The Berkshire Beat: August 30, 2024
The Berkshire Beat: August 30, 2024
All of the latest Warren Buffett and Berkshire Hathaway news! Including updates on a certain someone's 94th birthday, Berkshire at $1 trillion, Forest River, Bank of America, and more...
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Today is a very special day: Warren Buffett’s 94th birthday.
Many happy returns to the Oracle! And I hope the birthday boy splurges on the Bacon, Egg, and Cheese Biscuit at McDonald’s this morning in honor of the occasion.
Let’s jump right into the latest news and notes out of Omaha…
One of Warren Buffett’s birthday presents arrived a few days early. On Wednesday, Berkshire Hathaway became the very first non-tech U.S. member of the $1 Trillion Market Cap club. And, as
points out over on X, Buffett did it with only the barest dilution of shareholder wealth. “Outstanding shares have gone from about 1.08 million in 1965 to 1.4 million today, an increase of [only] 1.3x,” he writes. “In other words, the VAST majority of wealth creation has accrued to the *shareholders* of Berkshire Hathaway.”Berkshire enters the last trading day of August in pole position for another big win over the S&P 500. So far in 2024, Class A shares have gained 29.4% with Class B shares even better at 31.3% — both well ahead of the benchmark index’s 18.3% total return.
On the downside — at these prices, we can probably kiss goodbye any share repurchases in the third quarter.
Buffett sold another 24.7 million shares of Bank of America stock between August 23 and August 27. At an average price of $39.82 per share, this latest sale adds $981.9 million to his already overflowing money bin. Berkshire’s stake in BAC 0.00%↑ drops to 11.6%.
In all, Buffett has sold 129 million shares of Bank of America — for nearly $5.4 billion — since July 17.
The fact that Buffett slashed his Apple position down to 400,000,000 shares — the exact same number as permanent holding Coca-Cola — raised certain questions. Like, does this mean he’s done selling? Mohnish Pabrai thinks so. “The rounded share count means it is a very high probability that Berkshire has trimmed its Apple position to the size it wants to keep for now,” he said on X.
Morgan Housel knows the best Berkshire stories. The best-selling author of The Psychology of Money and Same as Ever joined Howard Marks’s “Behind the Memo” podcast this week and delivered a powerful sermon on patience and leverage.
One of the most fascinating investing stories is [about] a guy named Rick Guerin, who was an absolutely lovely gentleman who passed away not too long ago. If you go back to the 1960s, there were three investors who made all of their investments together — and that was Warren Buffett, Charlie Munger, and Rick Guerin.
Several years ago, a hedge fund manager named Mohnish Pabrai had dinner with Buffett and he said, “What happened to Rick Guerin? He was all over the early history of Berkshire and now he’s not. What happened to this guy?”
And Warren told a story — which was that Warren, Charlie, and Rick made all the same investments together. [But] Rick did one thing different: He invested very heavily on margin. And I think it was in the 1974 bear market, he got clobbered.
Warren had a saying that stopped me in my tracks. I thought it was so fascinating. He said, “Rick was just as smart as us — but he was in a hurry.”
I don’t think it’s an exaggeration to say that Warren and Charlie have gone through their entire lives intentionally at 70% of their potential. They could have been levered. They could have gone into debt and earned higher returns. But they willingly operated below their potential because they were more focused on endurance.
I’d love to write more about Rick Guerin in the future. Fascinating character. And, despite his problems in ‘74, an excellent investor.
Liberty Media Sirius XM shareholders approved the proposed split-off and combination with Sirius XM Holdings at a special meeting last week. “New Sirius XM” will begin trading on September 10, 2024. (As I mentioned last week, Barron’s estimates that Berkshire will own 29% of the company once this restructuring is complete.)
I can’t claim to be an expert about Sirius XM as a business, but I’m very happy to see it simplify its ownership structure.
Forest River CEO Pete Liegl isn’t retiring — but he is laying the groundwork for his succession. Liegl recently empowered three executives — Darrel Ritchie, David Wright, and Doug Gaeddert — with the day-to-day operations of some of the RV maker’s most important divisions. He told RVBusiness that all three “have more fire in their bellies than I” and that he no longer has “the get-up-and-go that those boys do”. Liegl plans to gradually transition from an operational role to more of a strategic one. “They’ll do a better job than I ever thought of doing.”
