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Berkshire Hathaway's annual report is due to be released on Saturday, revealing the earnings of the firm owned by famed investor Warren Buffett for the first time since the death of its longtime leader Charlie Munger.
The annual report, which will contain Buffett's letter to shareholders as well as information about the company's financial situation, will be released at about 8:00 a.m. ET on the company's website.
Munger's Legacy
According to Steve H. Hanke, a professor of applied economics at the Johns Hopkins University who served on President Ronald Reagan's Council of Economic Advisers, the first aspect readers of the company's annual report will focus on "with the most anxious attention" is how Buffett "pays tribute to the legacy, contribution, and friendship of his old pal and partner" Munger, who died in November.
"Their partnership was unique and highly appreciated by all BRK investors," Hanke told Newsweek.
Haruki Toyama, head of large cap & mid cap equity and portfolio manager at Madison Investments, told Newsweek that a tribute to Munger could contain indications for the future of the company. "He might reflect on the long partnership between the two and its impact on Berkshire's history, but it might be interesting also to see if Buffett takes this opportunity to comment on future leadership for Berkshire," he said.
A Likely Reversal of 2022 Losses
According to Hanke, it's unlikely that Berkshire's Q4 data will impact the annual results through Q3, which show weaker results for the company than in 2022 despite overall operating income increasing by 41 percent year-on-year. In 2022, the company reported a loss due to the volatility of the market, which has likely been reversed in 2023.
The interesting data in the report which investors will be paying attention to are "any comments regarding bank stocks, in particular their vulnerability to the repricing of their deposits and their exposures to commercial real estate," Hanke said.
"Buffett decreased some of his bank positions significantly in Q4 of 2022 in a particularly well-timed move. BRK sold 60 percent of Bank of Mellon, which it had begun owning in 2010. It sold 91 percent of the U.S. Bancorp, which it has owned since 2006."
Apple and TSMC
Other interesting sections in the report might concern the valuation of Berkshire Hathaway itself, which is now at a decade-high premium to its book value according to Bloomberg Opinion columnist Conor Sen; commentary of Berkshire's "modest trimming" of its stake in Apple in Q4; and Buffett's "rapid exit" from his position in Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chipmaker, Hanke said. Buffett had expressed concerns about the future of Taiwan, the self-governed island where the company is based and which China claims as its territory.
It's unlikely that the annual report would contain commentary on the latter two issues, as "Buffett doesn't normally comment about specific transactions, especially given the significant size of BRK's Apple position," Hanke said, and "it is unusual for him to write about geopolitics and investing."
Cash Flow
Toyama said that, as a long-time Berkshire shareholder, he'll be looking at "what, if anything, did Berkshire do with any cash flow generated or the excess cash it has in the bank." According to Toyama, "in recent quarters and years, the answer has been 'not much.' It has let cash just build on its balance sheet—the cash pile had grown $50 billion in 12 months ending September, to $174 billion," he said.
"Berkshire hasn't acquired a sizable company in many years, nor has it bought a lot of publicly traded stocks for its stock portfolio. For a couple of years in 2020-21, it bought back a lot of its own stock, but the pace has slowed quite a bit in the last couple of years."
Insurance Market
Toyama is also curious to see if Berkshire "became more aggressive in writing business organically late last year" after cautiously approaching the insurance market in the past few years.
"The insurance industry has been in a 'hard market' for two years, especially in reinsurance, and especially in property catastrophe insurance," Toyama said. "While Berkshire has participated recently to some extent by growing its insurance premiums nicely, it hadn't been all that aggressive through mid-2023, even as some other well-run, well-capitalized insurers have become aggressive in writing more business as prices have risen."
In 2022, Berkshire purchased Alleghany, a large insurer and reinsurer.
"Buffett hasn't commented on the stock portfolio within Berkshire for some time, including the performance of the sleeves managed by his two lieutenants Ted Weschler and Todd Combs. Will Buffett do so this year?" asked Toyama.
"Buffett has always been an advocate of index funds for a large segment of the population. He has also openly expressed his view that it will be hard for Berkshire to outperform the S&P 500 index in the future by any meaningful amount, given Berkshire' large size," he said. "With the S&P 500 becoming so top-heavy, I wonder if Buffett will comment more on this topic."
About the writer
Giulia Carbonaro is a Newsweek reporter based in London, U.K. Her focus is on the U.S. economy, housing market, property ... Read more