The Berkshire Beat #61: Why So Sirius?
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…
PROXY INCOMING? If recent history is any guide, Berkshire Hathaway will likely release its annual proxy statement later this evening. (And I, for one, cannot imagine anything more exciting than reading through an SEC filing on a Friday night.)
BLOOMSTRAN: One of my favorite Berkshire experts is Christopher Bloomstran of Semper Augustus. His novella-sized annual letter each year provides as thorough and as thought-provoking an analysis of Berkshire as any other. On Tuesday, Bloomstran joined the Value: After Hours podcast and had much to say on many different topics.
Berkshire’s Cash: “Berkshire gets criticized for having all this cash lying around — and they shouldn’t. Since they did the Gen Re deal [in 1998], they’ve run the cash relative to total firm assets at an average of about 12%. Well, if you’ve got $167 billion [of cash] on $1.07 trillion [of total assets], you’re a little higher — but you’re kind of in the [same] range of where the cash has existed for the last quarter century. It’s just that Berkshire has over $1 trillion in assets. It’s the largest company in the world by tangible assets.”
BNSF Railway: “Rail car loadings have been really weak for the last several years. They turned [around] a little bit in the fourth quarter for all of the Class I rails — Berkshire included — but the BNSF is earning about $2 billion below what I would call normalized earning power. It’s been pretty weak. Volumes [are down] — and it’s not just coal … It’s everything except for new cars.”
Berkshire Hathaway Energy: “Warren [Buffett] talked about the regulatory environment [in his annual letter] — and I’m sure he’s pissed. PacifiCorp had the fires in 2020 in Oregon and northern California … They’ve set aside $3 billion pre-tax so far to cover losses net of $500 million in reinsurance. And you’ve got the regulatory body, the [public utility commissions], saying maybe you ought to be burying all of your power network [underground]. Well, that’s fine if you’re gonna make us bury it — but you better give us a regulated return … [Utilities] exist as a monopoly, [but] you would never build a coal-fired plant or a nuclear plant or a wind farm or a solar farm unless you were going to get a return on it. And so the regulators have to be fair with the utilities.”
He added, “I think [Buffett’s] message was kind of a warning shot to regulators.”
GEICO: “GEICO is back to healthy. They’re still trailing Progressive, but you had a period where you lost a whole bunch of money coming out of the pandemic. You made a whole bunch of money, [but then] you had to give money back to policyholders. And then you’ve got all the inflation. It got really expensive to fix cars … But the auto [insurance] industry is very healthy again because they got enough price [increases].”
WHY SO SIRIUS? Someone at Berkshire purchased 9.6 million more shares of Liberty Media Sirius XM tracking stock between March 8 and March 12. In all, Berkshire has now spent $662.8 million on Liberty SXM trackers so far this year — with $288 million of that total coming in this latest round of purchases.
This tongue-in-cheek subheading is just a reference to The Dark Knight — and not me questioning why Berkshire is investing in Sirius XM.
REMEMBERING CHARLIE: Stripe co-founders John and Patrick Collison offered a lovely tribute to the late Charlie Munger in their company’s 2023 annual letter — which was released on Wednesday. “Few better articulated a complete philosophy of business: an interdisciplinary mindset, patience, due regard for incentives, relentless elevation of substance over appearances, an uncompromising view of integrity, and, above all, mutually beneficial value creation as a lodestone,” they wrote. “We just republished Poor Charlie’s Almanack, both in print and (for free) online. We recommend his wisdom to everyone curious.”
Over the weekend, Charlie’s friends and family gathered in Los Angeles for a memorial service. Mohnish Pabrai was kind enough to share a few photos from the event on Twitter/X. (Including this one with the great Li Lu.)
OCCIDENTAL PETROLEUM: At a Midland Wildcat Committee reception last week, CEO Vicki Hollub once again sang the praises of the Permian Basin. “[The Permian] is the foundation of our company,” she said. “It’s what we build everything around.” Oxy’s Richard Jackson also announced that the STRATOS Direct Air Capture facility is about 50% complete and on schedule to be operational sometime next year.