We don’t get a whole lot of information about Forest River in Berkshire’s earnings reports, so I’ll happily take any morsels that Liegl might share. Like this one: “We’re making good money every month,” he said, “and the future looks like more of the same.”
Back in 1990, in an early bit of Berkshire synergy, the Nebraska Furniture Mart started selling See’s Candies in store. KETV in Omaha recently unearthed an old video report from its archive about that occasion — featuring Warren and Susie Buffett, as well as a rare glimpse inside the old NFM.
“I like the things with a fair amount of nuts and gooeyness and all of that,” Buffett told the KETV reporter. “I like the lollipops, too. If you ever see me walking around town with a lollipop, it’s one of ours.”
Barring some unforeseen surge later today, Occidental Petroleum will have spent the entire month of August under $60 per share. It even got down to around $56 on several occasions. Yet Berkshire has not purchased a single share during this downturn. 👀
🤑 Dividends: This week, Berkshire collected $3.5 million in quarterly dividends from Sirius XM Holdings and a whopping $151,745 from Jefferies Financial Group. I guess every little bit helps.
Warren Buffett: 94 Years Young
I’m sure the internet will be abuzz today with countless tributes to Warren Buffett in honor of his 94th birthday. And, of course, Kingswell will be right in the thick of it.
With the number 94 in mind, I went back and re-read Buffett’s annual letter for 1994 — which, like all the others, is an absolute masterclass in business wisdom. It also provided a sobering reminder that I’ll never be even half as good a writer as Buffett. The man has a way with words that borders on the sublime.
So, to mark the occasion, I picked out a few of his best one-liners from that ‘94 letter. All of which are just as relevant today as they were thirty years ago…
✨ Intrinsic value [is] a number that is impossible to pinpoint, but essential to estimate.
Buffett defines intrinsic value as “the discounted value of the cash that can be taken out of a business during its remaining life” and calls it “the only logical way to evaluate” businesses. But, he also notes, intrinsic value is usually more of a ballpark number than one nailed down to the last decimal point.
You could give the same financial information to ten different investors and they would probably come back with ten different estimates of a company’s intrinsic value.
✨ It’s far better to own a significant portion of the Hope diamond than 100% of a rhinestone — and [investments like Coca-Cola, Gillette, and Wells Fargo] easily qualify as rare gems.
There’s no question that, all things considered, Buffett would prefer to buy all of a wonderful business than just a piece of it. But that’s rarely an option when you’re shopping among the crème de la crème of the business world.
The only way to acquire an ownership interest — of any size — in gilt-edged names like Coke or Gillette is through the stock market.
✨ A really good business generates far more money than it can use internally. The company could, of course, distribute the money to shareholders by way of dividends or share repurchases. But often the CEO asks a strategic planning staff, consultants, or investment bankers whether an acquisition or two might make sense. That’s like asking your interior designer whether you need a $50,000 rug.
The spoils of success can tempt even the best CEOs. When faced with fresh capital and cash flows to allocate, managers must contend with a never-ending parade of consultants and “experts” eager to help them spend it. Often through overpriced and poorly thought out acquisitions.
Berkshire Hathaway’s unique structure, on the other hand, sidesteps the problem entirely. Operating managers ship any excess cash back to Omaha for Buffett to deploy as he sees fit. It doesn’t sit around burning a hole in that manager’s pocket.
✨ A fat wallet is the enemy of superior investment results.
Buffett mentions several times that Berkshire’s future has no chance to match the blistering pace of its past. Not because his investment approach had gone out of style or from an overall lack of good businesses to buy, but simply because Berkshire had grown much too large to put up such huge numbers.
A fat wallet is not only the enemy of investment results, but also an anchor that makes it all but impossible to continue compounding at 20+% for decades on end.
With his investment universe shrinking more and more with each passing year, Buffett said that he no longer even looks at anything worth less than $100 million. “As Charlie regularly reminds me,” he wrote, “‘If something is not worth doing at all, it’s not worth doing well.’”