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Berkshire Bits: March 17, 2023 ☘️
The latest Berkshire Hathaway news and my must-reads of the week!
Happy Friday and welcome to our new subscribers!
The latest news and notes out of Omaha…
Berkshire Hathaway purchased another 7.88 million shares of Occidental Petroleum — for approximately $466.7 million — earlier this week. That boosts Berkshire’s stake in the oil giant up to 23.1%. And, unless Warren Buffett suddenly shifts gears (or OXY 0.00%↑ jumps up in price), I wouldn’t be at all surprised if Berkshire buys more on Thursday and Friday.
Speaking of Oxy: During its recent Q4 2022 earnings call, the company signaled that it will begin to redeem Berkshire’s preferred stock — acquired in the Anadarko deal — later this year. No word yet on exactly how much will be redeemed in 2023, but the whole thing is likely to be a multi-year process. Once fully redeemed, Berkshire will have one year to exercise its warrants (for 83.85 million common shares at $59.62 per). Based on Buffett’s current buying habits, it seems a pretty safe bet that he will pull the trigger on those shares when the time comes.
In light of the Silicon Valley Bank meltdown — and resultant aftershocks throughout the financial sector — how prescient does Buffett look for paring back Berkshire’s exposure to bank stocks in recent years? The Oracle does it again.
Apple, which makes up a staggering 43.8% of Berkshire’s stock portfolio, is off to a hot start in 2023. After stumbling into the new year near its 52-week low, AAPL 0.00%↑ has soared an incredible 24.6% year-to-date. To put the Cupertino-based tech titan’s success in perspective, Berkshire’s position opened the year at $114.5 billion and now clocks in at $142.7 billion. That’s a $28.2 billion gain in less than three months.
Paramount Global, on the other hand, is a much smaller piece of the Berkshire portfolio. Interestingly, though, PARA 0.00%↑ was the only stock that Buffett and co. bought in all four quarters of 2022. On Wednesday, Paramount CFO Naveen Chopra spoke to Yahoo Finance and this comment caught my eye: “In the fourth quarter [of 2022], domestic consumers spent 370 billion minutes consuming just CBS content on our linear and digital platforms. That’s the same amount of time that was spent consuming the entire slate of Netflix original content [in Q4 2022]. We want people to understand the scale and influence of what we bring to the table.”
In January, Mohnish Pabrai spoke (via Zoom) with students from the London School of Economics. While discussing moats and the longevity of companies, he said: “I was having a conversation with Charlie Munger a few weeks ago and I told him, ‘Charlie, the one thing that’s going to survive in the Berkshire portfolio for more than two hundred years is going to be the [BNSF] railroad. Two hundred years from now, the technology of rails may change — for freight, it might be Maglev (magnetic levitation) or something else — but the point is that they own the rights of way and they own the land and they own the connection to the ports and all of that. Humans need some way to transport goods in large land masses, so I think the Burlington Northern Railway is likely to be around and thriving two hundred years from now. And, then, Charlie said to me, ‘I think our utilities (Berkshire Hathaway Energy) will be there, as well.’ He’s probably right about that.”
This jibes with Buffett’s comment in his 2021 annual letter that “BNSF will be a key asset for Berkshire and our country a century from now”.
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🔎 On the Hunt: Warren Buffett’s 1956 Partnership Letter
From time to time, I like to re-read Warren Buffett’s earliest partnership letters.
Even though he was still hunting cigar butts back in those days, it’s remarkable how his overall view of the money game — and the emotional framework needed to thrive in it — has barely changed at all.
But here’s the problem: Every collection of Buffett letters starts with the 1957 one. A letter which clearly calls itself the “Second Annual Letter to Limited Partners”.
The first line also makes direct reference to “last year’s letter”.
What happened to Buffett’s first annual letter?
I put my Google skills to work and came up empty.
So I turned to Twitter and asked if anyone out there had any information on the 1956 letter. My tweet got plenty of views, but no clear-cut answers.
I did, though, receive two interesting DMs:
The first posited that this might all be a misunderstanding. Perhaps the “missing” letter was really the original partnership documents that Buffett distributed to his limited partners in 1956. That seemed a perfectly reasonable explanation — though a rather unsatisfying one.
Thankfully, the second DM shed a little more light on the situation. It recommended that I check Warren Buffett’s Ground Rules by Jeremy Miller, which included an excerpt from the 1956 letter. Unfortunately, the excerpt was the same passage that Buffett copied into his 1957 letter. Another dead end?
The excerpt might be the same, but Miller’s entry included a crucial detail: a date. Buffett’s first letter was written on December 27, 1956.
That might not seem like much to sane people, but it was like manna from heaven to me. If the letter was really dated December 27, 1956, then we’re not talking about the original partnership documents anymore. In fact, it all but confirms that Buffett really did write a year-end letter to his partners in 1956.
Unfortunately, that’s as far as I’ve gotten.
But my hunt continues…
Does anyone out there have any additional information to share? Or maybe even a copy of the original 1956 partnership letter? Comment below or email me!
Other awesome things that I read this week:
“What seems to be missing from much of the coverage of SVB’s failure is that the bank’s financial situation should have come as no surprise to anyone. Indeed, the company’s 10-K, filed with the SEC just two weeks ago, made it quite clear that the bank was actually undercapitalized and vulnerable to a bank run.”
Berkshire’s Warren Buffett Shows Bank CEOs How They Should Have Managed Risk (Barron’s // Andrew Bary)
“Buffett, of course, has enormous autonomy and the company isn’t subject to any pressure from analysts or investors to hit earnings targets. It would have been harder for a bank CEO to do what Buffett did and accept lower near-term earnings in 2020 and 2021 and take less risk, but that’s arguably what they should have done. They are the chief risk officers, after all.”
“If we lose trust in our banks, it will be hard to regain. Things are uncertain, which scares people, especially those not steeped in financial jargon. The situation doesn’t have to spiral out of control, but silence doesn’t help. Silence says you don’t care about people; that’s worse than signaling worries.”
“SVB was left with a Hobson’s choice. It could address its liquidity issues, but only by selling securities that had declined in value and thereby impairing its solvency. Or it could maintain an illusion of solvency, but only by retaining its securities and rolling the dice on liquidity. It’s like choosing between the firing squad and the electric chair. Both are likely to kill you, but the possibility of bad aim offers at least a slender reed of hope.”
For anyone who’s read all the way to the end, I’ve got a quick question.
Not planning on any other changes content-wise, but I’ve never been entirely sold on “Berkshire Bits” as the name of this weekly roundup of Berkshire Hathaway news.
On the other hand, I don’t want to change the name out of the blue if people like it.
So please weigh in and make the decision for me.