The Berkshire Beat #58: Christmas in February
The Berkshire Beat #58: Christmas in February
All of the latest Berkshire Hathaway news and my must-reads of the week!
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The latest news and notes out of Omaha…
T-minus 24 hours until the much-anticipated release of Warren Buffett’s annual letter to shareholders (and Berkshire Hathaway’s 10-K). If you’re anything like me, the last Saturday of February each year feels a bit like Christmas morning. I always pop out of bed bright and early — ready to devour Buffett’s letter just as soon as it appears on the Berkshire website. Set your alarm for 8:00 a.m. ET.
Can’t stop, won’t stop: Berkshire keeps hitting new all-time highs. Yesterday, both the Class A shares ($626,947) and Class B shares ($416.26) set new price records. Of particular note, the company’s market cap climbed over $900 billion for the first time ever. Arbitrary? Yes. But a cool milestone nonetheless.
Next stop: $1 trillion!
Lost in all the 13F hoopla last week, Occidental Petroleum reported Q4 2023 earnings on Valentine’s Day — and also dished out a few newsworthy morsels along the way.
Originally scheduled to close in the first quarter of 2024, Oxy’s $12 billion acquisition of CrownRock is now slightly delayed. CEO Vicki Hollub hopes for “the second half of this year”. The culprit: The FTC’s request(s) for more information regarding the deal. “Some of our teams felt like they’d asked for everything,” she said. “But I can tell you [that we] are working diligently with the FTC to get them all the answers they need.”
One analyst joked, “So [the FTC] asked for the moon and everything else?” To which Hollub dryly replied, “Well, I didn’t see the moon on there — but we’re not done yet.” 🤣
Oxy also pressed pause on further share repurchases and preferred redemptions until the company’s debt gets back down under $15 billion. OXY 0.00%↑ bought back just 186,567 shares in October, before curtailing repurchases altogether in November and December. Get used to that — at least for the time being.
“Once we get our debt back down to $15 billion,” Hollub said, “that’s going to be a key part of helping us start the resumption of a more robust share repurchase program of both the common and, ultimately, the preferred.” Another analyst floated a potential time frame of late 2025 before preferred redemptions would resume.
Even though Oxy stopped buying back its own stock in the fourth quarter, Warren Buffett faced no such limitation. He purchased 3.9 million shares of the O&G giant in October and another 15.6 million shares in December.
Enhanced Oil Recovery remains a particular focus for the company. “Over the next 5-10 years, [EOR] is going to be a significant part of our portfolio development,” Hollub said. “For the United States to continue our energy independence, EOR is going to have to be a part of the equation … This is a huge part of our strategy and important not only to shareholders who love value — but to the U.S. and, ultimately, to other parts of the world.”
In other Occidental Petroleum news, Reuters reports that Hollub has begun to explore the sale of pipeline operator Western Midstream Partners. Almost assuredly part of the company’s planned divestitures in order to reduce debt after the CrownRock acquisition. Oxy owns 49% of Western Midstream, which primarily operates in the Permian and D-J Basins. Stay tuned.
🤑 Today, Berkshire receives $29.2 million in quarterly dividends from Citigroup, $7.5 million from Capital One Financial, and $1.1 million from Sirius XM Holdings. Not exactly the biggest dividend checks that Buffett and co. have ever cashed, but every little bit of dry powder helps the cause.
Speaking of Capital One, the financial services company announced the $35.3 billion acquisition of Discover. Berkshire currently owns 3.3% of COF 0.00%↑ — though that number will likely drop due to dilution from this all-stock deal.
And, finally, a little housekeeping. Due to some poor planning on my part, next week is shaping up to be a busy one: On Monday, you can expect an article about Buffett’s letter and Berkshire’s annual report. On Thursday, it’s this month’s annotated transcript for paid supporters. (An early ‘90s Buffett interview that touches on some pretty interesting subject matter.) Then, on Friday, we’ll close out the week with another issue of The Berkshire Beat.
A Slow Read of Poor Charlie’s Almanack
Talk 2: A Lesson on Elementary Worldly Wisdom as It Relates to Investment Management and Business (Part Two)
In the second half of Charlie Munger’s marathon speech at USC Business School back in 1994, he touches on so many different topics (ranging from the efficient market hypothesis to pari-mutuel betting) and flexes such an encyclopedic knowledge of business history that it’s nigh impossible to distill it all down into a few key points.
So I’m not even going to try.
Seriously, read the whole thing.
But, in the meantime, I’d like to highlight one of the lessons that Charlie shared with the USC students that day. Before you even think about playing the money game, you really need to peer deeply inside yourself — holding nothing back — in order to fully understand your own particular strengths and weaknesses.
He warned them to guard against overconfidence — and make peace with limitations. “Very few of us are chosen to win the world’s chess tournaments,” he said.
And, in his typically blunt way, Charlie reminded the students that not everyone can be above average. “The average result has to be the average result. By definition, everybody can’t beat the market. As I always say, the iron rule of life is that only 20% of the people can be in the top fifth.”
But, after that humbling dose of mathematical reality, he pointed out how everyone — no matter where they’re starting from — can improve their own lot in life. “People who could never win a chess tournament or stand in center court in a respectable tennis tournament can rise quite high in life by slowly developing a circle of competence, which results partly from what they were born with and partly from what they slowly develop through work.”
That path will be different for everybody. Charlie freely admitted that he and Warren Buffett were ill-equipped to evaluate the future prospects of a technology company — so they avoided the matter altogether. But, he noted, others with a different base of knowledge and interests might feel differently.
“The fact that we don’t think we’re very good at [understanding high-tech companies] and have pretty well stayed out of it doesn’t mean that it’s irrational for you to do it.”
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The Must List
Other awesome things that I read, watched, and listened to this week…
How I Write: Howard Marks (David Perell)
“I think it was Mark Twain who described a profession as a conspiracy against the laity. A lot of professions have jargon which certain professionals — insecure professionals — want to stay with that reinforces the barrier between themselves and the common man. I’m not interested in that. I would rather tell a story that people find interesting and accessible. My goal is to have a written product that reads like speech.”
“As investors, we often conclude too soon that we know what’s important about a company. Indeed, the more experience we gain, the more often that tends to happen. Pattern recognition can provide false comfort. What I’ve learned is that the longer I’ve followed a company, the more nuances and angles I learn and appreciate. The most valuable insights didn’t come on day one or even month one of following a company. They more often come in year one or year three.”
A $150 Billion Question: What Will Warren Buffett Do With All That Cash? (Wall Street Journal || Karen Langley)
“Shareholders tend to focus on the opportunity Berkshire’s war chest provides. ‘Berkshire has such a good track record at allocating capital wisely,’ said James Armstrong, president of Henry H. Armstrong Associates, a money-management firm in Pittsburgh. ‘I think it’s a mistake to be impatient. The fact that they’re willing to wait for an attractive bargain on a good stock or a good company is one of their strengths.’”
The Berkshire Buffet: 1997 Chairman’s Letter & Annual Meeting
“The first 10 minutes of the meeting were focused on the formalities of an annual meeting, and I still thought they were incredible. There is just a theater and romance to everything that Berkshire has always done.”