Discover more from Kingswell
The Berkshire Beat: June 2, 2023
All of the latest Berkshire Hathaway news and my must-reads of the week!
Happy Friday and welcome to our new subscribers!
The latest news and notes out of Omaha…
After a one-week hiatus, Berkshire Hathaway resumed its purchase of Occidental Petroleum stock — acquiring 4.66 million more shares of OXY 0.00%↑ between May 25 and May 30 — at prices ranging from $57.90 to $59.00. This $272.9 million outlay boosts Berkshire’s stake in the oil-and-gas giant up to 24.9%.
And, with Oxy sinking back into the $57-58 range over the last few days, Warren Buffett might be buying even more. If so, we’ll find out tonight.
Here’s something that might surprise you: HP is the tenth-largest holding in Berkshire’s stock portfolio (at least according to CNBC’s excellent tracker). Well, HPQ 0.00%↑ had a rough week — dropping over 5% because of a revenue miss in Q2 2023. Even the company’s once-prolific stock repurchases have dried up. (HP reduced its share count from 1.55 billion in 2018 to 982 million in 2022, but did not repurchase any shares in Q2 — and does not expect any in Q3, either.) CEO Enrique Lores hopes to resume buybacks in the fourth quarter.
On a more hopeful note, Lores spoke to Jim Cramer on Tuesday and predicted that AI-enabled computers could become a hot market for HP. “We think there is really an opportunity to create a new category of PCs that will drive significant refresh in the category. [AI is] going to help us redefine what a PC is, the experiences that customers will be able to get are going to be much different, and we are working with all the key software vendors [and] key silicon providers to redesign the architecture of a PC.”
Last week, Byron Trott’s BDT Capital announced a $125 million preferred equity investment in Paramount Global’s controlling shareholder, National Amusements. Berkshire already owns 15.3% of Paramount’s non-voting Class B shares — and, now, Buffett’s favorite banker is getting in on the action.
Trott: “We are pleased to partner with NAI in a transaction that supports its stewardship of Paramount … We believe strongly in the value creation opportunities ahead for the company and its shareholders.”
Yun Li (CNBC) has been all over this story from the start. Be sure to check out her whole article, but here’s the key quote from Don Bilson of Gordon Haskett: “Where this goes is TBD but with Buffett and his banker in the mix, this situation is more interesting today than it was when the week began.”
And, last but not least, Apple continues to amaze — with a 41.7% gain through the first five months of the year. That’s good news for Berkshire, which owns 5.8% of the iPhone maker. This year alone, Berkshire’s stake in AAPL 0.00%↑ has increased in value from $113.6 billion to $164.7 billion.
We’re also inching closer and closer to Apple — all by itself — making up the majority of Berkshire’s stock portfolio. (And, yes, I know Buffett doesn’t look at it this way.) At last check, AAPL 0.00%↑ accounted for a mind-blowing 48.2% of the company’s massive investment portfolio. 🤯
Great comment fromon Twitter: “It will be interesting to see what Apple does with buybacks as the price goes up. I hope that [Tim] Cook and Buffett talk about capital allocation. Berkshire should have at least one representative on the Apple board. [Greg] Abel would make the most sense, but [Ted] Weschler would also be great.”
Kingswell is a reader-supported newsletter. To better support my work, please consider upgrading to a paid subscription. 🙏❤️
Todd Combs Steps into the Spotlight on NFM Podcast
Berkshire Hathaway investment manager Todd Combs keeps a pretty low profile.
In fact, when Combs joined Berkshire in 2010, several media outlets resorted to using a picture of him from high school because it was the only one they could find. The “unknown” Combs had just snagged one of the investing world’s dream jobs — and no one knew anything about him.
Thirteen years later, he’s still something of a question mark. (I’m not referring to his investing and managerial acumen, but rather his philosophy, outlook, and history.)
Happily, Combs recently sat down with NFM’s i am home podcast for an hour-long discussion that touched on his pre-Berkshire career, how he met Warren and Charlie, and his approach to the money game.
Here are a few of the highlights…
COMPOUNDING KNOWLEDGE: In the fall of 2001, Warren Buffett spoke to Combs’s class at Columbia Business School and told the students that all he does all day is read. Buffett held up an accordion folder overflowing with papers and said, “What’s this? About 500 pages or so? Each and every one of you can [read this much in a week]. It’s free. But most people don’t because they get distracted.”
Why does Buffett recommend reading? Because the magic of compounding works just as well with knowledge as it does with a stock portfolio. “I read and the compounding of that knowledge accrues over time,” he said. “And, because it never goes away, there’s no decay rate.”
Combs took Buffett’s exhortation to heart.
It was a real epiphany for me. It was almost like I took it for a challenge. [Buffett] definitely didn’t mean it as a challenge, but I took it that way. I’m going to start doing this — and, so, I started from then on. At first, I was very meticulous about counting pages and everything.
Even now, as Combs pulls double duty as both Berkshire investment manager and CEO of GEICO, he still finds a way to take in 500 pages each week (although much of his reading material now relates to the insurance industry).
BE YOURSELF: Having been plucked out of relative obscurity by Buffett and Munger — and then handed the recently-retired Lou Simpson’s portfolio with carte blanche to buy or sell whatever he saw fit — Combs wrestled with himself over how to proceed.
“If you try to change your swing, it isn’t going to work,” he realized. So Combs stiff-armed the temptation to imitate Simpson or Buffett — and decided to use the same time-tested approach that had won him the job in the first place.
I made a resolution to myself that I was going to do it my way. It’s the only way I know. I’m going to succeed or fail that way.
I had enough confidence in myself having run a fund during the GFC — we had good results and I knew [financials] well … and, so, Mastercard and Visa were my first names that I bought [at Berkshire].
CONCENTRIC CIRCLES OF COMPETENCE: When Combs joined Berkshire, financial companies were already well within his circle of competence. But no investor wants to stand still, forever focusing on just one small subset of the market.
Combs resolved to keep pushing at the outer limits of his circle and to never stop learning.
You build concentric circles [of competence]. So the first one, I had done stuff with industrials — particularly industrials that had finance arms like CAT, Harley, GM, etc. If you can understand their finance arm, understanding the industrial aspect of it is generally simpler and more straightforward. Then you build out concentric circles from there.
You just take one step at a time. And you’re going to make mistakes along the way, but you hope they’re small to medium mistakes.
Even better, this works every which way. If you understand Apple inside and out, the company’s recent push into credit cards and pay later services could be your introduction and education on the financial sector.
Always look for opportunities to build more concentric circles.
Other awesome things that I read this week:
“Investors get very excited about high growth rates. However, there is a range of growth, usually in the 6% to 12% range, which mostly meets with a yawn and a slightly above-average valuation. However, there is a huge difference in value between a company growing at 10% for 5 years and one that is growing at 10% for 20 years. That difference is not always fully appreciated by the market.”
“I like to think that there is something to learn from everyone we meet. I’m not talking about information, though it can be that. Every interaction holds the potential for a lesson: about the other person, about us, about our relationship, about the world, about the human condition.”
“Munger: Yes, I read Barron’s for fifty years. In fifty years, I found one investment opportunity in Barron’s, out of which I made about $80 million with almost no risk. I took the $80 million and gave it to Li Lu, who turned it into $400-500 million. So I have made about $400-500 million out of reading Barron’s for fifty years and following one idea … I didn’t have a lot of ideas. I didn’t find them easily, but I did pounce on one.”