The Berkshire Beat: April 21, 2023

The latest Berkshire Hathaway news and my must-reads of the week!

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The latest news and notes out of Omaha…

• 🤑 April 17 was a big dividend day for Berkshire Hathaway — with an estimated $238.1 million pouring into the company’s coffers via Occidental Petroleum. That includes $38.1 million from Berkshire’s common stock position in OXY 0.00%↑ and $200 million from the preferred shares acquired in 2019 as part of the Anadarko deal. (Assuming, of course, that Oxy has not yet redeemed any of those preferred shares — which it plans to start doing this year.)

• Apple now makes up 44.2% of Berkshire’s massive stock portfolio. And, according to the Wall Street Journal, the Cupertino-based tech giant is getting serious about diversifying its supply chain away from China. “Apple’s longer-term goal is to produce 40% to 45% of its iPhones from India, [says] Ming-chi Kuo, an analyst at TF International Securities who follows the supply chain.”

• Berkshire’s second-largest stock holding remains Bank of America — at a current value of $30.9 billion. And, as I mentioned on Monday, it’s one of the few banking investments that Buffett has not trimmed — or eliminated — over the past few years. BAC 0.00%↑ reported Q1 2023 earnings on Tuesday and beat expectations on both the top and bottom lines. In particular, the bank’s net interest income increased by 25% year over year.

  • What else keeps Bank of America in Buffett’s good books? Perhaps it’s the bank’s safety-first attitude. “Our stress scenarios are always less than anybody else’s because of how we built the company to go through problems — including the pandemic,” said CEO Brian Moynihan.

• As part of last week’s trip to Japan, Warren Buffett met up with Nikkei Asia at his Tokyo hotel on April 11 for a rare interview. After announcing that Berkshire had increased its stake in each of the five largest Japanese trading houses to 7.4%, Buffett was asked if any further investment in Japan was planned. “It’s always a matter for consideration,” he replied. “Whether it’s the United States or Europe, we [at] Berkshire have $35 billion to invest. That’s a lot of money to get invested.”

• More Buffett quotes about the sogo shoshas from his Nikkei interview:

  • “I like companies that I understand. I can understand Coca-Cola. I can understand American Express. I can understand the five trading companies and what they are doing.”

  • “It makes a difference at what price [a company is selling at]. We wouldn’t have bought our position in the trading companies if they had been selling [at] twice the price at the time.”

  • “The book value is not a terribly important factor. What do I look for? I’m looking at business. You want a company that is well financed. If they are repurchasing their shares, we generally regard that as a plus. We like the idea of the number of shares going down.”

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More Hidden Gems from Warren Buffett’s Squawk Box Sit-Down

Yes, I’m back to wring out the last few drops of news and insight from last week’s Warren Buffett interview on CNBC.

(This is the last one. I promise.)

As a finale of sorts, I’d like to highlight a few of Buffett’s comments that flew under the radar of most media coverage.

BITCOIN: It’s safe to say that Buffett has not warmed up to cryptocurrency. “Bitcoin is something [like] a gambling token — and doesn’t have any intrinsic value.”

BETTING BIG ON JAPAN: While announcing Berkshire’s increased investment in the sogo shoshas, Buffett revealed an interesting fact. “We have more money, in terms of equity securities, in Japan than in any other country in the world [excluding the U.S.] — and all of Europe combined.”

“That message really resonated with [the trading houses],” Greg Abel added. “They were surprised that Japan, outside of the U.S., would be Berkshire’s second-largest place for deploying our capital into equities.”

IMPRESSIVE ISCAR: Buffett also took the opportunity to lavish praise on a lesser-known Berkshire subsidiary, ISCAR. The precision metalworking tool maker first came to Buffett’s attention in 2005 when Eitan Wertheimer sent a one-and-a-quarter page letter to Omaha that ultimately led to a speedy sale. “They’ve created a business that we are extraordinarily proud of — and we love what they’ve accomplished,” Buffett said. “And they don’t stop. They just keep going.”

