On Saturday, investors will flock to their computers instead of Omaha as Berkshire Hathaway hosts its first-ever virtual annual meeting in response to the COVID-19 pandemic.
Q1 2020 hedge fund letters, conferences and more
Ahead of the meeting, Morningstar’s Berkshire analyst Gregg Warren curated a selection of questions he’d like answered by CEO Warren Buffett and Vice Chairman Charlie Munger. We believe that Berkshire Hathaway is unlikely to get through the COVID-19 pandemic and subsequent recession unscathed, so questions need to be asked.
Notable questions and analysis include:
- Can Berkshire increase its equity stakes in banks following the new Federal Reserve guidance? It looks like the firm has been adding to some of its bank holdings—picking up shares of Bank of America, BNY Mellon, U.S. Bancorp and Wells Fargo—with at least Bank of America creeping up above the old 10% threshold that in the past would have forced you to trim your position. Could you provide us with some insight into how the new rule will influence your ability to invest more heavily in the banks, and whether the amount of business that you do with any of these banks would limit the stake that you could hold in that firm?
- What is Berkshire’s exposure to pandemic-related claims or underwriting credits? What exposure does Berkshire have to pandemic-related insurance claims, not only those policies that the firm may have underwritten itself but syndications it may have been involved in? We’ve already seen Geico, much like the rest of the auto insurers, offer up a 15% credit to auto and motorcycle insurance customers whose policies renew during the third and fourth quarters. Should we expect to see similar actions within Berkshire’s commercial auto lines, and how was that level of credit/rebate determined (noting that loss ratios should be meaningfully lower in the near term as far fewer cars are on the road).
- How do you feel about those stakes in airlines now? With regards to Delta, it was interesting to see Berkshire acquire close to 1 million additional shares at the end of February only to turn around and dispose of 13 million shares (as well as 2.3 million shares of Southwest) at the start of April. We’re not sure if this is just portfolio reallocation, given the increased risk to the industry, or the start of a larger move to eliminate the airline holdings from the stock portfolio completely. That said, what are Berkshire’s options here? In past cycles, the company has not had to compete so heavily with the government and other providers of capital to throw a lifeline to companies, taking high-single-digit coupon-paying preferred stock and warrants to buy common stock in lieu of a capital injection and the Buffett Seal of Approval.
Gregg outlines these questions and more in his newly published report, “10 Questions that Should Be Asked at Berkshire’s Annual Meeting”. Please let me know if you’d be interested in a copy.
You can also view Gregg’s full list of questions at Morningstar.com here. Other highlights from our pre-meeting coverage on Morningstar.com includes:
- 3 Burning Questions for Buffett: Insurance, railroads, and share buybacks are on Gregg Warren’s mind ahead of Berkshire Hathaway’s annual meeting.
- What the Pandemic Means for Berkshire Hathaway: Gregg shares his thoughts on its valuation and more.
- Funds That Buy Like Buffett, 2020: These mutual funds own the same stocks as the Oracle of Omaha.
- 5 Stocks Buffett Might Buy, if He Could: The Oracle of Omaha might take an interest in these high-quality firms if Berkshire were nimble enough.
