Berkshire ❤️ Paramount, 13F-Palooza, and Don't Doubt Buffett
"If we had given him the dough, we could have owned a college by now."
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It’s not easy to keep a long-term mindset when everything seems to be crashing down around you. Fear is contagious and can upend even the best intentions and plans.
During times like this, when crazy notions about fleeing to cash start bubbling up in the back of my mind, I try to think of Mark Twain. And, in particular, his irreverent answer when asked if he ever exercised.
“Sometimes I have the urge,” he replied, “but I lie down until it goes away.”
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All investment managers with more than $100 million under their control must file a quarterly report, known as Form 13F, with the SEC to disclose any changes in their portfolios. It’s a fun (and informative) way to see what different investors have been buying and selling over the previous quarter.
Just don’t make reading 13Fs more than an academic exercise. These are not cheat sheets of what your next move in the market should be — nor are they endorsements about the future returns of any company. No matter who’s doing the buying.
Remember: Everything revealed in these filings were current as of March 31, so they’re already six weeks old and possibly out of date. In other words, don’t coat-tail!
On the plus side, 13Fs show how different investors — even those that espouse the same values and investment philosophies — go about their business in drastically different ways.
For example, Li Lu of Himalaya Capital (whose #1 fan is Charlie Munger) made no changes to his concentrated portfolio in Q1 2022. But Michael Burry, of “The Big Short” fame, changed just about every one of his Scion Asset Management holdings. He fully exited five of six existing positions (leaving just Bristol-Myers Squibb untouched) and initiated ten new stakes in companies like Alphabet, Meta Platforms, and Discovery. Dr. Burry also bought $36 million of bearish puts on Apple.
Bill Ackman’s Pershing Square filing reinforced that a 13F is just an ephemeral snapshot in time. Novice readers might see Pershing Square’s “new” position in Netflix as a vote of confidence in the beleaguered streamer — but, actually, Ackman announced last month that he has already exited that position.
Like I said, 13Fs only tell part of the story.
Berkshire Goes Shopping
Berkshire Hathaway’s 13F should come with a warning:
Not all investments revealed herein were made by Warren Buffett.
With Ted Weschler and Todd Combs managing an ever-increasing portion of Berkshire’s portfolio, it can be difficult to tell which investments belong to Buffett and which belong to his lieutenants. Some try to read the tea leaves or guess based on a particular position’s size or industry, but that’s way too complicated for me.
All I know is that Berkshire is back. After being a net seller throughout all four quarters of last year, Berkshire spent $41.5 billion in net purchases during Q1 2022 — which ranks as the company’s biggest outlay since 2008.
Although the secretive Buffett always waits until the last possible second before releasing his 13F, a sizable part of the cat was already out of the bag. We knew that Berkshire started significant stakes in Occidental Petroleum and HP, doubled down (and then some) on Chevron, nibbled a bit at Apple, and added to Activision-Blizzard in an arbitrage play.
But, as always, Monday’s 13F held a few surprises.
At least to me, the headliner is Berkshire’s new $2.6 billion stake in Paramount Global. I won’t bore anyone with another manifesto about PARA, but it’s a media conglomerate with mouthwatering content/properties, a crazy low valuation, nice dividend, and lots of room for growth. Glad to see Buffett agrees.
Interestingly, Berkshire purchased its 11% stake in Paramount at an average price of $37. Spoiler: PARA just spent most of the past two weeks trading in the $26-28 range. Hopefully, when the next 13F comes out in August, we’ll find out that Berkshire scooped up a heck of a lot more shares during this recent downturn. Fingers crossed.
Some other interesting Berkshire buys in Q1 2022:
121 million more shares of Chevron. Buffett upped the ante (significantly) on his bet on spiking oil prices and the immense free cash flow that creates.
On the financials front, Berkshire started a $2.9 billion position in Citigroup. This could be a classic value play from the Oracle. Citi trades at just 60% of tangible book value, far below its competitors, and pays a 4.3% dividend. That means Berkshire will be paid to wait for the stock’s mis-valuation to play out.
Berkshire also initiated a smallish $620 million position in Markel. Much like Berkshire itself — and new acquisition-to-be Alleghany — MKL’s business lines include insurance, investments, and controlled companies. In short, a Baby Berkshire. One to watch for the future.
Heading for the Exit
With fear and panic dominating financial markets, it’s no surprise that Buffett is in a buying mood. Be greedy when others are fearful and all that.
But it wasn’t all one-way traffic. Berkshire had a few notable sales during Q1, too.
First off, Buffett finally fully exited his Wells Fargo position. It was a long time coming, but a little shocking all the same. For decades, Buffett heaped praise on WFC as the model banking franchise — but recent scandals apparently soured his opinion to the point of no return.
Berkshire also turned bearish on the pharmaceuticals industry — fully exiting AbbVie and Bristol-Myers Squibb and drawing down Royalty Pharma by 82%. It wasn’t all bad news, though, as Berkshire also added an $895 million stake in McKesson.
As Barron’s previously hinted, Buffett sold almost all of his sizable Verizon holding. Also, the company’s position in STORE Capital dropped by 39%, possibly in response to the late December firing of former CEO Christopher Volk. Just my own speculation, of course.
Don’t Doubt Buffett
Fun story from John Train’s 1987 classic, “The Midas Touch”:
[Warren Buffett’s] neighbor in Omaha, Donald Keough, once mentioned in an interview that when he was a young executive with Beech-Nut, he went off to work every day while Buffett ran his investment operation from his house.
“He had a marvelous hobby, model trains, and my kids used to troop over there and play with them. One day, Warren popped over and asked if I’d thought about how I was going to educate these kids. In truth, I hadn’t given it much thought. But I told him I planned to work hard and see what happened. Warren said that if I gave him $5,000 to invest, he’d probably be able to do better. My wife and I talked it over, but we figured we didn’t know what this guy even did for a living — how could we give him $5,000? We’ve been kicking ourselves ever since. I mean, if we had given him the dough, we could have owned a college by now.
Don’t shed any tears for Keough, though. He went on to become president of Coca-Cola — albeit during the time of the New Coke debacle — and convinced Buffett to purchase millions of shares of the beverage giant in the late 1980s. Nowadays, that Coca-Cola position is one of the backbones of Berkshire Hathaway’s portfolio.
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Disclosure: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.