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Berkshire Bits: 002
The latest Berkshire Hathaway news and my must-reads of the week!
Happy Friday and welcome to our new subscribers!
Not much news out of Omaha this week. Nonetheless, I tried to dig up a few noteworthy items that might be of interest…
On Monday, Joshua Browder of DoNotPay shared an interesting story about Warren Buffett on Twitter. In 2018, Browder was selected to interview the Berkshire Hathaway chief on stage at Microsoft’s uber-exclusive CEO Summit and sought to ask him a question that he had never been asked before. “What is one time you stood up to a company for your own consumer rights?” Buffett, then, recounted the time he sued Harper’s Bazaar in 1951 after the magazine repeatedly refused to cancel his subscription. He even represented himself in small claims court — and won both a refund and punitive damages.
Chevron undoubtedly ranks as one of the most important (and valuable) holdings in Berkshire’s investment portfolio. Warren Buffett and co. own 8.8% of the oil giant — and, surely, were thrilled by Wednesday’s announcement of a 6% dividend increase and a new $75 billion share buyback program. (That’s 21% of the company’s current market cap.) Berkshire’s quarterly dividend check from CVX 0.00%↑ now jumps from $241 million to $256.3 million.
Back in September, Greg Abel purchased 168 shares of Berkshire (Class A) stock for approximately $68 million — which restored some “skin in the game” after he sold his 1% ownership stake in Berkshire Hathaway Energy over the summer. And, at least so far, Abel got one heck of a deal on those shares. They’re now worth over $79 million.
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In the Spotlight: 🎧 Chris Davis on Value Investing & A Legacy of Stewardship (Investing the Templeton Way)
I love Lauren Templeton’s podcast.
Every two or three weeks, the great-niece of Sir John (and co-author of Investing the Templeton Way) interviews a leading name in the value investing world and goes deep into that guest’s approach to capital allocation.
Seriously, each and every episode is a winner.
But, last week, I might have found my favorite. Templeton spoke with Chris Davis, chairman of Davis Advisors and a director of both Berkshire Hathaway and Coca-Cola. Impressive stuff.
In this hourlong episode, Davis shares his thoughts on a wide variety of topics — including a funny story about the late Progressive Insurance CEO Peter Lewis and a particularly thought-provoking take on the whole ESG movement.
Here are three of my favorite moments from the interview…
Everyone ❤️ stock certificates
Lauren Templeton is a big fan of physical stock certificates. In fact, her story of wallpapering her childhood bedroom with stock certificates inspired one of the best articles that I’ve ever written for this newsletter. (Sorry for the shameless plug.)
Chris Davis, though, likes them for an entirely different reason.
I became very obsessed with the idea that we really have to study mistakes. We have to study failure. We have to study what went wrong. They do that in every other industry. When an airplane crashes, the amount of experts who go in to try to figure out what went wrong — that’s one of the reasons that flying is so safe.
We wanted to build a culture where we studied mistakes. The best way to do that, sometimes, is to have powerful symbols. So I said every time we make an important investment mistake … the most important symbol we can do is let’s frame the stock certificates of our biggest mistakes and hang them on the wall in the middle of the research team. On the bottom of each mistake, let’s put a plaque that codifies the transferable lesson learned from that investment mistake.
Investing mistakes can’t be swept under the rug when they’re hanging on the wall right in front of you.
Trust the process
I was talking to Warren Buffett once about this idea of having a permanent loss of capital, which you would think is almost the definition of a mistake in investing, and he sort of corrected me. “Well, look, take out a coin from your pocket,” he said. “I’ll bet you a billion dollars on a coin toss — if you give me two-to-one odds.”
In other words, investors should be willing to take a calculated risk when the odds are stacked in his or her favor. (This example might sound shocking, but let’s remember who we’re dealing with here. $1 billion is less than 1% of Buffett’s net worth.)
Buffett only makes a bet when the odds are in his favor. And, when they are, you might be surprised by how much he’s willing to risk. He won’t win ‘em all, but — over the long haul — he’ll come out well ahead.
The moral case for investing
No, Davis isn’t talking about ESG here. But, rather, a life-changing conversation that he once had with Markel CEO Tom Gayner.
I used to make a joke to my friends who had gone on in seminary that I had chosen a “low calling” by going to work in the investment business. I used to say, “It’s not a high calling, but it’s very interesting.”
I made that joke to Tom Gayner and — he’s always full of good humor, but this was a deadly serious moment — he stopped me and said, “Chris, stewardship is a biblical profession. It is a biblical profession.” When I think of the turning points in my life, that conversation stands out as one of the most important.
Oftentimes, it seems like ruthlessness and greed reign supreme on Wall Street.
Investors, though, are called to be honest stewards. Of our clients’ funds, our family’s life savings, or even our own future self’s nest egg. People entrust their entire financial futures to us — all of their hopes and dreams for life and retirement — so shouldering that burden in an ethical way can be a force for good in the world.
Other awesome things that I read (and listened to) this week:
“Buffett started out as a superb securities analyst, having been trained by the father of modern value investing, Benjamin Graham. His early investments reflect that approach — looking to buy what was already tangibly there at a deep discount. Over the years, he evolved into a superb business analyst. As his understanding of businesses deepened, he was able to move beyond buying cheap securities and on to buying exceptional businesses at a large discount to their intrinsic value which took into account their future prospects that were expected to be substantially better than the past.”
After a Timeout, Back to the Meat Grinder! (Jeremy Grantham)
“About now I confess that I am rather rattled as a contrarian by the enormous increase in pessimism and realism since my letters of a year ago and two years ago, with influential firms like Morgan Stanley and Goldman Sachs pointing to recession and lower earnings that do not yet seem to be in the price of stocks. Equally disturbing, it is said to be one of the most widely predicted recessions ever. It is all enough to make a god-fearing contrarian wake up in the night sweating. I do take consolation from earnings estimates that remain wonderfully unaffected by all the possible negatives, but still I’d prefer a lot more optimism, which a year ago was nearly universal.”
Greenlight Capital 2022 Annual Letter (David Einhorn)
“In hindsight, we believe that our unwillingness to take risks that others were so willing to bear, enabling them to outperform during the bull run, was the flip side to our ability to have a successful 2022 [Greenlight beat the S&P 500 by 54.7% last year]. This was a year where many of those who rode the bubble suffered losses, raising the question as to whether the risks were worth taking.”
An informative look at Liberty Media (and its many tracking stocks) ahead of its upcoming split-off of Atlanta Braves Holdings.
“John Malone is probably as well known for business complexity as he is for outstanding performance. So I must admit that I wasn’t surprised to find needless complexity from the outset of my research.”