The Berkshire Beat #67: Bloomstran on Berkshire, Pilot Shakeup, and Apple Agita
The Berkshire Beat #67: Bloomstran on Berkshire, Pilot Shakeup, and Apple Agita
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…
BLOOMSTRAN ON BERKSHIRE: With Berkshire Hathaway’s annual shareholders meeting coming up fast, Christopher Bloomstran of Semper Augustus recently spoke to the We Study Billionaires podcast about his own investing performance, the market as a whole, and — of course — Berkshire itself.
On Warren Buffett’s international investments: “We all know that Berkshire has the five Japanese trading companies that have been home runs. They’ve essentially doubled in value since they started buying them in 2019. BYD was a home run. They’ve got a small position in Diageo. But, prior to those, there are a number of investments they made [internationally] where they knocked the cover off the ball … [Buffett] has been a very good investor abroad and it’s been materially beneficial to what’s now a $350 billion stock portfolio.”
On the importance of patience: “The big opportunities — the big fat pitches that Warren swung at — I think a whole bunch of that is a byproduct of his just sitting around and reading all the time.”
Buffett does the work — studying lots of different companies — ahead of time and is ready to pounce on a fat pitch whenever Mr. Market slips up and lobs one over the plate.
On Berkshire’s capital advantage: “The embedded advantage of Berkshire is the size of their surplus capital — relative to everything else — that will finance the next railroad [or] the next elephant that Berkshire buys. That money comes from the conservatism to which they underwrite [insurance].”
On share repurchases: “Warren increased the cadence of buying [back stock] in the first quarter. It’s probably for a lack of opportunity [elsewhere]. The stock’s up a bunch this year. It’s way ahead of the S&P 500.”
On Berkshire being better together: “Activists might love it [if Berkshire was broken up]. Short-term investors might love it. But so many of Berkshire’s subsidiaries — so many of its operating companies — are better businesses inside of Berkshire than they would be elsewhere. When Gen Re came in, when Alleghany came in, they don’t have to go to the retrocession market and lay off risk. Berkshire is so over-capitalized. They can retain every dollar of premium that’s written and not lay it off to other reinsurers.”
“It would be the most foolish thing in the world to break [Berkshire] up.”
SEAL OF APPROVAL: One of my low-key favorite things about the annual meeting is Berkshire’s list of “approved” books for sale through The Bookworm. This year, though, The Bookworm is shaking things up a bit. In honor of the late Charlie Munger, the new Stripe Press edition of Poor Charlie’s Almanack will be the only book on sale at the meeting. Other Berkshire-related favorites can still be purchased at The Bookworm’s main store in Omaha (or online).
PILOT: Berkshire continued its overhaul of the Pilot Travel Centers leadership team this week with the appointment of Gary Hoogeveen as president of Pilot’s energy division. He has worked with Berkshire Hathaway Energy since 2000 — including a stint as CEO of Rocky Mountain Power. “We’re excited to welcome Gary to our team,” said Pilot CEO Adam Wright. “I’ve known Gary for a long time and he is an experienced and talented leader who will bring a trusted voice and perspective to an important part of our business.” (Wright came up through the ranks of BHE himself.)
According to Pilot’s press release, Hoogeveen will “oversee the company’s integrated fuel supply chain” as well as “steward the ongoing development and innovation of electric and alternative energy solutions”.
APPLE AGITA: Last time out, I wrote that it’s been a year full of bad headlines for Apple. And, unfortunately, it didn’t get any better this week. Counterpoint Research reported that iPhone sales in China dropped 19.1% in the first quarter, continuing Apple’s slide in that important market. Meanwhile, noted Apple analyst Ming-Chi Kuo claimed that Vision Pro shipments have been cut nearly in half to 400-450k. And, since this occurred before the new device even launched overseas, Kuo believes that “demand in the U.S. market has fallen sharply beyond expectations”.
UP NEXT: Early next week, this month’s paid subscriber “bonus” — an annotated transcript of a Warren Buffett interview from the height of the 1990s bubble — will be released. It’s hard to believe, but this is already the 10th annotated transcript for paid supporters since I added this “bonus” last July. Time really flies.
So if you’ve been on the fence about becoming a paid subscriber, there’s no time like the present. You’ll be all ready for next week’s transcript — and gain access to nine others full of wit and wisdom from the top names at Berkshire Hathaway.
A Slow Read of Poor Charlie’s Almanack
Talk 10: USC Gould School of Law Commencement Address
“What are the core ideas that helped me?” Charlie Munger asked the USC Gould School of Law graduates on May 13, 2007. “Well, luckily, I had the idea at a very early age that the safest way to try to get what you want is to try to deserve what you want.”
“It’s the golden rule,” he continued. “You want to deliver to the world what you would buy if you were on the other end.”
