The Berkshire Beat #63: First Quarter Wrap-Up
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…
FAST START: With the New York Stock Exchange closed today in observance of Good Friday, the first quarter of 2024 is officially in the books. And it’s been a pretty good one for Berkshire Hathaway. The conglomerate soared to a new all-time high (on several different occasions) and came agonizingly close to joining the Trillion Dollar Market Cap Club last month. Maybe next quarter…
It’s really early, but let’s take a look at the scoreboard. Both Berkshire’s Class A (+16.9%) and Class B (+17.9%) shares handily outpaced the S&P 500’s total return (+10.6%) during the first quarter. That’s made all the more impressive by the fact that this was the benchmark index’s best Q1 result in five years.
MAGNIFICENT SEVEN: No, not them. As far as I know, Warren Buffett has not started dabbling in Tesla or Nvidia stock. At Berkshire, “magnificent seven” means something a little bit different. The top seven common stock holdings — ranging from Apple down to Kraft Heinz — account for more than 80% of the conglomerate’s massive portfolio as a whole. (Warren and Charlie weren’t kidding when they said that diversification is overrated. Though, of course, that’s not the right path for everyone.)
How did Berkshire’s largest stock holdings perform in the first quarter? The big winners are American Express (+21.5%), Bank of America (+12.6%), Occidental Petroleum (+8.8%) , Chevron (+5.8%), and Coca-Cola (+3.8%). On the flip side, Apple (-10.9%) and Kraft Heinz (-0.2%) scuffled out of the gate.
REINSURANCE: Talking about the insurance implications of a recent tragedy like the collapse of the Francis Scott Key Bridge in Baltimore feels a bit ghastly. (But it doesn’t do anyone any good to ignore it, either.) First of all, I’ve got no clue how much — if any — exposure Berkshire’s reinsurance operations have to this event. We might have to wait until the annual meeting in May to get an answer on that one. In terms of the industry as a whole, Reinsurance News says that “reinsurers [are] set to bear the bulk of the claim amid concerns it could become the largest ever marine loss”.
Berkshire Hathaway Energy owns 75% of the Cove Point LNG terminal based in Maryland. Earlier this week, Reuters checked in with the company to see if it had been affected by the bridge collapse. “No operational impacts to Cove Point,” came the response from BHE. “We continue to work closely with the United States Coast Guard to ensure that we are operating our facility safely.”
THE DOJ VS. APPLE: As mentioned last week, the U.S. Department of Justice filed a lawsuit against Apple alleging antitrust violations stemming mainly from the iPhone’s dominant position in the so-called “performance smartphone” market. While Apple is certainly not above using hard ball tactics with competitors, the central proposition of the DOJ’s case — that iPhone users are unfairly locked into the iOS ecosystem — seems especially dubious to me. iPhone customer satisfaction metrics are typically best-in-class and Apple’s entire business model depends on it creating a halo effect that benefits the company’s other products.
On Friday, University of Chicago law professor Randy Picker spoke to Yahoo Finance about the iPhone maker’s prospects at trial. “I think Apple will prevail in the end,” he said. “They may not prevail in the first instance [depending on the district court judge]. They may have to go up a level [on appeal] — maybe up two levels [to the Supreme Court] — but, if you’re asking me for a guess, my guess is that Apple will win.”
GETTING SIRIUS: Berkshire bought 12.7 million more shares of Liberty Media Sirius XM tracking stock over the past week. (3.8 million shares of LSXMA 0.00%↑ and 8.9 million shares of LSXMK 0.00%↑ for a total price tag of $368.3 million.) Berkshire now owns $2.9 billion of these Liberty SXM trackers — as well as another $150 million of Sirius XM Holdings. These are all set to combine later this year.
AND A COUPLE OF QUICK HITS…
Berkshire Hathaway Energy released the slides from a recent investors presentation — one of which lays out where PacifiCorp currently stands in terms of all that costly wildfire litigation. (h/t
)
Some big dividends roll into Omaha today: $247.9 million from Bank of America and $130.3 million from Kraft Heinz. Nice way to head into the holiday weekend.
A Slow Read of Poor Charlie’s Almanack
Talk 6: Investment Practices of Leading Charitable Foundations
On October 14, 1998, Charlie Munger spoke to the Foundation Financial Officers group. And, as a vocal advocate for philanthropy, he had some rather strong ideas about how these foundations could better operate to maximize their effectiveness.
That objective — helping these givers better steward their investments — gets right to the heart of Charlie Munger as a person.
Backing up for a second, one of my favorite parts of Charlie’s final interview with CNBC (which aired in November) was when he laughed at how he became better known for dishing out advice than for anything else. “It’s certainly a peculiar example of one life,” he told Becky Quick. “It’s interesting that a man who started out to be a lawyer ended up with an identity that’s more like a guru’s.”
But Charlie’s sage-like reputation is no less than he deserves — for he made a conscious decision early on not to horde his wisdom and learnings, but to spread them far and wide in a generous spirit of abundance.
He could have so easily kept these pearls of wisdom — like avoiding the frictional costs of active stock-trading and never deluding yourself into false confidence — to himself. In fact, it would have made his life a lot easier. Why create more competition for yourself?
But grasping opportunity and knowledge to one’s own chest — refusing to share it freely with others — was never Charlie’s idea of virtue. Even if it came at the expense of his own future investment returns, he would rather lay bare his own thought process for the world to learn from.
“If some of you make your investment style more like Berkshire Hathaway’s … you will be unlikely to have cause for regret — even if you can’t get Warren Buffett to work for nothing,” he said. “Instead, Berkshire will have cause for regret as it faces more intelligent investment competition.”
“But Berkshire won’t actually regret any disadvantage from your enlightenment. We only want what success we can get despite encouraging others to share our general views about reality.”
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The Must List
Other thought-provoking things that I read this week…
Lessons I’ve Learned From Studying Money for 10 Years
“Studying money has nothing to do with being rich and famous. As soon as I understood money, it became obvious it was all about psychology. Stock markets trade on sentiment. Humans buy assets and sell them, too. You’ll be terrible with money if you don’t understand your own psychology.”
Conviction and Quality (Josh Tarasoff)
“In 1998 at a lecture at the University of Florida, Warren Buffett gave the following response to an audience question, which has always stuck with me: ‘The question is whether I have ever bought a company when the numbers told me not to — and how much is qualitative and how much is quantitative. The best buys have been when the numbers almost tell you not to. Then you feel so strongly about the product, and not just the fact that you’re getting a used cigar butt cheap, that it’s compelling.’ There are the two convictions: one that focuses on the numbers and one that feels.”
“I realize saying we’re in a ‘quality bubble’ is provocative. Bubbles invite images of popping and speculators crying when they’re wiped out. I don’t think that’s what’s going on with these businesses; I just think they’re really good businesses that are priced to absolute perfection. My guess is that shareholders from today’s prices generate uninspiring returns over the long run as it’s just really hard to outrun multiples as rich as today’s.”
Improving Disclosure for Public Companies
“Very few companies file their [earnings call] transcripts, recordings, and supplementary information with the SEC in the form of an 8-K current report. Doing so should be a requirement for all public companies that choose to do earnings calls.”
I think Charlie truly wanted to help people by sharing his wisdom but he also knew that the number of people who would actually start to behave as he did would be very small given the overwhelming negative influences of the wider society. As a result, any new competition created by sharing so freely would be manageable.