but Shields said he doesn’t expect any new succession planning details this year.

WHY IT MATTERS: Investors follow Berkshire because of Buffett’s remarkable investing track record and because the conglomerate’s results offer a glimpse into a variety of industries.

WHAT’S EXPECTED: The three analysts surveyed by FactSet expect Berkshire to report fourth-quarter operating earnings of $2,495.42 per Class A share.

Operating earnings exclude the value of derivatives and investment gains or losses, which can produce significant swings in Berkshire’s profits. Buffett says operating earnings are a better measure of Berkshire’s performance in a given period.

LAST YEAR’S QUARTER: The Omaha-based company earned $4.55 billion, or $2,757 per Class A share, on revenue of $44.72 billion because of a big paper gain on its investments and derivative contracts.

 

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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