Warren Buffett and Charlie Munger are set to answer questions from Berkshire Hathaway (NYSE:BRK-B) (NYSE:BRK-A) shareholders at the company's annual meeting on Saturday. While I'm not expecting any major surprises, here are four things I'll be watching for during the Oracle of Omaha's Q&A session.
More concrete succession plans
This is a big item on the minds of Berkshire's shareholders. Warren Buffett is 87 and his right-hand man, Charlie Munger, is 94, so while we hope they both live into their 100s, it's fair to say that they won't be at the helm of Berkshire for decades to come.
Over the past few years, we've learned several details of the company's succession plan. Buffett wants his son, Howard, to succeed him as a non-executive chairman and create a system of checks and balances. And both of his two trusted stock pickers, Ted Weschler and Todd Combs, have been given more and more control of Berkshire's investments and most likely will take over when Buffett is no longer in charge.
And just this year, we've learned that Berkshire managers Ajit Jain and Greg Abel have both been named vice chairmen, a move Buffett confirmed is a part of his succession plan.
However, there still are some key unanswered questions. Which of the two new vice chairmen are next in line for the CEO seat? Does Buffett plan to eventually retire or to remain at Berkshire for as long as he is physically able? At this year's meeting, I'll be paying attention for any clarification on the succession plan.
Comments about the cash problem
At the end of 2017, Berkshire Hathaway's cash hoard had swelled to roughly $116 billion. And although the company's first-quarter earnings haven't been announced as of this writing, I expect that this number is significantly higher now. While this isn't the worst problem to have, it's still a problem.
Simply put, Buffett and his team would love to find ways to put this money to work, but high stock valuations and a robust economy have made finding attractively priced opportunities difficult, especially on a scale that could have a meaningful impact on Berkshire's bottom line.
There are four main ways Berkshire could deploy its cash. It could acquire businesses, buy stocks, buy back shares, or pay a dividend for the first time in roughly 50 years. I'll be watching for any comments that indicate which direction the company may take.
Will Berkshire announce a dividend?
On that note, there's a realistic possibility that Berkshire will reluctantly decide that paying a dividend to shareholders is a better use of capital than simply leaving it in the bank. Last year's annual meeting was the first time Buffett mentioned a dividend could be coming. He told shareholders that a dividend could be coming "reasonably soon, even when I'm around."
At the time of Buffett's comments, Berkshire's cash hoard was a relatively modest $90 billion or so. There's no question that Buffett doesn't really want to pay a dividend, but he's indicated that he won't simply let the company's stockpile of cash grow indefinitely. Is the current 12-figure sum of cash too much to justify a no-dividend policy?
Is Buffett getting fed up with Wells Fargo yet?
After Wells Fargo's (NYSE:WFC) fake-accounts scandal was revealed in 2016, Buffett said that the bank remained a compelling long-term investment and that he had no plans to sell any of Berkshire's massive stake. At last year's meeting, Buffett reiterated that while the bank made a big mistake by incentivizing cross-selling, it still was a great company.
Since that time, however, much more has happened. The Federal Reserve slapped the bank with a penalty that prohibits Wells Fargo from growing in size until it makes substantial improvements, and the bank was just hit with a $1 billion fine from the Consumer Financial Protection Bureau (CFPB) over two additional scandals.
I'd be shocked if Buffett wasn't asked a question about Wells Fargo at the meeting, and I'm curious to see at what point Buffett says "enough is enough."
What not to expect
Having said all of that, there are several things I definitely don't expect to hear. For starters, don't expect Buffett to reveal any stocks Berkshire has bought or sold thus far in 2018 -- you'll most likely have to wait until the company's SEC filings are revealed later in May. Also, don't expect much in the way of specifics about businesses Berkshire is considering. Buffett and his team are eager to answer questions and share some wisdom with investors, but they are notoriously silent when it comes to their current investment activity.