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Berkshire Hathaway’s annual meeting is here: What to expect from Warren Buffett and Charlie Munger

The 90-year-old Buffett is taking the “Woodstock for Capitalists” to Los Angeles, marking the first time the annual meeting will take place outside of Omaha.

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Warren Buffett (L), CEO of Berkshire Hathaway, and Vice Chairman Charlie Munger attend the 2019 annual shareholders meeting in Omaha, Nebraska, May 3, 2019.

Johannes Eisele | AFP | Getty Images

Warren Buffett will kick off Berkshire Hathaway‘s annual shareholder meeting on Saturday riding high, with shares of the conglomerate at a record and its myriad of operating businesses and equity investments primed to benefit from the U.S. economy reopening from the pandemic.

The event will be held virtually (1:30 pm ET) without attendees for a second time because of Covid-19. This year, however, the 90-year-old Buffett is taking the meeting to Los Angeles so he can be by 97-year-old Berkshire Vice Chairman Charlie Munger’s side once again. Munger resides in Los Angeles and missed the last annual meeting due to travel restrictions. It will be the first time that the annual meeting will take place outside of Omaha, Nebraska.

While “Woodstock for Capitalists” will be missing the capitalists once again, the tone of the meeting may more likely resemble the meetings of old with shareholders clamoring for Buffett’s outlook on the world following an unprecedented year.

“I hope there would be a pretty sharp contrast in the overall demeanor of the folks at Berkshire,” said Cathy Seifert, a Berkshire analyst at CFRA Research. “Last year, there was a degree of an alarm just because this was an event that was very difficult to price. It was kind of written all over his face. This annual meeting, the tone from an underlying operational perspective should be more relaxed.”

(You can view last year’s annual meeting and the others at the Warren Buffett Archive.)

Berkshire’s other vice chairmen, Ajit Jain and Greg Abel, will also be on hand to answer questions during the 3½-hour event. Berkshire’s B shares were up more than 1% on the week, bringing their 12-month gain to 50%.

Here are some of the big topics shareholders will want answers on:

  • Airlines: His thoughts on the industry after revealing at last year’s meeting he sold his entire stake (with the shares then subsequently roaring back)
  • Deploying the $138 billion cash pile: Why he’s been buying back a record amount of Berkshire’s stock instead of making one large acquisition and what his plan is going forward
  • Market outlook: His thoughts on the stock market’s overall valuation following the pandemic comeback
  • Bubbles?: Cryptocurrencies and the other possible market manias that have popped up amid the huge rush of retail investors into markets
  • Life after Buffett and Munger: Berkshire’s succession plan

Dumped airlines

At the last annual meeting, Buffett revealed Berkshire sold the entirety of its equity position in the U.S. airline industry. This included stakes in United, American, Southwest and Delta Air Lines, which were worth north of $4 billion combined.

“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” Buffett said at the time. “I don’t know if Americans have now changed their habits or will change their habits because of the extended period.”

The sale conveyed a pessimistic view on the industry from the legendary buy-and-hold investor. Many Buffett watchers were left disappointed, however, as shares of those carriers soon embarked on an epic rebound, rallying triple digits from 2020 lows. Even former President Donald Trump weighed in on the trade back then, saying that Buffett has been right “his whole life” but made a mistake selling airlines.

“He might acknowledge that the velocity of this recovery was greater than anticipated,” CFRA’s Seifert said. “The airline disposal may have been a function of their belief that what’s going on in the airline industry may be secular and not cyclical. That’s the one fine distinction that investors may want him to make.”

While airline stocks have rebounded drastically over the past year, many argue that the industry may have indeed changed fundamentally due to the economic fallout and the road to a full recovery remains bumpy. United Airlines said this month that business and international travel recovery is still far off even as the economy continues to reopen.

“He may still be right about the airline industry with travel coming back slowly and there being too many planes,” Edward Jones analyst James Shanahan said. “Arguably he could still be right about that, but he’s certainly wrong on the stocks.”

New stock moves

Berkshire bought back a record of $24.7 billion in its own shares last year. Buffett also did some bargain-hunting amid the market comeback, taking sizable positions in big dividend payers Chevron and Verizon.

Apple was still the conglomerate’s biggest common stock investment as of the end of 2020. Buffett’s conglomerate also appeared to dial back its exposure to financials. Berkshire exited its JPMorgan Chase and PNC Financial positions at the end of last year, while cutting the Wells Fargo stake was cut by nearly 60%.

“When you think about the legacy of Berkshire Hathaway and all the operating businesses, including railroads, manufacturing, retail, utilities, it’s all old economy type companies,” Shanahan said. “The way the portfolio is comprised now after the selling of airline stocks and selling of the financial stocks, together with huge performance in Apple, it looks a lot more new economy now.”

Shanahan estimated that Berkshire bought back another $5 billion of its own shares in the first quarter, based on proxy filings.

‘Elephant-sized’ deal?

The conglomerate was still sitting on a huge cash war chest with more than $138 billion at the end of 2020. Buffett has yet to make the “elephant-sized acquisition” he’s been touting for years. At last year’s meeting, the legendary investor gave a simple reason for his inaction.

