It isn’t what Warren Buffett wrote in his shareholder letter — it’s what he didn’t.
The Berkshire Hathaway Inc. CEO’s closely read annual letter to investors, released Saturday along with mixed 2018 results, is typically a source of wit, insights into the company’s businesses, and longwinded, generally upbeat ruminations on markets, the economy and the wonder of life itself.
This year, not so much.
Let's start with, well, the words. Last week, a Bloomberg columnist bemoaned the skimpiness of Buffett's letter to shareholders for calendar 2017. But a rough, Microsoft-based calculation of the 2018 letter released Saturday shows that it is even shorter than 2017's, with a word count of some 7,000, compared with more than 8,500 for the year-earlier message. In 2014, the Golden anniversary of Buffett's takeover, his letter was a veritable War and Peace, clocking in at nearly 11,900 words. And that excludes pages of ripping yarns by both Buffett and vice chairman Charlie Munger.
The low word count should be unsettling to Buffett-watchers, accustomed as they are to the garrulous storyteller.
“It could be he doesn’t have much more to say,” says Meyer Shields, an analyst at Keefe, Bruyette & Woods Inc. That font of investment wisdom might be finite.
Glaringly, Buffett’s letter paid scant attention to Kraft Heinz Co., which lost more than a quarter of its stock market capitalization just last Friday. The maker of Velveeta cheese product and Jell-O announced it was taking a $15.4 billion write down, mostly on two of its iconic brands, Kraft itself and Oscar Mayer, as consumers seek out fresher, possibly healthier foods. It also cut its dividend and announced a Securities and Exchange Commission investigation.
Berkshire owns 26.7 percent of Kraft Heinz. But in his shareholder letter, Buffett did not venture to analyze any of the headwinds the packaged food giant is facing, despite the $3.0 billion noncash loss Berkshire was already forced to record in 2018 almost entirely due to Kraft Heinz even before last week’s news from the ketchup maker.
“There was no discussion of Kraft,” says Shields, who rates Berkshire a market performer. “It’s radio silence.”
On Monday, Buffett told CNBC that Berkshire and its private equity partner, 3G Capital, overpaid in 2015 when they helped Heinz buy Kraft to form Kraft Heinz.
Much of Buffett’s success historically derives from his understanding of brands and their power. Big brands in the Berkshire portfolio include American Express Co. and Coca-Cola Co. and it once held big stakes in Gillette Co. and Procter & Gamble Co.
Shields suspects people’s tastes may be changing more rapidly than they used to, which might have negative effect on Buffett’s ability to pick consumer stocks.
“It’s probably a really, really big deal,” he says. “It makes a difference to his investing process.”
Berkshire did not respond to an email seeking comment.
Only glancingly noted by pundits, Berkshire did something in its financials that may confound many of those trying to make sense of the sprawling conglomerate. It changed the manner in which it reports the results of scores of businesses.
Last year, and in many years past, Berkshire broke its businesses into three groups for reporting purposes. These were Insurance and Other, which aside from GEICO and its ilk included manufacturing and retail companies; Railroad, Utilities, and Energy; and Finance and Financial Products, which included manufactured home seller Clayton Homes Inc. and XTRA Corp., which leases trailers.
Now Berkshire has folded the detailed results of its Finance group into the two remaining ones, depriving investors the opportunity of closely monitoring those businesses’ performance and to make year-over-year comparisons.
Shields says the move runs counter to the notion that Berkshire Hathaway is trying to provide information that helps investors make informed decisions. “I can’t claim to know what the purpose of [the change] is,” he says. “It’s opaque. It’s disheartening.”
Something else is missing from the letter too: The cornball jokes and anecdotes that shareholders love to read. It’s as if the man who once proverbially tap-danced to work each day suddenly has a dread of Monday morning.
Buffett, 88, made no mention of his own health, nor that of Munger, who is 95. He cites the despair of Abraham Lincoln pondering the U.S. civil war, the American cemeteries at Normandy, and the tomb of the architect Christopher Wren. Not cheery stuff.
It could be that after a trying spell in the markets, Buffett has simply temporarily run out of inspiration for the letter. After all, on occasion, even great storytellers like Buffett can find themselves in the position of just mailing it in.