Charlie’s invocation of the Golden Rule — “Do unto others as you would have them do unto you” — is no surprise. He never shied away from casting dusty matters of finance and education into starkly moral (and biblical) terms.
In fact, he went on to tell the graduates that day that the acquisition of wisdom is actually a moral duty that we are all called to uphold.
And, to do that, we must become lifelong learners.
Those USC grads probably felt pretty good about themselves at that moment, having survived the academic rigors of law school and now looking forward to lucrative careers. But there Charlie stood — telling them that they weren’t done learning yet. Not by a long shot.
“Without lifetime learning, you people are not going to do very well,” he warned. “You are not going to get very far in life based on what you already know. You’re going to advance in life by what you learn after you leave here.”
One of the most noteworthy (and surprising) aspects about Charlie’s popularity as a guru is that he almost never told people what they wanted to hear. He wouldn’t puff you up or offer easy excuses for any shortcomings.
Instead, he constantly preached how the journey of self-improvement never ends, how much hard work still looms ahead, and how you should never rest on your laurels or become self-satisfied.
In short: Your potential always lies out on the horizon.
Every step forward moves you closer to your goal. But it also pushes the limits of your own potential even further out into the distance.
It’s not a “feel-good” approach. It runs diametrically counter to what the self-esteem movement teaches about self-acceptance and being “enough”.
But it’s what so many people — especially today — crave to hear.
Of course, a big part of Charlie’s charm was that he authentically lived out this ethos in his own life. So, too, does Warren Buffett. “Consider Berkshire Hathaway,” Charlie said, “one of the best-regarded corporations in the world. It may have the best long-term, big-assets-involving investment record in the history of civilization.”
“The skill that got Berkshire through one decade would not have sufficed to get it through the next decade with comparable levels of achievement. Warren Buffett had to be a continuous learning machine.”
That, more than anything, is what Poor Charlie’s Almanack is all about. Teaching us why — and how — to shape ourselves into learning machines for a long life ahead.
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The Must List
Other awesome things that I read, watched, and listened to this week…
The Indispensability of Risk (Howard Marks)
“Investors must accept that success is likely to stem from making a large number of investments, all of which you make because you expect them to be successful, but some portion of which you know won’t. You have to put it all out there. You have to take a shot. Not every effort will be rewarded with high returns, but hopefully enough will do so to produce success over the long term … Refusal to take risk in this process is unlikely to get you where you want to go.”
🎧 BG2 Podcast — Episode 7 (Bill Gurley & Brad Gerstner)
Many thanks to a very kind reader on Twitter/X who brought this podcast to my attention. In this episode, Gurley and Gerstner discuss IPOs, Tesla, the robotaxi concept, and much more. Of particular interest to readers of this newsletter, though, is this Gerstner comment: “I was with a certain investor — a group of investors — in the Midwest, let’s just say, over the weekend. They’re very big investors in the insurance business.” He then recounts a short chat he had with these unnamed investors about the auto insurance business. (This happens about an hour into the podcast.)
Gerstner is careful not to name names here, but in another podcast last year he told a story about dining with Ted Weschler and how they discussed Uber.
Why Everything is Becoming a Game
“Many in the managerial class saw the success of social media and wondered how they could use gamification for their own ends. The Chinese Communist Party was among the first to apply the principles of social media to the real world. In several towns and cities, it began trialing social credit schemes that assign citizens a level of ‘clout’ based on how well they behave. In some areas, such as Rongcheng and Hangzhou, there are public signs that display leaderboards of the highest scoring citizens. The lowest scoring citizens may be punished with credit blacklists or throttled internet speeds.”
Challenging the Process (Novel Investor)
“Value investing is about taking advantage of mis-priced expectations. The collective market’s expectations are embedded in every stock’s price. A stock with low multiples is usually low because of low expectations about the company’s future. And a stock with high multiples, generally, has high hopes for its future. How correct those expectations are is the question.”
Making a Mountain Out of Molehill-Sized M4 News (Daring Fireball)
“Apple is a company that in many ways is built around an annual schedule. WWDC comes every June. New iPhones (along with Watches) come every September. The new OS releases (which are announced and previewed at WWDC) ship later each year in the fall. Many Apple products are not on an annual schedule — such as the iPad, to name the most prominent example — but … all things considered, I think Apple would like to have more of its products on an annual cycle. This predictable regularity is one of the hallmarks of Tim Cook’s era as CEO.”
Sony in Talks to Join a Bid to Buy Paramount (New York Times)
“Sony Pictures Entertainment and Apollo Global Management, an investment firm, have been in discussions about teaming up for a joint bid to acquire Paramount, two people familiar with the situation said [last] Thursday. The two companies have not submitted an official bid, as Paramount is still in exclusive conversations with Skydance, said the people, who were granted anonymity to discuss delicate negotiations. But the potential deal with Skydance has generated significant investor pushback.”