The Berkshire Beat: June 28, 2024
All of the latest Warren Buffett and Berkshire Hathaway news! Including updates on BYD, Chevron, Bank of America, Kraft Heinz, American Express, PacifiCorp, and more…
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I’m on vacation this week out in sunny California, but Berkshire Hathaway news — like time — waits for no one. So, since I’m writing this one on the go, I’ll keep things brief, channel my inner
, and do this letter in the style of .(And if anyone’s wondering, yes, I’m stockpiling and consuming as much See’s Candies as humanly possible while I’m out here.)
Well, anyway, let’s move on to the latest news and notes out of Omaha…
Warren Buffett’s BYD sell-off is picking up steam. A new filing out of Hong Kong revealed that Berkshire’s stake in the Chinese EV maker’s H-shares now sits under 6% (as of June 19). In a little over one week, this position dropped from 7.02% to 5.99%.
Today is another big dividend day for Berkshire — with over $378 million rolling into Omaha from two of the conglomerate’s largest holdings. Berkshire will receive $247.9 million from Bank of America and $130.3 million from Kraft Heinz. That’s a lot of capital to allocate, but something tells me that Buffett is up to the challenge.
Chevron’s $53 billion purchase of Hess remains stuck in a holding pattern. Exxon Mobil claims that it holds a right of first refusal to Hess’s assets in Guyana, which are key to Chevron’s interest in the acquisition. But arbitration between the two sides hasn’t even started yet — because a third arbitrator amenable to both parties cannot be found. This saga might drag into 2025 at this rate.
FYI: Exxon Mobil and Hess each get to select one arbitrator and then they have to agree on the third (and final) one.
Beleaguered Berkshire Hathaway Energy subsidiary PacifiCorp reaches another wildfire-related settlement. This week’s $150 million settlement gets the dubious distinction as the one that pushed PacifiCorp’s total over $1 billion.
On a happier note, Reuters says that this latest settlement “resolves substantially all individual claims in northern California” related to this particular fire in 2020.
American Express doubles down on dining perks with two restaurant-related acquisitions. Dining has become one of Amex’s biggest spending categories — with $100 billion in volume last year — and the financial services giant hopes to build on that by providing cardholders with opportunities for exclusive dining experiences, hard-to-get reservations at local hotspots, and more. As such, AXP 0.00%↑ agreed to purchase Tock (a reservation booking platform) for $400 million and Rooam (a mobile payment service popular with restaurants).
“Now,” said Howard Grosfield of American Express, “we can connect even more premium customers with the most exciting restaurants, while providing merchants and restaurants more technology to help their businesses thrive.”
In the Spotlight: Mohnish Pabrai in Omaha
While in town for last month’s Berkshire Hathaway annual shareholders meeting, Mohnish Pabrai popped in at the University of Nebraska Omaha and spoke to the students about Warren Buffett and the late Charlie Munger.
This is nothing new for Pabrai. He dedicates a lot of time to teaching the next generation of investors and thinkers — and then generously shares videos of these events with the wider world.
In this one, Pabrai described how Charlie exercised iron discipline in every area of his life — including his love affair with See’s Candies peanut brittle. An enduring image of any Berkshire AGM was Charlie sitting alongside Buffett up on stage, munching on peanut brittle while his more gregarious partner fielded questions from the crowd.
“When I’d go to Charlie’s house,” said Pabrai, “the peanut brittle was rationed. [It] was only brought out for dinner twice a month.”
“After dinner, the peanut brittle would come out and it would be gone [fast]. Like, in two seconds it would all be gone. But he never asked for more. He never said, on a non-peanut-brittle day, ‘I want to have peanut brittle.’ He basically just accepted [it] — which was remarkable. Most of us can’t do that. Most of us would throw our weight around and want what we want.”
Charlie’s ability to indulge in moderation proved to be the best of both worlds. He got to have something that he really loved on a regular-ish basis — but spread out enough so that it didn’t affect his health.
Speaking of See’s, Pabrai also traced a direct line between the acquisition of the candy maker in 1972 and Berkshire’s sizable investment in Coca-Cola sixteen years later. See’s afforded both Warren and Charlie front row seats to the pricing power of brands — and that reshaped their entire investment philosophy forever more.
But, Pabrai pointed out, another aspect of the See’s story only reinforced Coca-Cola as a can’t-miss opportunity. For years, Warren and Charlie tried everything to grow See’s outside of its home state. “They repeatedly tried to expand the geography,” he said. “Warren wanted See’s to be in all states. He wanted it to be in all countries. And he couldn’t even make it become dominant in a second state.”
Despite their best efforts, See’s remained a distinctly California phenomenon. A gold-standard brand that did not travel.
Coca-Cola, on the other hand, was rapturously received everywhere it went. “When they encountered Coke and they read the history of Coke,” said Pabrai, “they saw that Coke had no difficulty in geographic expansion.”
“We have two countries in the world today — Cuba and North Korea — that have no Coke. If, tomorrow, either of these countries opened up to Coke, without [spending] a dollar of advertising, sales would take off in both those countries.”
Back when Coca-Cola was a major Berkshire-related talking point, Buffett rarely discussed the company without mentioning how much of its sales and profits came from overseas.
That’s the difference between a home run (See’s) and a grand slam (Coca-Cola).
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The Must List
Other awesome things that I read this week…
Lessons from The Warren Buffett Way ||
“Franchises and moats provide management time to recover from mistakes. In a commodity business, the margin for error is tiny, and capital allocation decisions with poor outcomes — due either to bad luck or lack of skill — can impair the business’s prospects. Franchise businesses, in contrast, can push through poor outcomes (see Microsoft Zune) and carry on.”
The EU Is Reaping What It Sows With The DMA: Uncertainty || Daring Fireball
“[The Digital Markets Act] is uncertain by design. EC proponents keep telling me it’s a feature, not a bug, that unlike the U.S., it’s the spirit, not letter, of the law that matters in the EU. So it doesn’t matter if there’s not a word in the DMA that disallows the Core Technology Fee; European Commissioners have decided it goes against the spirit of the DMA, so they’re going to charge and fine Apple.”
Berkshire Was Too Cheap, Then Too Pricy || Matt Levine
“If you did this dumb trade, Interactive Brokers fixed it for you: They took over the trades and ended up buying a lot of [Berkshire Hathaway] stock for roughly $48 million more than it was worth.”
From Gathering To Compounding: The Journey Of Warren Buffett || Mark Tobak
“Warren Buffett made his first investment at age 11. Cities Service Preferred: three shares at $38 each. The stock plunged. When it rose again to $40, he sold out. Then watched it surge. A lesson in patience.”