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Shares of Berkshire Hathaway (BRK-B, BRK-A) closed at record highs on Friday. The Warren Buffett-led company will release its annual report on Saturday February 24. The release will also include Buffett's closely-watched annual letter, the first since his longtime business partner Charlie Munger passed away in November.

Smead Capital Management CIO Bill Smead says what one of the things that Buffett does is "patiently wait for things to come to him." When it comes to the holding that Berkshire has requested to keep confidential, Smead thinks it may be a financial institution, saying "banks are the cheapest relative to the S&P going back to, like, 1941. So if he is buying into a bank or an insurance company, he's doing what he always does which is taking advantage of a deeply out of favor sector in comparison to the rest of the stocks."

Watch the video above to hear how Smead thinks Buffett will honor Munger in his letter.

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Editor's note: This article was written by Stephanie Mikulich.