The Berkshire Beat: February 2, 2024
All of the latest Berkshire Hathaway news and my must-reads of the week!
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The latest news and notes out of Omaha…
Berkshire Hathaway’s Class B shares closed out the month in style by hitting new all-time highs on both Tuesday ($387.64) and Wednesday ($387.92).
Yesterday, an SEC filing revealed that someone at Berkshire bought more Liberty Media SiriusXM tracking stock over the past three days. 799,629 shares of LSXMA 0.00%↑ and 1.03 million shares of LSXMK 0.00%↑ for a total outlay of $55.4 million.
Late last week, American Express announced plans to increase its quarterly dividend by 17% to $0.70 per share. That’s good news for Berkshire, which owns 151.6 million shares of the financial services giant — and can now look forward to $409 million of dividends from AXP 0.00%↑ in 2024.
In his most recent annual letter, Warren Buffett wrote: “Berkshire’s purchases of AmEx were essentially completed in 1995 … Annual dividends received from this investment have grown from $41 million to $302 million [in 2022]. Those checks, too, seem highly likely to increase.”
Buffett was right about that. With AmEx dividends projected to be $409 million this year, that works out to be 10x more than that original windfall of $41 million. Dividend growth is a beautiful thing.
Despite narrowly missing analyst estimates in Q4 2023, American Express offered better-than-expected guidance for the year ahead — and that sent the stock soaring by as much as 10% this week. Berkshire’s stake is now valued at $30.8 billion — an increase of $2.3 billion since last Friday.
Bloomberg reported that media mogul Byron Allen has offered $14.3 billion to buy 100% of Paramount Global. That comes out to $28.58 per voting share and $21.53 per non-voting share. Berkshire owns 93.7 million shares of the non-voting Class B stock. (We don’t have an exact number on Berkshire’s cost basis in Paramount, but Allen’s offer is well below even the most optimistic estimates.) Including debt, the total value of Allen’s proposed deal rises to about $30 billion.
“This $30 billion offer, which includes debt and equity, is the best solution for all of the Paramount Global shareholders,” Allen Media Group said in a statement. “The bid should be taken seriously and pursued.”
If nothing else, this might smoke out offers from other interested parties — including David Ellison and RedBird Capital. Cross your fingers for a bidding war.
Another executive shakeup at Pilot Travel Centers. Brad Jenkins (president of Pilot Flying J Energy) and Bill Cashmareck (vice president of petroleum marketing) have both departed the company. Certainly have been a lot of changes at Pilot in the last twelve months since Berkshire assumed majority control.
Last month’s arctic blast took a big toll on the North American train industry. And BNSF Railway was no exception. During the week ending January 19, BNSF’s volume dipped by 11% and dwell time (the amount of time spent at a scheduled stop without moving) jumped by 39%. Railway Age called that BNSF dwell time number “a high we’ve never seen”.
More from RA: “After the February 2021 polar vortex, BNSF was able to normalize terminal dwell times in just two weeks … A horrendous dwell reading doesn’t automatically condemn the network to months of recovery time. A few weeks [are] more likely.”
On the bright side, BNSF reportedly won a big international intermodal contract (with APL) out from under rival Union Pacific.
According to MacRumors, Apple sold nearly 200,000 preorders for its Vision Pro headset as of Monday. The mixed-reality (or, in Apple parlance, “spatial computing”) device launches today. Early reviews are mixed-to-glowing.
Daring Fireball: “Spatial computing in VisionOS is the real deal. It’s a legit productivity computing platform right now, and it’s only going to get better. It sounds like hype, but I truly believe this is a landmark breakthrough like the 1984 Macintosh and the 2007 iPhone.”
“Vision Pro isn’t even in stores yet and it’s already subject to mockery. (So was the iPhone before it shipped; so was the original Macintosh.) In a few years, after a few product generations, we will all look back at this first Vision device and laugh. We’ll laugh at the external battery, we will laugh at the size and weight of the device, and eventually we will laugh at its price. The knocks against it are all undeniably true: it’s too heavy and too big for everyone, and too expensive for the mass market. But, like that original iPhone and the original Macintosh before it, this first Vision Pro is no joke.”
“If you were to try just one thing using Vision Pro — just one thing — it has to be watching a movie in the TV app, in theater mode. Try that, and no matter how skeptical you were beforehand about the Vision Pro’s price tag, your hand will start inching toward your wallet.”
CNBC: “While it has some shortcomings, it’s easily the most fun new product I’ve tried out in years. Analysts don’t expect the Vision Pro to drive massive amounts of revenue initially … [but] I’m convinced that if Apple eventually sells cheaper versions, we’ll see millions of people using them in the coming years.”
“Apple’s real opportunity will materialize when it finds a way to mass produce the Vision Pro at closer to $2,000 or less. Until then, it may be a niche product. But the experience blows everything else out of the water. It’s Apple’s most exciting product in years and it’s the best example yet that this will become a new way of computing.”
A Slow Read of Poor Charlie’s Almanack
Chapter 3: The Munger Approach to Life, Learning, and Decision Making
“To Charlie, successful investing is simply a byproduct of his carefully organized and focused approach to life,” writes Peter Kaufman, editor of Poor Charlie’s Almanack — and author of the book’s third chapter.
(He’s also a brilliant business leader in his own right as CEO of Glenair.)
