Berkshire Bits: 005
The latest Berkshire Hathaway news and my must-reads of the week!
Happy Friday and welcome to our new subscribers!
It’s been a pretty busy week on the Berkshire beat…
Besides the shocking slash of TSMC (and two big bank sell-offs), it actually turned out to be a pretty quiet quarter of investment activity at Berkshire Hathaway. Since the 333,856 shares of Apple were inherited from Alleghany, that leaves just Paramount Global (2.42 million shares) and Louisiana-Pacific (1.24 million shares) as real purchases. Neither cost over $100 million — which could easily make them Ted or Todd picks. In other words, it’s very possible that Warren Buffett made no new investments during Q4 2022.
The conspicuous absence of any other Alleghany holdings — outside of Apple — in the 13F suggests that Berkshire liquidated the rest of that portfolio after completing the $11.6 billion acquisition in October.
Speaking of Apple, yesterday was dividend day for the Cupertino-based tech giant. Berkshire received the tidy sum of $210.5 million. Not a bad perk for owning 5.8% of the most valuable company in the world.
A Pilot spokesman told Reuters that Berkshire officially boosted its stake in the company to 80% in late January. The Haslam family will retain the other 20% and remain involved with the day-to-day operations of Pilot. What did Buffett and co. pay for this additional 41.4%? We still don’t know. Berkshire’s last 10-Q stated that it would be purchased “for a value TBD, based upon Pilot’s adjusted earnings in 2022 and its net debt at 12/31/22”.
Despite several confusing headlines to the contrary, Berkshire did not buy any more Occidental Petroleum in the fourth quarter. We’ve been over this before, but the newly-filed 13G — which listed Berkshire’s ownership at 28% — includes the unexercised warrants from the Anadarko deal. So, no new purchases by Berkshire.
Just another epic misread by the financial media.
Oh, and Charlie Munger fielded questions from all corners on Wednesday at the DJCO 0.00%↑ annual meeting. Much more on that after the jump.
In the Spotlight: Charlie Munger’s Q&A at the Daily Journal Annual Meeting
Put Charlie Munger in front of a microphone and something memorable will happen. That’s about as close to a sure thing as it gets.
And, on Wednesday, the 99-year-old happily obliged. For nearly two-and-a-half hours, Munger held court on a variety of subjects — from investing advice to life lessons to cryptocurrency — and minced absolutely no words in his replies.
This event was such a goldmine of wisdom that I’m planning to transcribe and annotate Munger’s comments and send a full transcript to all Kingswell subscribers in early March. I know a few rough-and-ready versions are already floating around out there, but I hope to make mine as polished and complete as humanly possible.
Until then, though, I’ve pulled out some of his answers that relate specifically to Berkshire Hathaway.
On BYD:
When Munger brought up BYD unprompted, CNBC’s Becky Quick was, well, quick on her feet and followed up with a few questions about the Chinese EV maker. Especially about Berkshire’s decision to cut its stake in the company by more than one-third over the past six months.
You can understand why some people would sell BYD stock at 50x earnings. At the current price of BYD stock, little BYD is worth more than the entire Mercedes corporation. It’s not a cheap stock. On the other hand, it’s a very remarkable company.
Another question asked why Munger preferred BYD to Tesla. “BYD is so far ahead of Tesla in China that it’s almost ridiculous,” he replied.
On Berkshire’s burgeoning O&G empire:
Having a big position in the Permian Basin, through [Chevron and Occidental Petroleum] is likely to be a pretty good long-term hold.
I like the big position that Berkshire has in the Permian through those two. I kind of admire both places a lot. Both Occidental and Chevron are very admirable places.
On Greg Abel:
Greg is just sensational at being a business leader — both as a thinker and as a doer. He’s also sensationally good at smoothly getting things done through other people. So he’s a very remarkable human being and Berkshire is very lucky to have him. He’s also a tremendous learning machine. You can argue that he’s just as good as Warren at learning all kinds of things.
One of the interesting things about Greg is there’s some things he’s better at than Warren is — and Warren knows that — and he just keeps dumping on Greg everything that Greg can do better. And that's a lot.
Greg is trusted by utility regulators — and rightly so. He is trying to run all those utilities as if he were the regulator. How many people think that way? But it’s such a smart way to think.
The more I hear about Abel, the more I’m convinced that he’s the perfect guy to succeed Warren Buffett as Berkshire CEO. Seems like the real deal in every respect.
On Berkshire’s best investment:
We paid an executive recruiter to get us an employee and he came up with Ajit Jain. The return that Ajit has made us — compared to the amount we paid the executive recruiter — that was our best investment at Berkshire.
Hang tight for the full transcript.
I’ll do my best to make sure that it’s worth the wait!
More Must-Reads
Other awesome things that I read (and watched) this week:
The “Berkshire System”: Life Advice from a Shareholder Letter
“I read that Picasso occasionally paid restaurant tabs with his signature or little doodles. When Buffett praises his managers in public, including at a shareholder meeting attended by tens of thousands, he knows that his words have tremendous value in terms of motivation and even compensation. It’s an intangible asset not found on Berkshire’s balance sheet.”
📺 Berkshire Hathaway Valuation Masterclass
A long watch, but worth every second. Adam J. Mead, the author of The Complete Financial History of Berkshire Hathaway, walks viewers through his preferred valuation model for the conglomerate. The title says it all: this is a masterclass.
Risk and Regret (Morgan Housel)
“Most ordinary people can afford to not be a great investor, but they can’t afford to be a terrible one. Warren Buffett once remarked on the failed hedge fund Long Term Capital Management and said, ‘If you risk what you need in order to gain what you don’t need, that is foolish. It’s just plain foolish.’ I also like the saying, ‘YOLO is just as good a reason to not do something.’”
Buffett and the Japanese Trading Companies
“Shoshas are extremely diversified, both (1) in terms of the industries they operate in, and (2) ways that they make money (through minority investment stakes, buying out entire companies, making commission revenue from trading, etc.) Shoshas are creative organizations, and there is no single fixed way in which they do things. At the risk of oversimplifying, it’s about a group of smart people, backed by organizational network and capital, looking out for ways to make money in the real economy.”
“The line is thin… In any championship journey, there’s always that line, like, oh sh*t, we may not make it.”
Bidding Wars and Trophy Assets
“The thing with trophy assets is that they’re generally up for sale once. If you’re a billionaire or strategic acquirer, that means you’ve got one shot to buy them. If you’re a billionaire who dreamed of owning [Manchester United] since you were a child, this is your only chance to own them.”
Thanks for the shoutout!