Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money

79% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

FREE EBOOK

How to Day Trade Stocks & Indices

  • Place your first trade
  • Identify 9 chart patterns
  • Pro strategies step-by-step

You'll also receive our newsletter and other Opto emails in accordance with our privacy policy.

Market Outlook

What to look out for in Warren Buffett’s annual shareholder letter

Warren Buffett is undoubtedly one of the most respected investors in the market. His investment style is highly sought after, as investors and traders look to emulate the tried and tested recipe he uses to pick stocks.

For those looking to get insight into how Buffett manages the $554bn valued Berkshire Hathaway [BRK-A], his annual shareholder letters make for interesting reading.

Many will be watching closely to see what Buffett says about a range of issues including his succession, stock repurchases and reductions, dividends, and his most recent foray into the ETF market.

$554billion

Valuation of Berkshire Hathaway

  

Investors will also be looking to see what he says about Berkshire Hathaway’s struggling stock price performance. While shares in the mammoth holding company grew almost 11% in 2019, it has been a muted start to 2020 for Warren Buffett’s Berkshire.

At the end of January, the stock began a three-day slide that shaved off more than 3% to reach a low of $333,621 on 27 January. Its shares recovered from the sell-off in February but have recently been trending down again. It is currently up 0.1% YTD (through 18 February).

With the letter due to be released this Saturday (22 February), what should investors expect from Buffett’s beloved Berkshire?

 

 

 

Focus on the forest, forget the trees

Warren Buffett’s 2018 letter to shareholders made a point not to focus on the details of the Berkshire’s individual businesses, calling them “economic ‘trees’”, but instead to look at the entire “forest”. 

“A few of our trees are diseased and unlikely to be around a decade from now,” Buffett wrote. “Many others, though, are destined to grow in size and beauty.”

Indeed, throughout 2019 13F filings indicate that Buffett’s Berkshire grew its holdings from 48 in the first quarter to end the year at 52.

Some of the most surprising buys and increases in the fourth quarter include investments in American retail company Kroger [KR] and biotechnology company Biogen [BIIB], according to a 13F filing released on 14 February.

Most interestingly though was the new additions of a couple of passive ETFs. Berkshire now owns a combined $25m of the SPDR S&P 500 ETF and the Vanguard S&P 500 ETF in a pension plan, Buffett’s assistant Debbie Bosanek told Bloomberg. 

$25million

Valuation of Berkshire Hathaway's share of SPDR S&P 500 ETF

This is the “ultimate endorsement” to the $4.6tn ETF market, Bloomberg Intelligence’s Eric Balchunas was reported as saying. He added that it is the liquidity that most attracts large institutions to invest in ETFs. 

Notable sells and reductions that occurred during the quarter include a 14.6% reduction in Wells Fargo [WFC], a 34.6% drop in shares in Goldman Sachs [GS] and a 1.5% reduced position in Apple [AAPL], according to Fintel.

 

Succession planning

In Warren Buffett’s 2018 letter to shareholders, he briefly touched upon the management changes Berkshire made earlier in the year when Ajit Jain taking control of all of company’s insurance activities and Greg Abel given authority over operations. 

“These moves were overdue. Berkshire is now far better managed than when I alone was supervising operations. Ajit and Greg have rare talents, and Berkshire blood flows through their veins,” Buffett wrote.

“These moves were overdue. Berkshire is now far better managed than when I alone was supervising operations. Ajit and Greg have rare talents, and Berkshire blood flows through their veins” - Warren Buffett

Any further announcements regarding Buffett’s succession will be closely watched. For Greggory Warren, a financial services strategist at Morningstar, the Sage of Omaha’s three main roles — chairman, CEO and investment manager — are expected to be split when he leaves. 

“Our long-standing view has been that Buffett's son, Howard Buffett, will serve as nonexecutive chairman and that Ted Weschler and Todd Combs (who is now Geico's CEO) will oversee Berkshire's investment portfolio,” Warren writes in Morningstar. He believes Ajit Jain and Greg Abel could make good candidates for the CEO.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

Continue reading for FREE

Join the 40,000+ subscribers getting market-moving news every week.

Written by

Free ebook

Tricks of the trade: 7 interviews with the world’s top traders

Get it now

Related articles

7 Interviews with the world's best traders

Learn about the techniques and strategies used by expert traders

Get it now