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The Berkshire Beat: August 18, 2023
All of the latest Berkshire Hathaway news — including some missing pieces from this quarter's 13F — and my must-reads of the week!
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The latest news and notes out of Omaha…
Heading into 13F deadline day, we already knew a few things: (1) Berkshire Hathaway was, once again, a net seller of stocks during Q2 2023; (2) Warren Buffett purchased 12.4 million shares of Occidental Petroleum for $722.2 million; and (3) the Chevron and Activision Blizzard holdings had gotten smaller. And, as it turns out, not much else of consequence happened in the second quarter. The only investing move that changed Berkshire’s portfolio by more than 0.5% was the ATVI 0.00%↑ arbitrage sell-off. The others barely moved the needle.
Of course, that’s not going to stop me from talking about them. (Cue loud groans from the crowd…) In Q2, Berkshire opened new positions in three home construction companies — D.R. Horton, NVR, and Lennar. Of the three, the lion’s share of the investment went to DHI 0.00%↑ — with Berkshire buying 5.9 million shares of the Texas-based homebuilder. That stake is currently valued at $695.5 million, as compared to NVR at $66.7 million and Lennar at $17.8 million.
While brushing up on D.R. Horton, I stumbled upon something that surely endeared the company to Berkshire: Since 2018, the homebuilder has repurchased 10.4% of its outstanding common stock — reducing its overall share count from 377.4 million to 338.2 million.
Still, the bigger draw is likely the supply/demand imbalance in new housing. With mortgage rates now soaring, those who locked in much-lower rates over the past few years are understandably reluctant to sell — driving any would-be buyers into the open arms of homebuilders.
Back in June, Lennar’s executive chairman, Stuart Miller, summed it up: “Bottom line — supply is short, demand is returning to affordable offerings, and builders will need to produce more homes to fill the void.”
Perhaps the biggest surprise of this 13F was that Paramount Global wasn’t in it. Berkshire had purchased shares of PARA 0.00%↑ in five consecutive quarters leading into this one — amassing a 15.4% stake in the company’s non-voting Class B stock. (It was also the only security that Berkshire bought in every quarter of 2022.) Yet, listening to Buffett’s recent bearish comments on the streaming biz, many wondered (myself included) if Paramount would get jettisoned in Q2. Instead, Berkshire opted to stand pat.
On Tuesday, Oxy announced the acquisition of Canadian-based Carbon Engineering Ltd. for $1.1 billion in cash. The deal is expected to close before the end of 2023. Carbon Engineering has been working with Oxy on Direct Air Capture (DAC) technology since 2019. “We expect the acquisition of Carbon Engineering to deliver our shareholders value through an improved drive for technology innovation and accelerated DAC cost reductions,” said CEO Vicki Hollub.
More from Hollub: “[This] technology partnership also adds new revenue streams in the form of technology licensing and royalties. Importantly, the acquisition enables Occidental to catalyze broader development partnerships for DAC deployment in the most capital efficient and valuable way.”
🤑 Yesterday was a big dividend day for Berkshire — with $219.7 million pouring into the company’s coffers via Apple. AAPL 0.00%↑ is, by far, the largest holding in Berkshire’s portfolio: 915.5 million shares at a current value of $159.5 billion.
After another round of share repurchases from Tim Cook and co., Berkshire’s stake in the Cupertino-based tech giant is now up to 5.9%.
Kraft Heinz has been something of a problem child for Berkshire (and its other investors). Hopefully, a CEO shake-up will change that. KHC 0.00%↑ announced this week that Carlos Abrams-Rivera, currently the president of North American operations, will become the company’s new CEO effective January 1, 2024.
And, aspointed out, Berkshire vice chairman Greg Abel surely had input on this decision as a member of Kraft Heinz’s board.
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The Missing Pieces of Berkshire Hathaway’s 13F
Monday’s 13F doesn’t tell us the whole story of Berkshire Hathaway’s investment activity in Q2 2023. That’s because this SEC filing only covers securities traded on domestic exchanges.
Which, as it so happens, excludes two of Berkshire’s bigger moves from the quarter.
↪️ SOGO SHOSHA: Since Berkshire’s shares of the five leading Japanese trading houses — Itochu, Mitsubishi, Mitsui, Marubeni, and Sumitomo — were purchased on the Tokyo Stock Exchange, they don’t show up in the 13F.
But, make no mistake, Warren Buffett’s bet on Japan has become a pillar of Berkshire’s stock portfolio. Added together, Berkshire’s investments in the sogo shosha are currently valued at $18.7 billion — which put them (collectively) on the brink of being a top-five holding.
In Q2, Berkshire boosted its stakes in the five companies two different times — jumping from approximately 6% to 7.4% in April and, then, to an average of “more than 8.5%” in June. Buffett and Abel even traveled to Tokyo to talk shop with the executive teams of each company.
Berkshire’s interest is not hard to understand — the sogo shosha trade at cut-rate valuations (at least, they did before a Buffett-induced run-up in price), show a newfound appreciation for share repurchases and dividends, and resemble Berkshire itself in more ways than one. “These five companies are a cross-section of not only Japan, but of the world,” Buffett told Nikkei. “They are really so similar to Berkshire.”
↩️ BYD: Berkshire owns its shares of this Chinese EV maker on the Hong Kong Stock Exchange — meaning that we only learn about changes in this position when local regulations mandate. (In this case, whenever Berkshire’s ownership interest crosses into a new percentage point.)
At the start of Q2, Berkshire owned 10.9% of BYD — but wrapped up the quarter with (at most) 8.98%. On June 19, Berkshire reported that its stake had dropped below 9%. And, since then, silence.
That doesn’t mean Berkshire stopped selling. Just that it still owns more than 8%.
I don’t know whether or not Buffett is done trimming BYD — but, based on his past cadence, we probably should have gotten another filing by now. We’re coming up on two months since Berkshire dipped under 9%, which is a longer wait than usual.
Other awesome things that I read this week…
Warren Buffett, Water, and Israel (Times of San Diego)
“Among the friends Lottie Marcus made through her Wall Street connections was Ben Graham, author of The Intelligent Investor. She introduced Graham to her husband. Graham recommended to Howard that he look up — and, perhaps, go into business with — one of his mentees, the investor Warren Buffett. Although the relationship with Buffett resulted in the Marcus family acquiring lots of stock in Buffett-related businesses, they lived frugally and never with ostentation. They gave little thought to the value of their stock holdings, which they bought and held until near the end of their lives.”
“I started to earn an alternate ‘degree’ in business when I began reading about Warren Buffett and Berkshire Hathaway. I did not realize that I was earning a degree at the time I started, but this became clear as time went on.”
“An avid coin collector as a kid, Klarman would read everything he could about his hobby. In 1965, the U.S. mint stopped using silver in dimes and quarters, and reduced the amount in half dollars, as the price of silver rose. In 1971, when Klarman was 14 and riding the New York City buses, he befriended the driver, who let him swap a current quarter for the more valuable pre-1965 pure silver coins in the bus’s fare box. He was buying the proverbial dollar at a discount.”
“A good business isn’t one that has an interesting or exciting narrative, it’s one that makes a lot of money relative to the money invested into it. Buffett obviously doesn’t get influenced by narratives or growth stories. He’s only interested in finding great investments. And great investments tend to come from good businesses that are undervalued. And good businesses tend to have two common themes: strong returns on capital and good management that are rationally allocating free cash flow.”
“We are more apt to hold a business whose prospects are rosy, and whose management is aligned and acting rationally, and whose competitive entrenchment is unquestioned, even when it trades above 100 cents on the dollar.”