The Berkshire Beat: August 23, 2024
All of the latest Warren Buffett and Berkshire Hathaway news! Including updates on Berkshire's latest all-time high, Bank of America, Ulta Beauty, Sirius XM, Occidental Petroleum, and more...
Happy Friday and welcome to our new subscribers!
Special thanks, too, to those who recently became paid supporters! ❤️
Speaking of which… This month’s annotated transcript — of a rare Charlie Munger interview — will be sent out to all paid supporters early next week. So, if you’ve been on the fence about upgrading, there’s no time like the present.
Here’s a sneak preview of one of my favorite passages from the transcript: “The beauty of [a great investment] is that it keeps working when you’re not. A great company will eventually earn more and more and more while you’re just sitting doing nothing. A mediocre company won’t do that. [With great companies], you’re harnessing a long-range force that will help you. These mediocre companies, they by and large are going to cause a lot of agony and very modest profits. If you do fine, it goes up a little and you have to sell it and you have to find another. It’s a lot of work — versus if you just buy one great company, if you get the right thing at the right price, you just sit there!”
Now, with that bit of housekeeping out of the way, let’s turn our attention to the latest news and notes out of Omaha…
Berkshire Hathaway started the week off with a bang — hitting another new all-time high on Monday. The Class A record high is still all screwed up because of the NYSE glitch in June, but Berkshire’s Class B shares (briefly) eclipsed the $450 mark for the first time ever. Not counting, of course, the pre-split price from back before the BNSF acquisition in 2010. It seems like just a matter of time before Warren Buffett and co. join the $1 trillion market cap club.
After a two week break, Buffett has resumed selling his Bank of America stock. He offloaded 13.9 million more shares between August 15 and August 19 at an average price of $39.42 per share — bringing in a total of $550.7 million to the company coffers. This latest trim drops Berkshire’s stake in BAC 0.00%↑ down to 11.9%.
As a result of these recent sales, American Express ($37.6 billion) now edges out Bank of America ($36.4 billion) as the second-largest holding in Berkshire’s massive common stock portfolio.
It’s nice to know that Berkshire Hathaway’s 13F still means something on Wall Street. Ulta Beauty (+13.7%) and HEICO Class A (+4.4%) are both riding Berkshire bounces after the conglomerate disclosed new positions in them last week.
Barron’s estimates that Berkshire will own about 29% of “New Sirius XM” after SIRI 0.00%↑ combines with Liberty Media’s SXM tracking stock next month. And, while most believe that this is a Todd Combs or Ted Weschler play, that doesn’t mean that Warren Buffett isn’t a big fan of the product. According to Liberty Media CEO Greg Maffei, the Oracle is “never not tuned to the Channel 70 Siriusly Sinatra” channel when in the car.
During a chat with college students, Mohnish Pabrai offered up an interesting explanation for Berkshire’s investment in Occidental Petroleum. “One time,” he said, “I was talking to [Charlie Munger] and he mentioned that he would love to have an investment in Exxon [if he could] get a commitment from the management that they would do no more cap-ex and they would simply run all the [oil] fields with the cash flows going to the shareholders. He had calculated that it would be a tremendous investment. And, of course, oil companies don’t think that way. But Oxy thinks that way.”
“What Oxy is doing is they have a huge gusher of cash flows coming out and that huge gusher of cash flows is only going into buybacks and dividends,” he continued. “It’s all being pumped out to shareholders — and [Warren Buffett] loves that.”
Pabrai’s comments are slightly out-of-date because Oxy paused share repurchases after the CrownRock acquisition until its debt level gets back under $15 billion — but it’s an interesting peek at Buffett and Munger’s thought process nonetheless. (In the video, Pabrai refers to his friendship with Charlie in the present tense, so we’re talking before November 2023.)
Speaking of Oxy, the O&G giant announced that it has already achieved $3 billion in debt reduction in Q3 2024. “We are pleased with the rapid and significant progress of our deleveraging program,” said CEO Vicki Hollub in a statement. “By the end of the third quarter, we expect to achieve nearly 85% of our near-term $4.5 billion debt reduction commitment.”
Last week, Oxy sold 19.5 million units of Western Midstream Partners for $700 million. And, once the Barilla Draw divestment officially closes, the oiler will have paid off more than $3.8 billion of debt so far this year. Every little bit helps move Oxy closer to its goal — and firing back up the buyback machine.
