Berkshire Bits: March 3, 2023
The latest Berkshire Hathaway news and my must-reads of the week!
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February was a crazy month here at Kingswell. I don’t know about you, but I’m still catching my breath after the whirlwind of a Charlie Munger Q&A, Warren Buffett letter, and Berkshire Hathaway annual report all in the span of ten days.
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More coverage of Warren Buffett, Charlie Munger, and Berkshire Hathaway. More articles about the lessons that we can learn from investing/business greats like Li Lu, Henry Singleton, and Walter Schloss. More transcripts of notable interviews and events.
Just more of everything.
Another busy week on the Berkshire beat…
In response to Berkshire Hathaway’s record operating earnings of $30.8 billion, Warren Buffett modestly noted that 2022 was “a good year”. Overall, Berkshire got tagged with a $22.8 billion net loss — though that’s heavily skewed by (unrealized) investment losses during the bear market. “Charlie and I focus on [operating earnings] and urge you to do so as well,” he added.
Q4 2022 operating earnings of $6.7 billion were lower than the comparable quarter in 2021. Something to keep an eye on.
Berkshire’s cash hoard grew to $125 billion by the end of 2022. “Berkshire will always hold a boatload of cash and U.S. Treasury bills,” Buffett assured shareholders. That number got a little smaller, though, in January.
From the 10-K: “On January 31, 2023, we acquired an additional 41.4% interest in Pilot for approximately $8.2 billion, which was based on Pilot’s unaudited earnings in 2022 and its net debt as of December 31, 2022.”
On Wednesday, Whitney Tilson released his current intrinsic value estimates for Berkshire: $562,000 for Class A shares and $375 for Class B shares. “The stock is trading 18% below my estimate of its intrinsic value,” he wrote. “Berkshire is incredibly safe, growing at a healthy rate, and its stock is cheap. Since the market’s recovery after the Covid crash, Berkshire has traded at a 0% to 20% discount, so today it’s near the high end of that range — making this an excellent time to own the stock.”
Other recent Berkshire valuations by Adam J. Mead Watchlist Investing and Christopher Bloomstran.
Earlier this week, Occidental Petroleum reported Q4 2022 earnings — and missed expectations on both the top and bottom line. Still, the oiler enjoyed a hugely profitable year that allowed it to repair its battered balance sheet. Case in point: Oxy repaid 37% of its outstanding debt in 2022. It also bought back $562 million worth of shares in the fourth quarter, boosting Berkshire’s stake up to 21.6%.
And Vicki Hollub and co. aren’t stopping there. Oxy announced a new $3 billion share repurchase authorization (and a 38% dividend hike).
In the Spotlight: Warren Buffett’s 2022 Annual Letter
On Monday, I wrote about the overarching themes of Warren Buffett’s latest annual letter — and how his message, as a whole, re-commits Berkshire to the philosophies and values that have made it one of the most valuable companies in the world.
Today, though, I’d like to narrow the focus a bit and take a closer look at the two people who received special shoutouts in Buffett’s letter.
(1) Joe Brandon
The recent $11.5 billion acquisition of Alleghany brought Brandon, an insurance whiz, back home to Berkshire where he belongs.
A second positive development for Berkshire last year was our purchase of Alleghany Corporation, a property-casualty insurer captained by Joe Brandon. I’ve worked with Joe in the past, and he understands both Berkshire and insurance. Alleghany delivers special value to us because Berkshire’s unmatched financial strength allows its insurance subsidiaries to follow valuable and enduring investment strategies unavailable to virtually all competitors.
Back in October, I wrote about Brandon’s triumphant return to Berkshire as part of the Alleghany deal — and, if anything, I’m even more excited about it today. In that article, I kicked around the possibility of Brandon eventually succeeding Ajit Jain as head of Berkshire’s insurance operations. In the meantime, maybe he’s just the guy to get GEICO turned around?
In any event, Joe Brandon’s future at Berkshire looks bright.
(2) Charlie Munger
Fittingly, Buffett wrapped up his letter with a collection of “Mungerisms” that sum up his longtime partner’s unique outlook on life and business.
Here are a few of my favorites:
All I want to know is where I’m going to die, so I’ll never go there. And a related thought: Early on, write your desired obituary — and then behave accordingly.
You can learn a lot from dead people. Read of the deceased you admire and detest.
Warren and I don’t focus on the froth of the market. We seek out good long-term investments and stubbornly hold them for a long time.
Buffett noted that many of these sayings and quips were “lifted from a very recent podcast”.
What “very recent podcast” is Buffett referring to?
The Daily Journal meeting livestream? Becky Quick’s interview with Munger from last November? The 3+ hour fireside chat that will accompany the upcoming re-release of Poor Charlie’s Almanack? (Maybe Buffett has already seen the footage…) Or something else entirely?
More Must-Reads
Other awesome things that I read this week:
Buffett on Buybacks Roger Lowenstein
“Buffett is entirely right: penalizing buybacks is political grandstanding and economically injurious. As he noted, ‘The math isn’t complicated.’ When companies buy out a portion of existing ownership at a price that is less than intrinsic value, the remaining shareholders gain. When they pay too high a price (a frequent occurrence, due to CEO overconfidence), continuing shareholders suffer.”
Warren Buffett’s 2022 Letter to Shareholders The Rational Walk
“In the past, both Warren Buffett and Charlie Munger have recommended index funds for most investors as a means of obtaining broad diversification and avoiding excessive management fees. However, it is worth noting that Berkshire Hathaway itself is a broadly diversified conglomerate with very low corporate overhead. Of course, only the future will reveal whether Berkshire’s collection of publicly traded investments and controlled subsidiaries will outperform the S&P 500.”
Modeling Munger’s Mind Special Situation Investing
“[Charlie Munger] believes wisdom is a skill to be taught and to be deliberately acquired. In fact, he’s said if he were ‘czar’ of a law school he’d teach a course called ‘Remedial Worldly Wisdom’. He admits a bit of derision is baked into that hypothetical title as its intent is to communicate ‘this is really basic and everyone has to know it’. His course, he explains, would be full of mental models, pithy and powerful examples and principles.”
How to Analyze a 10-K Compounding Quality
“If you get interested in a company and you read the annual report, you will have done more than 98% of the people on Wall Street. And, if you read the footnotes in the annual report, you will have done more than 100% of the people on Wall Street.”
Informative and beautifully written
Thanks for sharing our post about Munger’s critical thinking process! We appreciate it.