“We have not done anything because we haven’t seen anything that attractive,” Buffett said. “We are not doing anything big, obviously. We are willing to do something very big. I mean you could come to me on Monday morning with something that involved $30, or $40 billion or $50 billion. And if we really like what we are seeing, we would do it.”

The deal-making environment has only become all the more competitive over the past year with the meteoric rise of SPACs, or special purpose acquisition companies. More than 500 blank-check deals with over $138 billion funds are seeking their target companies currently, according to SPAC Research.

“This is a significant company with a significant cash position. Investors have the right to know what they intend to deploy the cash,” Seifert said. “They are entitled to have more than just an excuse. Investors are going to start to grow a bit weary if it’s just the same old story. But the stock has recovered nicely, so they are not going to be grumbling too much.”

Succession

When it comes to a concrete succession plan, shareholders might not get much more from Buffett and Munger even though they are now both nonagenarians.

Abel, vice chairman of noninsurance operations at Berkshire, is seen as a top contender as Buffett’s successor.

“I do not expect him to talk about succession in any more detail than he already had,” Shanahan said. “Elevating the status of Abel and Jain to the roles of vice chairmen and having them available and participating in annual meeting speaks volume. I don’t think he necessarily has to say more than that.”

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Source: https://www.cnbc.com/2021/04/30/berkshires-annual-meeting-is-saturday-with-buffett-and-munger-together-again-shares-at-a-record.html

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Why investors should ignore the old Wall Street adage ‘Sell in May’

The “sell in May, and go away” strategy isn’t getting much love on Wall Street this year.

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The Wall Street Bull, located in the financial district of New York City.

Mike Roy | MCT | Tribune News Service | Getty Images

The “sell in May, and go away” strategy isn’t getting much love on Wall Street this year.

Market pros acknowledge that history clearly shows the market’s strongest six-month period is November to April, but they also say that’s not necessarily a factor that should shape investors’ plans in any year.

“Any investment strategy that you can summarize in a rhyme is probably a bad strategy,” said Jonathan Golub, chief U.S. equity strategist at Credit Suisse. Golub raised his S&P 500 target on Friday to 4,600 for year end from 4,300, based on strong earnings.

He said on average the market’s performance does follow the pattern of weakness between May and October, but it’s not a reason to get out of stocks.

“This would be perfectly reasonable if every single May looked the same as the May the year before,” Golub said. Just comparing this year to last year shows a huge contrast.

“Last May of last year the market was jumping off the bottom.” He said now the backdrop has totally changed, from a country and economy gripped by the pandemic last year, to a period in which a booming economy and earnings should drive further gains.

“Look at what we’re having this earnings season. U.S. companies are beating estimates by 22% — 22% is unheard of. The economic data is phenomenal,” said Golub.

The second quarter is expected to be even stronger, and those earnings reports will be released in July.

“I’m not selling in May, and I wouldn’t advise somebody else to,” said Golub. “I think the biggest mistake you can make in a market like this is to get too cute and get out too early. You’re better off trying to stay a little longer than get out too early.”

Market topping?

A view of the New York Stock Exchange Building on Wall Street in Downtown Manhattan in New York City.

Roy Rochlin | Getty Images Entertainment | Getty Images

Carter Worth, chief market technician at Cornerstone Macro, agrees that generally investors would not be well served to get out of the market in May and stay out through October.

But this year he expects the market to enter a weak period. Worth said aside from the seasonal factors, he expects the market has been topping.

“It’s a time to reduce exposure. Intermediate tops can last for three to five months,” he said.

Worth studied the seasonal trend and found that the 27.8% performance of the Dow from Nov. 1 through April 30 was the fourth strongest for that six-month period going back to 1896.

“After especially good November to April six-month runs, the ensuing six months is lackluster,” Worth said. He added that this could be the case for any six-month period following a strong gain for stocks.

The average gain for the Dow in the top 10 years for the November-to-April period was 27.5%, compared with an average 2.9% in the ensuing May-to-October periods, Worth found. The average overall gain for the full year in the 10 best years for November to April was 23.7%.

For all years going back to 1896, the Dow’s average return was 5.2% in November to April, and 2.1% in May through October, according to Worth’s analysis. The average performance for all years was 7.3%.

Even though Worth expects the market has found a near-term top, he said the seasonal investment strategy is the wrong approach.

“The six-month period of November to April has offered higher returns than the six-month period of May to October, 1896 to 2020,” he said. “But the best strategy by far, as all will know, is to keep capital exposed to the market year in and year out.”

Worth calculated that $1 million invested in the market in November-through-April periods going back to 1896 by investors who then went to cash from May to October would have returned $164.4 million.

Investors who stayed in all year would have a return of $672.6 million on that original $1 million.

A tendency for a summer rally

The pattern of seasonal weakness from May to October is also clear in the S&P 500, but the average return has been positive 66% of the time going back to 1928, according to Stephen Suttmeier, technical research strategist at Bank of America.

He said because the index had an average positive return of 2.2% for that six-month period, the “sell in May” strategy “leaves much to be desired.”