🤑 Dividends: Today, Berkshire collects $30.9 million in quarterly dividends from Citigroup and $5.9 million from Capital One Financial.
Some of my favorite Munger-isms speak out against the scourge of envy. So I particularly enjoyed this article over at Hedge Fund Alpha about how Charlie conquered envy in his own life — and how others can, too. “At the end of a long life of achievement, wealth accumulation and beneficence, teaching, and world-wide admiration, why would Charlie be envious of anyone?” writes Mark Tobak. “He was Win/Win. He won. And so did we.”
Beyond Ben Graham — a blog written by Graham’s granddaughter — took a closer look at the legendary investor’s first professional triumph. In 1915, Graham spotted an arbitrage opportunity when the Guggenheim Exploration Company announced that it would dissolve and distribute all of its assets to shareholders. He crunched the numbers and discovered that the many pieces of Guggenheim were much more valuable than the price of a share itself. More than anything, this proved to his bosses — and himself — that he had the chops to succeed on Wall Street.
Guy Spier on Buffett & Berkshire
Aquamarine Fund managing partner Guy Spier describes himself as “an ardent disciple of Warren Buffett [who] closely follows Warren Buffett’s principles on value investing and capital allocation”. So, right there, he’s my kinda guy.
Over the weekend, I listened to Spier’s latest appearance on The Investor’s Podcast, in which he spoke at length about his own investing track record, how he manages risk, and — of course — Warren Buffett and Berkshire Hathaway.
The whole episode is very much worth a listen, but I’ve pulled out some of the more notable Berkshire-related moments below to save everyone a bit of time…
✨ Warren Buffett once wrote Spier a letter to tell him that he particularly enjoyed that year’s Aquamarine Fund annual report. “I was blown away,” he admitted to host Stig Broderson. “And, of course, what I did was put it on the wall [in my office].”
It struck Spier that small gestures of recognition like this are a form of soft power that Buffett has mastered in his long career. This does not require a huge investment of time or effort on the part of Buffett — many of his letters are just 2-3 lines long — but the impact they have on their recipients can be life-changing.
“You can imagine my loyalty to Warren Buffett is enormously increased through that letter,” said Spier.
Everyone wants to be recognized — and Buffett found an easy way to do just that.
✨ Earlier this week, I mentioned that Warren Buffett usually holds onto Berkshire subsidiaries even if they’ve sunk into mediocrity (or worse). Spier pointed out that, when a subsidiary struggles, it quickly becomes nothing more than a rounding error in the overall Berkshire machine.
“What’s fascinating about Berkshire Hathaway is that so many of the Berkshire investments, especially in the private businesses, don’t work out at all,” he said. “But we don’t notice them because they’re a rounding error in comparison to the ones that have worked out — like MidAmerican Energy or Burlington Northern.”
“I mean, who’s talked about Quikut Knives or about Pampered Chef [lately]? I’m not sure that World Book is doing that well. [Or H.H.] Brown shoes. Not to mention the original Berkshire Hathaway textile mills.”
✨ Spier once asked Aquamarine brand manager Cecelia Wong to help him improve the design of his annual report. He showed her some examples for inspiration — starting with Berkshire Hathaway’s famously spartan website and annual report.
“The best example I have is the Berkshire Hathaway annual report,” I said, “but it’s not designed.”
I showed her the webpage and she comes back to me and says, “Guy, you don’t realize it, [but] both the Berkshire Hathaway annual report and the website are extremely well designed.”
I’m like, “The website has got nothing there!”
She says, “No, it’s saying that we’re not about extraneous fluff. We’re about the words of Warren Buffett. We’re about letting you get to the key information easily and presenting it to you up front in a way that we’re a no-nonsense, no-bells-and-whistles, and no-fluff kind of organization.”
You won’t find that kind of implicit communication — or symbolism — very often in the business world. Yet another feather in Berkshire’s cap.
✨ Why is the Berkshire Hathaway AGM such a one-of-a-kind experience?
“Anybody who’s been to the Berkshire Hathaway meeting understands this very well,” said Spier. “We all know — those of us who are the diehard faithful — that the Berkshire meeting is about so much more than just figuring out how to become better investors. We become better humans and we live better lives as a result.”
Being a Berkshire shareholder is every bit as much an education as it is an investment.