The Berkshire Beat: January 31, 2025

All of the latest Warren Buffett and Berkshire Hathaway news!

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You might have heard Charlie Munger say something along the lines of, “To be a good investor, you have to fish where the fish are.” That you can’t look everywhere for opportunities, but rather narrow down your hunting ground to the most fruitful spots.

Last week, a reader kindly shared a new Li Lu speech with me that elaborates on this particular Munger-ism. In it, the Chinese-American value investor tells Peking University business students how he learned this lesson firsthand while vacationing with the Munger clan on Star Island in Minnesota.

For Charlie, this annual getaway with his entire family was a time for rest, relaxation, reading, and fishing. Lots and lots of fishing.

One thing puzzled Li Lu, though. Why, when Star Island was already smack dab in the middle of a large lake, did Charlie and co. always sail back to the mainland and drive — sometimes for up to an hour — to smaller lakes elsewhere to fish?

“Charlie,” he once asked, “there is such a big lake next to Star Island. Why don’t you fish here?” Charlie replied, “You can try it [if you want].” So Li Lu did just that — and caught almost nothing. But, whenever he traveled to those other far-flung lakes with Charlie, they “were full of harvests every time”.

As it turned out, Charlie did not have an innate preternatural fish radar that told him the location of that day’s best catch. But he knew where to go to get that information.

In this case, it was Leroy, a local bait merchant and fishing guide. While out gathering his bait supply, he explored all of the nearby lakes and learned exactly where the fish were biting. “That was his exclusive knowledge,” said Li Lu — so Charlie always sought out Leroy’s advice when deciding where to drop his line.

“There are more than 10,000 lakes in Minnesota,” said Li Lu, “but we don’t need to fish in the largest lake. The same is true for individual investors — including institutional investors — who don’t need to fish in the largest lake.”

“Investors do not need to understand all companies, do not need to master all macroeconomic parameters, and do not need to accurately predict the [macro] situation in the next ten years. The key is to find the ‘lake’ where you can catch fish.”

Li Lu noticed one other thing about Leroy. He often directed the group to a neglected lake with no one else out on the water. That “ensured we could catch the most and largest fish there. Insufficient competition is a very important reason for mis-pricing [in investing, too].”

“When everyone knows that there are fish somewhere, it is not easy to catch them.”

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And, now, the latest news and notes out of Omaha…

Berkshire Hathaway — along with its two largest stock holdings — was named among the World’s Most Admired Companies. This Fortune x Korn Ferry list “highlights organizations most respected by their peers, with executives emphasizing financial stability, innovation, respected leadership, and expansion of global businesses”. Incredibly, Apple has topped the Most Admired list for 18 years in a row. And another Berkshire favorite, Coca-Cola, just missed out on the top tier at #12.

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Alex Morris joined the Value: After Hours podcast on Tuesday to talk about his new release, Buffett & Munger Unscripted. In addition to a fascinating discussion about Berkshire’s PetroChina and Apple investments, Alex also touched on one of my favorite things about the AGM Q&As. “The most enlightening stuff throughout the book,” he said, “especially for people that read Buffett and Munger or listened to them for a long time, are those examples where Warren says something and then Charlie comes back at him in a way that’s sometimes a little bit of a disagreement — with him saying, ‘Hey, you’re making this sound easier than it is.’ That back and forth is really where a lot of knowledge comes out at times.”

Chubb CEO Evan Greenberg called 2024 “the best [year] in our company’s history”. Not hard to see why when its P&C insurance segment clocked a sterling 86.6% combined ratio. The insurer also estimates that the recent Los Angeles wildfires will cost $1.5 billion pre-tax in the current quarter.

• Greenberg did not have anything nice to say about the California insurance market. “Frankly,” he said, “it’s an unsustainable model. And, one way or the other, the citizens of the state paid a price for coverage. We’ve been shrinking our exposure in California for some time. For example, in the area where the wildfires occurred, our exposure has been reduced by over 50%. We’re not going to write insurance where we cannot achieve a reasonable risk-adjusted return for taking the risk.”

Brooks Running is re-entering the lucrative lifestyle sneakers market. (Basically, lifestyle sneakers can be worn all day and for general purposes — and are not specially designed for runners.) Up first is a collaboration between streetwear icon Jeff Staples and the Adrenaline GTS 4, a Brooks heritage design, that will release in March. CEO Dan Sheridan is ready to be patient as the new lifestyle segment finds its footing. “We don’t do anything one-off,” he said. “We’re investing for the future here. This expansion strategy is going to be a 30-50 year strategy for us. It’s not something we’re in and out of. We’re going to invest for the long haul because it’s going to strengthen our brand.” This move opens up the $9 billion lifestyle sneakers market for Brooks — while remaining a power player in the $7.4 billion field for runners.

• Hopefully, we’ll get more information about Brooks’s full-year 2024 performance in Berkshire’s annual report next month — but the company was doing well at last check. For the first time ever, it recorded $1 billion in sales through the first nine months of the year.

Speaking of Berkshire subsidiaries trying something new, Jazwares is taking aim at the LEGO-like construction toy market with BLDR. These BLDR sets feature popular IP such as Jazwares’ own Squishmallows (complete with soft bellies) as well as Hello Kitty and other anime faves — and use bricks that are compatible with “all major construction brands”. That means BLDR should fit right in with any LEGOs that customers have sitting around the house.

• “BLDR was born out of an opportunity to bring new, iconic brands to the construction space like never before,” said chief brand officer Jeremy Padawer, “along with Jazwares’ unparalleled ability to bring innovative, creative, quality products to consumers at highly accessible price points.” Most BLDR sets are priced somewhere between $10-30.

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If Warren Buffett kept selling Apple stock in the fourth quarter, American Express might soon become the biggest holding in Berkshire’s massive stock portfolio. (We will find out on 13F deadline day next month.) Either way, here is happy news: AmEx raised its quarterly dividends by 17.1% for 2025. Which means that Berkshire should receive nearly $500 million from the credit card giant over the coming year. On a cost basis of $1.287 billion, that works out to a whopping 38.6% yield on cost.

• Buffett paid homage to the dividend growth of this investment in both his 2022 and 2023 annual letters. “Those [dividend] checks,” he wrote, “seem highly like to increase.” Understatement alert. Since the Covid-era freeze, AXP 0.00%↑ dividends have nearly doubled — from $0.43 per share to $0.82 per share.

Charlie Munger, it goes without saying, lived a very disciplined life. He brooked no irrationality from himself or others — and that included the all-too-human foible of retreating into denial when confronted with an unpleasant truth. Mark Tobak wrote about this aspect of Charlie’s personality over at Hedge Fund Alpha. “Admitted to the hospital in the final hours of his life, a nurse asked Charlie how he was doing. His reply: ‘I’m dying. How are you?’ To Charlie, psychological denial was just a stumbling block on the high road to rationality.”