The Berkshire Beat: January 10, 2025

All of the latest Warren Buffett and Berkshire Hathaway news!

Happy Friday and welcome to our new subscribers!

Special thanks, too, to those who recently became paid supporters! ❤️

Speaking of which… This quarter’s AGM At-A-Glance (a concise but thorough review of Berkshire Hathaway’s annual shareholders meeting in 1996) will go out to all paid subscribers early next week. So, if you’ve been on the fence about upgrading, there’s no time like the present.

One of my absolute favorite Warren Buffett quotes came out of that ‘96 meeting. “We’d rather just sit and hold the business and pretend the stock market doesn’t exist,” he said. “There’s been a fair amount of good fortune that has flowed out of that [approach] that I really wouldn’t have predicted.” I couldn’t have said it better myself.

Now, with that bit of housekeeping out of the way, let’s move on to the latest news and notes out of Omaha…

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Chris Davis really packed a lot into his recent 20-minute interview with Barron’s. Near the end, host Andy Serwer asked the Berkshire Hathaway director what Warren Buffett’s eventual exit will mean to the conglomerate’s culture and performance. Davis deflected the question with one of his own: Did Serwer know who was the third CEO of Standard Oil? “I don’t know,” said Davis, answering his own question. “Standard Oil was the most valuable company in the world for twelve decades,” he continued. “How did that happen? John D. [Rockefeller] built an extraordinary collection of assets that had very long lives for producing cash. He built the company to withstand all sorts of turmoil — the Great Depression, World Wars, inflation, and so on. He built a peculiar culture. A culture that rejected Wall Street [and] rejected short-termism.”

• The subtext of his remarks is that Warren and Charlie built exactly the same kind of long-lasting machine at Berkshire. And even though no one remembers who Standard Oil’s third CEO was — much like we don’t know who will succeed Greg Abel one day — it is the foundation left in place that persists through the decades.

It’s that time of year when shareholder resolutions start to trickle in ahead of Berkshire’s proxy statement and annual meeting. A London-based investor group submitted a proposal calling on Berkshire to create “a committee of independent directors to oversee risks associated with artificial intelligence at [its] dozens of companies”. Berkshire usually takes a dim view of these proposals, though Buffett has expressed concerns about the dark side of AI (including deepfakes of himself).

Bill Stone of Glenview Trust Company stopped by Yahoo Finance to discuss Berkshire’s massive cash pile — and what Buffett might do with it. “Until he starts to really find larger targets to buy or that he can buy, [the cash] is going to probably keep growing,” he said. “Berkshire should continue to post some pretty nice earnings — and produce cash flows. I always look at it as [if] they have optionality. If we get a big market sell-off or a specific company sell-off, he certainly has the cash to step in.”

• In terms of Berkshire’s recent Apple sales, Stone pointed to a certain vice chairman’s absence. “Part of it, I do think, had to do with Charlie Munger’s passing,” he said. “Munger was always the one that said, essentially, ‘Don’t sell anything [if it is a great company]. Just keep riding them.’” But, without that voice in his ear, Buffett opted to reduce Berkshire’s exposure to the highly-valued tech giant once it approached 50% of the conglomerate’s stock portfolio.

• Stone doesn’t think Buffett is done selling Bank of America, either. “My guess is that the next time we [see] the filings, I think they will have taken it down further.”

Berkshire bought more Verisign stock — but its 12-day shopping spree is now over. Someone at Berkshire added 20,044 more shares of the internet registry company — for a paltry $4.1 million — between December 31 and January 3. That brings the 12-day total to nearly 475,000 shares for $93.6 million. But, with no new filings on either Wednesday or Thursday, the streak ended there.

“When I see memos from Howard Marks in the mail,” Buffett once said, “they are the first thing I open and read.” And who am I to argue with that? Marks released a new memo this week — On Bubble Watch — in which he revisits his thoughts on market bubbles and the psychological forces that feed them. The whole thing is well worth a read, but I’ve pulled out a few of my favorite lines down below.

BNSF Railway — along with the other U.S. Class I railroads — achieved much-needed growth in traffic last year. According to the Association of American Railroads, BNSF gained 6% in overall traffic — led by an impressive 16% jump in its intermodal business. Traffic is still not back up to pre-Covid levels, but that’s an industry-wide problem. Even after factoring out the drop in coal (which probably won’t be rebounding anytime soon), North American carload volume is still down 2.6% since 2019.

Chevron’s $53 billion acquisition of Hess remains mired in arbitration-related limbo. “We continue to be very confident in Hess’s position in the arbitration,” said CEO Mike Wirth. “We feel like they clearly have the right side of this argument.” For his part, John Hess called Exxon’s claim — that it holds a right of first refusal on the company’s stake in Guyana’s Stabroek block — “baseless” and “without merit”. Don’t expect a quick resolution to this saga. The arbitration panel is not expected to reach a decision until September.

NV Energy, a wholly-owned subsidiary of Berkshire Hathaway Energy, hopes to create a $500 million self-insurance fund in case of future catastrophic wildfires. To do this, the company has asked the Public Utilities Commission of Nevada to allow it to raise prices on customers based on their electricity usage. NV Energy said in its filing that it “cannot feasibly eliminate [the chance that its equipment] will cause or exacerbate a wildfire, although they can and have been mitigating it”. This would bring NV Energy’s total coverage up to almost $1 billion. An actuarial expert testified that the BHE subsidiary is now paying 30-40x more for its insurance than in 2018 — “and has no options to secure additional coverage in the commercial markets”.

• It’s way too early for this, but J.P. Morgan analysts are predicting that insured losses from the ongoing Los Angeles wildfires could exceed $20 billion. (That’s up from their $10 billion guess on Wednesday.) “Given the increase in loss estimates over the past day,” it reads, “we expect reinsurers to experience sizable losses as well. Nonetheless, we expect primary insurers to incur a greater proportion of losses compared to reinsurers than for similar severity events in the past.”

In other not-so-great news, Clayton Homes finds itself on the receiving end of a U.S. Consumer Financial Protection Bureau lawsuit. Vanderbilt Mortgage & Finance, which is owned by Clayton, allegedly allowed borrowers to take out loans too big for their income levels — which led to penalties and foreclosures. “The CFPB lawsuit is unfounded and untrue, and is the latest example of politically-motivated, regulatory overreach,” the lender said in a statement. “Vanderbilt Mortgage follows the law — and the facts bear that out.”

The Toy Book caught up with Daren Brandman of Jazwares to discuss the company’s foray into the Great White North. “Jazwares officially opened its Canadian office in 2022,” he said, “and has experienced exponential growth since.” It also won Circana’s #1 Selling Toy in both 2022 and 2023. “The Canadian industry is currently experiencing a cooling-off period … I anticipate the industry as a whole will see modest growth of around 1-2% [in 2024]. However, as many of our retail partners have noted, Jazwares continues to have a secret sauce when it comes to creating toys.”

• Brandman also explained how the Canadian toy market differs from the U.S. “Newer brands face more challenges here,” he said, “as customers tend to gravitate toward tried and true brands and products rather than unfamiliar ones. Having managed brands in both the U.S. and Canada, I’ve always found it more difficult to achieve success in the Canadian market. With a smaller population, more compact stores, and less attractive economies of scale for global brands, competition for shelf space is intense. Yet, despite these challenges, our Jazwares Canada business is thriving.”