The Berkshire Beat: April 28, 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…
On Monday, the Financial Times reported that Britain’s Competition & Markets Authority (CMA) was “expected to support” Microsoft’s $68.7 billion acquisition of Activision Blizzard in a final ruling this week. Not so fast, my friends (said in my best Lee Corso voice). The CMA stunned just about everyone by blocking the deal due to lingering concerns over cloud gaming. Microsoft and Activision pledged to appeal the head-scratching decision, which will keep Berkshire Hathaway’s arbitrage play in limbo for the foreseeable future. Stay tuned.
Why do I call the CMA’s ruling “head-scratching”? Well, it’s the kindest descriptor I can think of. This is a family newsletter, after all. But, truthfully, it betrays a startling lack of understanding — or, at best, naïveté — about the video games industry. Cloud gaming might someday amount to something, but it’s currently a single-digit percent portion of the market and faces significant hurdles (internet data caps, lag, etc.) before gaining widespread acceptance. It beggars belief that regulators would seize on such an insignificant facet of the deal to scuttle the whole thing.
Activision issued a scathing statement in response to the decision: “The report’s conclusions are a disservice to UK citizens, who face increasingly dire economic prospects. We will reassess our growth plans for the UK. Global innovators large and small will take note that — despite all its rhetoric — the UK is clearly closed for business.”
So, with the CMA ruling to be appealed and that FTC antitrust lawsuit still simmering too, the Microsoft-Activision soap opera ain’t over yet. On Wednesday, in response to the news from across the pond, ATVI 0.00%↑ dropped back down into the $77 range. Keep in mind: Either Todd Combs or Ted Weschler bought about $1 billion of Activision stock for Berkshire in Q4 2021 at a similar price before there was any hint of a merger with Microsoft. Berkshire, of course, wants this deal to be approved as quickly as possible — but at least one member of Buffett’s investing team likes Activision just fine as a standalone business. That takes a bit of the angst out of this whole mess.
Other than Microsoft/Activision’s showdown with global regulators, it’s been a pretty slow week on the Berkshire front. Here are a few smaller items of note…
The 2023 list of Berkshire Hathaway Annual Book Selections is now out. Featuring two new additions — The Essays of Warren Buffett (8th Edition) and Unscripted: The Epic Battle for a Media Empire and the Redstone Family Legacy — alongside an unparalleled collection of “approved” books about investing, Warren and Charlie, and Berkshire itself.
One leftover from Tuesday’s article: When the students asked Buffett which contemporary investors he would recommend as money managers, the Oracle actually named names. In particular, Greg Alexander (Ruane, Cunniff & Goldfarb) and Seth Klarman (Baupost Group).
Berkshire Hathaway hit a 52-week low on October 13, 2022. Since that date, though, both Class A shares (+27.1%) and Class B shares (+25.5%) have soared.
Peter Lynch Takes His Turn in the Squawk Box Hot Seat
Less than two weeks after Warren Buffett spoke to the CNBC morning show from Tokyo, Japan, another legendary investor joined the program to share his thoughts on today’s stock market.
Peter Lynch racked up one of the most impressive records in market history during his time in charge of Fidelity’s Magellan mutual fund, earning a 29.2% annual return between 1977 and 1990.
He combined dogged research — visiting hundreds of companies each year — with a common sense appreciation for opportunities right under his nose. Lynch encouraged people to look around in their own lives, at their favorite products and companies, for investment ideas.
Lynch bowed out of the money game in 1990 to spend more time with his family — but scratched his investing itch by mentoring new Fidelity analysts and raising money to send inner-city children to Catholic schools in Boston.
On Tuesday, Lynch hopped into the arena with the Squawk Box crew and touched on a number of subjects…
RESEARCH, RESEARCH, RESEARCH: Peter Lynch popularized “buy what you know” investing — but that simple concept remains woefully misunderstood. It does not mean that everyone should run out and buy stock in all of their favorite companies. But, rather, using your own experiences and knowledge as a jumping-off point to look into those companies in greater detail.
If anything, Lynch wants investors to get much more serious about research. “People investing in individual stocks — it’s sad — they’re careful when they buy a refrigerator or an airplane flight, [but] they’ll hear about a stock on the bus and they’ll put $5,000 or $10,000 on it.”
“What is the reason this stock should be higher?” he asked. “‘This sucker’s going up!’ is not a good reason.”
IGNORING APPLE: Of particular interest to Berkshire Hathaway fans, Lynch lamented missing out on AAPL 0.00%↑ and applauded Buffett’s concentrated bet on the tech giant. “[Warren] bought Apple — and Apple was not that hard to understand. I mean, how dumb was I?”
Years ago, after receiving an iPod from his daughters, he thought to himself that Apple surely made a sizable profit on the device — but then sat on his hands rather than researching the company further.
“I should have done some work on Apple,” he said. “It’s not a complicated company.”
WHAT’S COMING NEXT: When asked about the nascent banking crisis or an imminent recession, Lynch reminded viewers that no one can predict the future.
“We’ve had thirteen recessions since World War II — and we’ve had thirteen recoveries. Maybe we’re going to have one. If this is a recession, it’s probably the most-predicted one ever. I never know when we’re going to [have a recession].”
More Must-Reads
Other awesome things that I read this week:
Berkshire Hathaway Annual Meeting Questions The Rational Walk
“As time goes on and Mr. Buffett’s shares are converted to Class B and given away, and as other individual investors convert their Class A shares to Class B to facilitate gifts and personal consumption, control of the company seems destined to slip into the hands of institutions. I would like to get a better sense of how Mr. Buffett sees control of Berkshire evolving over the next twenty to thirty years.”
What If? Warren E. Buffett, An Alternate History Neckar Substack
“What if young Buffett showed up at GEICO’s offices only to find the doors locked? No revealing conversation with Lorimer Davidson. No in-depth understanding of GEICO. I think Buffett would have been determined enough to try again. But what if…”
Picking a Stock for the Year 2048 (Jason Zweig // WSJ)
An incredible story by the incomparable Jason Zweig about how Tom Gayner, CEO of Markel, is helping to instill a Coffee Can portfolio buy-and-hold mentality in the next generation of investors.
“One lesson from these new [investment] clubs is old: the astonishing power of letting your winners run for as long as possible. You can’t lose more than 100% on even your biggest losers (unless you bought them with borrowed money), but the potential gains on your biggest winners are boundless.”
Incentive Superpower Special Situation Investing
“In a tongue in cheek comment, Buffett once said it’d be easy to solve the United States’s ballooning national deficit, something politicians seem perpetually unwilling or unable to do. His solution was based on incentives. He said: ‘I could end the deficit in five minutes. You just pass a law that says that any time there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for reelection.’”
Battle Scars (Ian Cassel)
“Have you ever bought a stock/business early? But maybe you bought it too early. You hold for a year and nothing happens. Investing is hard because, in the moment, we don’t know if ‘smart holding’ is actually ‘dumb holding’. Sometimes, being too early is the same thing as being wrong.”
Thanks for sharing! I was shocked at how bad Peter Lynch sounded on CNBC.. I haven't seen him in years and I know why now!
Thanks for sharing our work, Kingswell!