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The Berkshire Beat: June 9, 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…
Berkshire Hathaway stock continues to climb higher and higher. Both its Class A and Class B shares hit new 52-week highs yesterday — and now trail the S&P 500 benchmark index by just 3-3.5% year to date. This tortoise is starting to catch up.
Nothing new on the Occidental Petroleum front. Warren Buffett abruptly stopped buying OXY 0.00%↑ on May 31 — even though its shares remained in his $57-58 sweet spot for several more days thereafter. So why the pause? Your guess is as good as mine.
But don’t worry, I’m not about to leave our Oxy fans hanging. Lots more on the oil-and-gas giant down below.
Owing to Berkshire Hathaway’s 5.8% stake in Apple — currently valued at $165.3 billion — any big Apple news is, in effect, Berkshire news. And, earlier this week, the Cupertino-based company made waves with the announcement of its Vision Pro mixed-reality headset. This is Apple’s first major product launch since the Apple Watch in 2014 — and, thus, will be an important indicator of its ability to innovate and stay on the cutting edge in the post-Steve Jobs era.
Snap judgment: This certainly looks like it could become the interface of the future, but Apple’s Vision Pro remains several years away from being a super-compelling consumer item. The to-do list: A lower price, a more streamlined form factor, and lots and lots of apps. (Still, I’m pretty impressed with the marker that Apple just laid down in the nascent headset/meta wars.)
Cliff Asness of AQR Capital Management offered up an interesting take on the Oracle during a recent episode of Bloomberg Wealth: “No one would call Warren Buffett a quant — yet he is very correlated with what quants would call the value factor, the low risk factor, and the profitability factor. He buys companies that make a lot of money, aren’t very risky, and then he looks for a decent price.”
Last week, I mentioned Byron Trott’s $125 million preferred equity investment in Paramount Global’s controlling shareholder, National Amusements. A new detail from the Wall Street Journal: Trott’s BDT Capital will also receive warrants to purchase 3.5 million shares of PARA 0.00%↑ Class B common stock at $15 a piece.
The Amazon page for Stripe Press’s re-release of Poor Charlie’s Almanack is now up — with a release date of November 14, 2023. “[This book] draws on Munger’s encyclopedic knowledge of business, finance, history, philosophy, physics, and ethics — and more besides — to introduce the latticework of mental models that underpin his rational and rigorous approach to life, learning, and decision-making.”
Okay, time for the bad news. The new Stripe Press edition will be abridged, clocking in at just 384 pages (as compared to the original’s 548 pages).
In other book news, the soon-to-be-released Security Analysis: Seventh Edition will include a fifteen-page commentary by Berkshire investment manager Todd Combs on “Finding Value in Common Stocks”. (Many thanks to the kind reader who brought this to my attention a few weeks ago.) A full review of the Graham & Dodd classic is coming later this month.
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In the Spotlight: Oxy CEO Vicki Hollub at Smead Capital Oasis
Back in February, Occidental Petroleum CEO Vicki Hollub took the stage at the Smead Capital Oasis and made a strong case for the future prospects of her company.
I encourage everyone — especially if you’re a Berkshire or Oxy shareholder — to watch the whole video, but here are some of the highlights…
BERKSHIRE BUYS BACK IN: In the early days of the Covid crisis, Warren Buffett made the difficult decision to exit his position in Occidental Petroleum — even selling all of the shares received as dividend payments from the preferreds. “I was a bit devastated when he sold,” Hollub admits.
Less than two years later, though, Berkshire was buying OXY 0.00%↑ again — in bulk.
Hollub remembers that day well:
I see, on my screen, a call coming in from Berkshire. I thought, “Why are they calling me?” I know we paid that dividend, so I don’t know why they would be calling us. (Laughs)
I picked up the phone and heard a voice that said, “Vicki, this is Warren — and I just bought over 10% of your stock.”
I pulled over in a lane that wasn’t exactly a parking lane on San Jacinto in Houston and talked to him. That’s when he started, in a big way, buying back into us. He said he loves what we’re doing, loves the execution and competency, the capabilities of the company.
UNDERPRICED OXY: Hollub remains as bullish on oil — and Occidental Petroleum — as ever. “I really believe that the mid-cycle price of oil is $80 now,” she says. And, if we dodge a big recession, she expects oil to hit $90 by the end of 2023.
If you look at our assets, they’re incredible assets. They’re the best assets that Oxy has ever owned. So I do believe that our stock is definitely not where it should be and not getting the respect right now [that it deserves].
Hollub thinks that some investors are waiting for Oxy to make a bigger dent in redeeming Berkshire’s preferred shares — and, thus, regaining investment grade status — before jumping in. She adds that OXY 0.00%↑ is “way undervalued” today.
THE PERMIAN BASIN: Oxy owns approximately two million acres of land in the Permian Basin, an oil-rich region in west Texas and southeastern New Mexico. And Hollub explains that, while Permian wells expire faster than old-school oil fields, Oxy knows how to drastically extend the productive life cycle of this prime territory.
We’ve got an inventory of more than ten years [in the Permian] to drill. You might say what happens beyond that? What do you do if you’re a shale player and you’ve got a 5-10 year inventory? What comes after ten years?
For us, what comes after the ten years is carbon dioxide applied to the shale and the conventional [reservoirs]. Once you’re putting carbon dioxide in a reservoir, then that decline is much different. There’s hardly any decline … So we are going to turn our Permian high-decline/high-return into a low-decline/solid-return asset over time.
And the early results are extremely encouraging.
Our technical pilots of putting carbon dioxide into the shale have indicated that we’ll get 80% more out of the shale than we would without using the carbon dioxide.
For more on Oxy and the Permian, check out my article from last month.
Other awesome things that I read (and watched) this week:
Paying Attention (Morgan Housel)
“Charles Darwin, according to Charlie Munger, wasn’t exceptionally bright, but became a first-class scientist because he spent his life trying to prove himself wrong. ‘One of the great things to learn from Darwin is the value of extreme objectivity,’ Munger once said. ‘He tried to disconfirm his ideas as soon as he got ‘em. He quickly wrote down in his notebook anything that disconfirmed a much-loved idea.’ That is an amazing trick and, for most people, the way to disconfirm your own beliefs is paying attention to people who disagree with you.”
“The electric-vehicle and space-transportation pioneer also disclosed the people he was most interested in meeting at the time: Warren Buffett and Charlie Munger. The Berkshire Hathaway CEO and his business partner recently praised Musk for dreaming big and tackling impossible challenges, and Musk thanked them for their kind words.”
“This guy is laser-focused on us. He’s there 110% — and, at some point, he says, ‘You guys have paid a lot of money for this. I want to make damn sure that you get your money’s worth.’ Here’s a guy whose status is so far beyond mine and he wants to serve me? He wants to make sure that I get my money’s worth?’”
Over on Twitter, Spier added: “A huge lesson for me. Priceless. Forever changed the way I treat people. Thank you, Warren Buffett!”