“Berkshire will be proud of [ISCAR] twenty, fifty, one hundred years from now.”

🚫 POWER STRUGGLE: When Greg Abel and Ajit Jain were named vice chairmen of Berkshire Hathaway in 2018, some (misguided) observers saw this as just the latest development in an ongoing competition between the two men to become Buffett’s successor as CEO. Not so, says the Oracle himself.

“Ajit never wanted to run Berkshire.”

“Ajit loves running the one-of-a-kind insurance company in the world — which he built himself,” Buffett said. “He has a lot of fun running insurance and he doesn’t really give a damn about Garanimals. So you didn’t have two guys competing for the same job or anything like that.”

Oddly enough, Buffett mentioned Garanimals (a children’s clothing brand owned by Berkshire since 2002) twice during this interview. I didn’t have that on my bingo card.

SHAKEUP AT PILOT: Greg Abel elaborated on the surprising decision to install Adam Wright as CEO of Pilot. “The one area we did want to make a change was with the CEO and, really, the focus was to bring in someone who’s been tenured with Berkshire and would have a long-term focus,” he said. “Someone who’s going to be there for ten to twenty years.” Abel added that the Haslam family has been “extremely supportive” of the move. Wright sounds like a star in the making.

DERAILED: Buffett didn’t pull any punches when discussing the recent Norfolk Southern train derailment in Ohio. “I think they’ve handled it terribly,” he said. He also called NS’s handling of the matter “tone deaf”.

When a BNSF train derailed in late March, CEO Katie Farmer was on site in Minnesota almost immediately to oversee the cleanup — in stark contrast to the dithering seen in East Palestine.

PEAK PERFORMANCE: No Buffett interview is complete without a quizzical look at the man’s unusual eating habits. “I’ve gotten to 92 with the habits of a six-year-old,” he said. “So far, it’s working. And Charlie [Munger] is 99 and he doesn’t eat any better than I do pretty much — I just get more attention about my diet.”

“If somebody told me I would live an extra year if I ate nothing but broccoli and a few other things all my life — instead of eating what I like to eat — I would say, ‘Take that year off the end of my life and let me eat what I like to eat.’”

“I’m happier when I’m eating hot fudge sundaes or drinking Coke,” he concluded.

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More Must-Reads

Other awesome things that I read this week:

Lessons from Silicon Valley Bank (Howard Marks)

• “You may be familiar with one of my favorite sayings: ‘Never forget the six-foot-tall person who drowned crossing the stream that was five feet deep on average.’ Surviving on average is a useless concept; you have to be able to survive all the time, including — no, especially — in bad times. Borrowing short to invest long powerfully threatens that ability. Being highly levered is another reason why, metaphorically, tall people sometimes drown in streams that are shallow on average. And, for financial institutions, customers’ loss of confidence is a third.”

One Big Web: A Few Ways the World Works (Morgan Housel)

• “It might sound crazy, but once you understand the basic principles of your profession, you might gain more expertise by reading around your field than within your field. Connecting dots between fields helps you uncover the most powerful forces that guide how the world works, which can be so much more important than a little new detail that’s specific to your profession. And I’m telling you: The more you look, the more you start to see these connections everywhere. They are endless. John Muir once said, ‘When we try to pick out anything by itself, we find it hitched to everything else in the universe.’”

Three Golf Stories About Investing (Ian Cassel)

• “Golf is the sport that is most like investing and stock picking. Your opponent isn’t the other players. The opponent is the golf course and yourself. Play your own game. Don’t get distracted by what other investors are doing.”

All Hail King

The Sleepwell Strategy

• “The best brands in the world have a mindshare of distinctive positive associations that come from decades of cultivating their image. This stems from making high-quality products, clever marketing, and methodical merchandising. This moat is intangible, and although it’s impossible to measure exactly, it’s incredibly valuable: it’s the biggest competitive advantage that many brands possess. Warren Buffett understood this when he invested in Coke, Lou Simpson when he invested in Nike, and Bernard Arnault as he built his LVMH luxury empire.”