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Portfolio > Mutual Funds

Wait for It: Buffett Set to Release Investor Letter

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For some, the Oscars might be this weekend’s highlight. But for investors, the much-anticipated release of Warren Buffett’s annual chairman’s letter will be the main event.

Shares of Berkshire Hathaway, led by Buffett, have soared over the past 12 months. They are up more than 28.54% vs. a 24.95% gain in the Dow Jones industrial average.

From 1965 to 2015, the compound returns of the shares averaged 19.2%.

Like the rest of the country, Buffett is sure to discuss President Donald Trump, whom he did not back for the Oval Office.

Since the election, Berkshire Hathaway shares have improved about 18%, however. 

Given the Oracle of Omaha’s focus on infrastructure, he may have some positive perspectives on the new president.

One of Berkshire Hathaway’s main holdings, BNSF railroad, could benefit from growth in the economy as well — as more business means more demand for transportation, of course.

On the flip side, Trump’s position on building a wall on the U.S.-Mexican border and funding it through a border tax could mean fewer exports to and imports from that country.

A tough matter for Buffett could be Wells Fargo, which continues to face regulatory and other fallout from its fake accounts scandal; some cities and investors are also moving to divest from the bank over its role in funding the Dakota Access Pipeline.

Still, shares of Wells Fargo have risen along with those of other financial firms in light of expected regulatory reforms under Trump. In fact, in the past three months, shares of the California-based bank have improved 9.6%, beating Berkshire’s 7.3% gain.

Bets, Results 

Last year, Buffett said: “For 240 years, it’s been a terrible mistake to bet against America, and now is no time to start.”

With the Dow over 20,000, many investors are wondering if these bets are at risk.

Speaking of risk, one Berkshire holding, Kraft Heinz, took a gamble going after European-based conglomerate Unilever with a $143 billion offer. That was perceived to be hostile, and Unilever refused to consider or discuss it.

Performance is also likely to be a focus of this weekend’s letter, which often is 30 pages or more in length.

Buffett is a big supporter of index investing, for instance, and argues that passive beats active over time.

Not so fast, according to a Dalbar study.

The annualized performance differential for active funds vs. passive funds over the 15-year period ending Dec. 31, 2016, is 1.2%, according to the research group.

This spread drops to 0% for a 10-year annualized average, but stands at 0.4% over a 5-year time horizon.

In shorter periods, like the 3-year range, passive funds top active by 1.7%. They also outperform on a 1-year basis at an annualized rate of 2.7%.

As of Friday, Berkshire Hathaway’s A shares traded near $255,000.

Stay tuned.


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