In the realm of annual reports and corporate communiques from CEO's, Warren Buffett's annual letter to Berkshire Hathaway (BRK.A) shareholders is in a league of its own. No other missive draws this scale of attention from a diverse audience searching for clues and nuggets of wisdom from America's superinvestor.
But this year's letter could prove to be a little different given the rocky performance of Berkshire shares in 2011, which ended the year down 4.7%. More importantly, there was a string of unprecedented scrutiny that weighed on the Berkshire reputation and its 81-year old chairman; most notably over the high-profile downfall of David Sokol.
In fact, this year's letter may be remembered for what it doesn't say, since so much of what normally would be included will prove difficult to address. And yet, that is exactly what shareholders want - and deserve.
Buffett won't likely address that his heir-apparent Sokol left the company in disgrace amidst allegations of insider trading. He probably won't disclosure much on the company's use of derivatives, or what caused a noted tech-phobic value investor to put nearly $11 billion into IBM (IBM) when it was trading at an all time high.
"What they're going to talk about is a bunch of folksy aphorisms; how he likes Coke (KO)," my co-host Jeff Macke says. "I don't want to hear that. He's a financial greatest hits cover band right now. We need to hear something new from him right now, and I don't think we're gonna get it."
While the long-term Berkshire growth story is fully intact, the stock's short-term under-performance over the past couple of years is starting to grow tiresome and is showing no signs of reversing. In fact, since Berkshire was added to the S&P 500 in 2010, it has lagged the benchmark by more than 20%.
As a result, expect at least a few pages of his letter to again extoll the benefits of long-term investing. Last year's note included a lengthy review of 5-year returns, dating back nearly half a century.
Another thing that is new but will likely be ignored is Buffett's increased political activism, that arguably peaked when his now-famous secretary was a guest of the President at the State of the Union address. This new found political outspokenness has certainly diverted attention away from the business of Berkshire and gone a long way in repairing Buffett's status as the nation's favorite rich uncle.
"We need a succession plan. We need an investment policy. We need to discuss the various aspects of the companies he's controlling," Macke says with increasing intensity. "We had an insider trading scandal at Warren Buffett's company and he's telling me how to pay my taxes? Dude, control your company, then get into my wallet."
To be fair, last year's letter was heavy on hope and economic optimism at a time when we needed it. His patriotism by way of his investment in America and its companies, such as his recently acquired Burlington Northern railroad, had a tremendous positive impact on the investing world.
Bottom line: this letter should be focused on "the nuts and bolts of Berkshire" because ultimately, that's what shareholders want to hear.
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