In this chapter, Kaufman lays out Charlie Munger’s four-part philosophy to business, life, and pretty much everything else…
(1) Preparation
Charlie spent his entire life building up his prodigious intellect brick by brick. Learning everything that he possibly could in preparation for the many big decisions that lay before him.
How did he do this? By casting a wide net and assembling a latticework of mental models that spanned many unrelated disciplines and subjects — ranging from history to psychology to mathematics to engineering. This allowed him to examine problems in unconventional ways and, invariably, reach better solutions.
And, incredibly, it was mostly self-taught. “To this day,” Charlie said, “I have never taken any course, anywhere, in chemistry, economics, psychology, or business.”
Kaufman added: “[Charlie’s] clarity is hard-won, the product of a lifetime of studying the patterns of human behavior, business systems, and a myriad of other scientific disciplines.”
Charlie no doubt made many mistakes over his long life, but they never came from a lack of preparation or a sense of complacency. He put in the work, day after day, to fortify his mind and to be ready for whatever might come his way.
(2) Discipline
All the preparation in the world, though, means very little if you don’t have discipline. As the noted philosopher Mike Tyson once said, “Everyone has a plan until they get punched in the mouth.”
Thankfully, for players of the money game, we (usually) don’t need to worry about dodging any uppercuts. The obstacles that test an investor’s mettle more often than not present themselves as a panicked market or out-of-control emotions.
Kaufman points out how Charlie managed to keep himself above the emotional fray:
Few investors share Charlie’s willingness to appear foolish by not following the herd. Religious in his objectivity, Charlie is content to swim imperturbably against the tide of public opinion — indefinitely, if necessary — which is a rare attribute in the average investor. And while this behavior can at times appear simply stubborn or contrarian, that is not the defining characteristic. Charlie is simply content to trust his own judgment even when it runs counter to the wisdom of the herd.”
(3) Patience
There’s no use assiduously building a latticework of diverse mental models only to get antsy and rush into a subpar investment just because you felt like you had to do something. Charlie — much like his partner — was never afraid to stand at the plate and watch pitch after pitch go by, waiting for the perfect one to swing at.
Even when Charlie spotted something intriguing, he would not be rushed. Kaufman describes how Charlie always ran through a “prior to pulling the trigger” checklist of questions before committing any money to an investment:
What are the current price, volume, and trading considerations?
What disclosure timing or other sensitivities exist?
Do contingent exit strategies exist?
Are better uses of capital currently or potentially available?
Is sufficient liquid capital currently on hand or must it be borrowed?
What is the opportunity cost of that capital?
(4) Decisiveness
On those relatively rare occasions when everything checked out and Charlie decided to invest, he jumped in with both feet. “Extreme decisiveness” as Kaufman calls it.
Charlie knew what he wanted — and was never afraid to concentrate heavily in his best ideas. “We’re partial to putting out large amounts of money where we won’t have to make another decision,” said Charlie. “If you buy something [just] because it’s undervalued, then you have to think about selling it when it approaches your calculation of intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.”
He understood that relatively few businesses will survive over the long haul. So he spent all of his time and energy trying to identify those that could beat the odds. When running a concentrated portfolio like Charlie, you cannot afford to dip your toe into a shallow moat.
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More Must-Reads
Other awesome things that I read this week…
What I Learned When I Stopped Watching the Stock Market (WSJ || Jason Zweig)
“When you don’t watch the market every day, you can finally see with unquestionable clarity that what you would have expected to happen didn’t. The unexpected did … I’m not saying that the news doesn’t matter or — heaven forbid — you should stop reading the Journal. I am saying that reacting to the news — or even feeling you’re supposed to — can poison your portfolio and sour your life.”
What Company Earnings Calls Should Be About (But Are Not)
“Over 50% of the discussion during a typical earnings call with management is focused on short-term demand trends that will have little to no impact on the long-term value of the business. This is not helpful to long-term shareholders … I often find myself waiting for the CEO to say something to the effect of, ‘We are just not going to indulge short-term speculators, but rather focus our comments on information useful to long-term investors.’ Yet exceptionally few do.”
Plato to Portfolios: Why Liberal Arts Majors Should Pursue the Investing Industry
“What I’ve found is that my liberal arts background has become more valuable as my career has progressed. Once the job became less about technical skills and more about broad conceptual thinking, the disciplines I learned like research, writing, and logic while taking history, philosophy, theology, and other core courses at Saint Joseph’s University became more important.”
“Our culture has discarded its myths and severed its ties with the divine mystery behind the veil of the world. Instead, we are busy lifting ourselves on the pharaoh’s throne. Why worship an invisible deity when you can serve the tangible self in the mirror in front of you? Every day is a holy day when you can treat that idol to another round of bliss. No animal sacrifices required, all major credit cards accepted.”
“A consumer electronics product that has a price tag starting at $3,500 is not intended to be a mass market product. In fact, I believe that Apple intentionally priced the product at a point where only the earliest adopters of technology would be tempted to make a purchase. In many ways, Vision Pro 1.0 looks like a public beta, albeit one that Apple will be paid for. By releasing the product to an audience of tech-savvy, wealthy consumers, Apple is able to include premium touches that provide differentiation from mass market headsets and effectively get customers to fund extended testing.”
Opportunity comes to the prepared mind
great coverage, thank you!