Suttmeier said his study confirms a tendency for a summer rally, and the decline in the May to October period is “back-end loaded.”

“Instead of ‘sell in May and go away’ it should be ‘buy in May and sell July/August,'” he wrote in a note. “Monthly seasonality suggests selling in the strong month of April, buying weakness in the risk-off month of May and selling in July to August, ahead of September, which is the weakest month of the year.”

The summer rally can be even stronger in the first year of a new president’s term, with the market strong in April and July, but also with a solid return in May, Suttmeier noted.

“This spring to summer rally and fall correction is magnified in Presidential Cycle Year 1 with April-June up 5.5% on average and August-October down 2.4% on average,” he wrote.

Any investment strategy that you can summarize in a rhyme is probably a bad strategy.

Jonathan Golub

chief U.S. equity strategist at Credit Suisse

Sam Stovall, chief investment strategist at CRFA also looked at the ‘”sell in May” phenomena, through the performance of the S&P Equal Weight 500. This index gives each stock equal weighting rather than the market cap weighting of the S&P 500 index.

Through April 30, the S&P Equal Weight 500 was up 16.2% for the year, its third strongest four-month start to any year since the index was created in 1990.

“Investors now ask if this benchmark of unweighted large-cap U.S. stocks has gone too far, too fast,” wrote Stovall in an note.

He said history shows that such early strength is typically followed by a period where the market digests the gains in May. The market can be volatile through September before an above average gain in the final three months of the year.

With all the focus on “sell in May and go away,” investors should know that the history of the adage might have more to do with going on vacation than bailing from the stock market.

“The phrase ‘Sell in May and go away’ originates from an English saying, ‘Sell in May and go away, and come on back on St. Leger’s Day,'” said Cornerstone Macro’s Worth.

St. Leger’s Day refers to the St. Leger’s Stakes, a thoroughbred horse race held in mid-September.

“It refers to the custom of leaving the city of London for the countryside to escape the hot summer months,” Worth said.

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Market pros acknowledge that history clearly shows the market’s strongest six-month period is November to April, but they also say that’s not necessarily a factor that should shape investors’ plans in any year.

Source: https://www.cnbc.com/2021/05/03/why-investors-should-ignore-the-old-wall-street-adage-sell-in-may.html

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The four astronauts of the SpaceX Crew Dragon splash down to earth after record mission

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A SpaceX Falcon 9 rocket, with the Crew Dragon capsule, is launched carrying four astronauts on a NASA commercial crew mission to the International Space Station at Kennedy Space Center in Cape Canaveral, Florida, April 23, 2021.

Joe Skipper | Reuters

The four astronauts aboard the SpaceX Crew Dragon capsule have safely returned to earth, splashing down in parachutes landing in the Gulf of Mexico after a record-setting mission to the International Space Station. The astronauts spent more than five months in space, the longest-ever duration for a crew launched in an American-built spacecraft.

NASA’s Shannon Walker, Mike Hopkins, and Victor Glover and Japan’s Soichi Noguchi reached the space station via the Dragon capsule, Resilience, last November.

After undocking from the space station at 8:35 p.m. Saturday, the astronauts traveled through the atmosphere and touched down in Mexico’s Gulf near Panama City, Florida, via parachutes at about 2:57 a.m. ET on Sunday. They exited the SpaceX Dragon spacecraft less than an hour after landing.

Weather conditions were reported to be near perfect, with little wind and a calm sea. “It really could not have been a more flawless journey home for Crew Dragon Resilience,” NASA public affairs officer Leah Cheshier said.

The landing was the first U.S. spacecraft splashdown amid darkness since 1968, and the second time a space capsule has ever landed in the Gulf of Mexico. It’s also only the second time NASA and SpaceX have brought astronauts back to earth on a Crew Dragon spacecraft.

SpaceX mission control welcomed the astronauts with some humor after they touched down: “We welcome you back to planet Earth and thanks for flying SpaceX. For those of you enrolled in our frequent flyer program, you’ve earned 68 million miles on this voyage.”

The second operational SpaceX crew mission arrived at the International Space Station early on the morning of April 24, carrying four astronauts for a six-month stay in space.

SpaceX’s Crew Dragon spacecraft ‘Endeavour,’ which launched on a Falcon 9 rocket the day before, docked with the ISS at 5:22 a.m. EDT. The capsule carried an international cadre of astronauts: NASA’s Shane Kimbrough and Megan McArthur, JAXA’s Akihiko Hoshide and ESA’s Thomas Pesquet.

At that time, the Crew-2 mission temporarily brought the total number of astronauts on board the orbiting research laboratory to 11.

SpaceX developed its Crew Dragon spacecraft and fine-tuned its Falcon 9 rocket under NASA’s Commercial Crew program, which provided the company with $3.1 billion to develop the system and launch six operational missions.

—CNBC’s Michael Sheetz contributed to this report.

Source: https://www.cnbc.com/2021/05/02/spacex-crew-splashes-back-down-to-earth-after-record-mission.html

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Why investors should ignore the old Wall Street adage ‘Sell in May’

The "sell in May, and go away" strategy isn't getting much love on Wall Street this year.

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