THE FINISH LINE: Next month, Brooks Running CEO Jim Weber will step down and be replaced by COO Dan Sheridan. Berkshire vice chairman Greg Abel — who oversees all non-insurance operations — is on board with the move. “Jim and the Brooks team have done an exceptional job building a meaningful business and brand,” he said. “Dan’s journey and leadership ensures a continued path of success.”
AND A COUPLE OF QUICK HITS…
Trains.com reports that BNSF eliminated 8% of its management workforce last week “as part of a belt-tightening move”.
Berkshire collected $205.5 million in quarterly dividends from Chevron on Monday. (Assuming, of course, that Buffett did not buy or sell any more shares in the first quarter.) And, today, it will receive $20.9 million from Moody’s.
A Slow Read of Poor Charlie’s Almanack
Talk 4: Practical Thought about Practical Thought?
This speech — delivered on July 20, 1996 — was judged a failure by no less an authority than Charlie Munger himself. He noted that most people didn’t even fully understand his main points when reading (and re-reading) a written transcript afterwards. He called it “an extreme communication failure”.
I think Charlie was being just a bit too hard on himself.
What I particularly enjoyed about this speech is the deft way that Charlie used five “ultra-simple general notions” — including such staples as inversion, big ideas from many disciplines, and lollapalooza effects — to demonstrate how Coca-Cola rose to prominence as a business juggernaut with an impregnable moat.
But, as Charlie wryly pointed out, Coke’s path to glory was littered with mistakes and oversights. It lost half half its trademark (“Cola” becoming a prominent part of rival Pepsi’s brand name), made shortsighted deals with bottlers that lasted for decades, and shot itself in the foot with the launch of New Coke in the mid-1980s.
Through it all, though, the company generated life-changing wealth for anyone smart enough to hold onto its shares. Some business models are so good that even serious missteps from management become little more than bumps in the road.
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The Must List
Other awesome things that I read this week…
Warren Buffett Minds the GAAP (Don Graham || WSJ)
“For years, Mr. Buffett was a champion of old-fashioned, straightforward accounting. He reported Berkshire Hathaway’s results using generally accepted accounting principles, or GAAP. While other public companies reported pro forma earnings to their shareholders, Mr. Buffett stuck with GAAP earnings. He once came off a golf course and told me: ‘I shot a pro forma 68. I don’t count all those little shots.’” 🤣
“The Economist” Cover Curse, Explained
“Even if the coverage and ‘collective single voice’ approach is not for you, Game Theory suggests that you should read The Economist anyways. The magazine has built so much elite mind-share in business and politics that most time-strapped ‘decision makers’ probably just assume that other time-strapped ‘decision makers’ are reading it … It has become one of the weirdest business hotel flexes, too. I can’t count how many times I have seen someone in the lobby — or on the recumbent bike at the hotel gym — holding the magazine at shoulder height to show the world that they are downloading the hottest consensus takes.”
Health, Wealth, and Everything In Between
“The ultimate flex as you evolve into your 40s is health; something often taken for granted by young ‘uns … The number of physically fit adults as a percentage of the population declines with each birthday. Eventually, there comes a time when you’d sacrifice anything to replenish the finite resource that is health. If you are fortunate to have health, it’s not something you think about often in most cases, until you are forced to.”
“The reason the iPhone became so successful was not a fluke. Consumers and customers voted that the value proposition of the product was something they preferred, and they acted by purchasing iPhone and developers responded by building applications for iOS. The regulators have a different view of that promise, so here we are.”
The Best Essay (Paul Graham)
“I like to start an essay with a gleam in my eye. This could be just a taste of mine, but there’s one aspect of it that probably isn’t: to write a really good essay on some topic, you have to be interested in it. A good writer can write well about anything, but to stretch for the novel insights that are the raison d’être of the essay, you have to care.”