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The Berkshire Beat: March 24, 2023
The latest Berkshire Hathaway news and my must-reads of the week!
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The latest news and notes out of Omaha…
The biggest item of the week is that Greg Abel significantly strengthened his financial commitment to the company that he will one day lead. On March 17, Abel purchased 55 more Class A shares for $24.6 million. That boosts his stake up to 228 Class A shares and 2,363 Class B shares — at a total value of $103.9 million. And, thankfully, over 99% of that amount is in vote-rich Class A shares.
In his latest annual letter, Warren Buffett wrote: “Our future CEOs will have a significant part of their net worth in Berkshire shares, bought with their own money.” Some saw this as a shot across the bow at Abel, urging him to buy more shares at the earliest opportunity. I didn’t interpret Buffett’s remark in that way, but maybe it did light a fire under the future Berkshire CEO. Or maybe it’s all just a happy coincidence. Either way, this is wonderful news. (And I don’t expect Abel to stop buying, either.)
Over the weekend, rumors swirled around Berkshire and the increasingly-fragile regional bank sector. One Twitter account (see below) even noticed that an unusually large number of private jets were flying into Omaha from areas associated with leading regional banks. Each presumably carrying a high-ranking executive, with hat in hand, in search of financing (and the Buffett seal of approval). That’s the chatter, anyway. Nothing has come of it yet, but stay tuned.
On Wednesday, David Nelson of Belpointe Asset Management spoke to BNN Bloomberg and named Berkshire as one of his top picks during this uncertain time: “As for Warren [Buffett], who better to pilot a ship? He’s probably out there right now buying some financial stock that I haven’t got the guts to buy because he’s really done the homework on it.”
In a surprising twist, Berkshire has not bought any more Occidental Petroleum since our last update. Even though OXY 0.00%↑ spent much of the past week under $60. In the past, Buffett has been a steady buyer at that price.
Maybe Buffett hit pause on Oxy while he sorts through the regional bank options? Any bank deal would likely resemble the Goldman Sachs (2008) and Bank of America (2011) ones. Berkshire provides financing through the purchase of preferred shares (with sizable dividend) and also receives warrants to buy common stock at a set price in the future. It’s one of Buffett’s favorite plays.
Yesterday, high-flying Nvidia (up 90% year to date) passed Berkshire Hathaway to become the sixth-most valuable company in the world. Tesla, too, has popped back up in Berkshire’s rearview mirror — only $46 billion behind in market cap. Of course, none of this day-to-day jockeying between companies really matters to a long-term investor, but we all have our guilty pleasures.
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Skin in the Game: Berkshire Hathaway’s Board of Directors
On Monday, I covered the main points of Berkshire Hathaway’s 2023 proxy statement. Stuff like share repurchases, executive compensation, and shareholder proposals.
The biggest takeaway, though, is Warren Buffett’s insistence that his board of directors have sufficient “skin in the game” to align their own financial interests with those of the company’s shareholders.
He makes no secret of the fact that he expects every Berkshire director to invest a sizable portion of his or her own money into the company’s stock.
So, in light of Greg Abel’s recent purchase of Class A shares, I thought it might be interesting to see how the current board stacks up in this regard…
Warren Buffett: $102.9 billion
Charlie Munger: $1.89 billion
Susan Buffett: $1.3 billion
Howard Buffett: $299.5 million
Ajit Jain: $190.7 million
Greg Abel: $103.9 million
Wallace Weitz: $78.7 million
Ronald Olson: $73.9 million
Tom Murphy Jr.: $43.4 million
Charlotte Guyman: $26.7 million
Christopher Davis: $17.1 million
Stephen Burke: $12.6 million
Meryl Witmer: $5.5 million
Kenneth Chenault: $1.9 million
Susan Decker: $932,406
(Note: A significant portion of Howard and Susan Buffett’s holdings are in their charitable foundations. Wallace Weitz, too. For a fuller breakdown, check out this recent article by.)
But, before anyone takes up torches and pitchforks against the names at the bottom of this list, remember that the proxy only asks for “a significant investment in Berkshire shares relative to their resources”. (Emphasis added.)
And, when it comes to calculating net worths and determining what percentage ought to be invested in Berkshire stock, I’ll defer to Warren Buffett.
If he’s happy, I’m happy.
(That being said, directors of a public company must be cognizant of PR. And Berkshire Hathaway attracts more interest and attention than most. If I were Susan Decker, I’d buy more shares and take the PR win — rather than having shareholders grumble over her relatively small holding. For this reason, too, Abel should keep adding more shares at opportune moments.)
Other awesome things that I read this week:
“Maybe a few of my poker buddies have heard about Silicon Valley Bank, and maybe their 401k is down and they’re afraid to look at the statement, but they’re not scared, certainly not about what’s happening to First Republic. If they own stocks at all, they haven’t sold anything. They could not care less about the ‘FED DECISION’ tomorrow. If they’re scared of anything, it’s a higher cost of living. They spend approximately 1/10th of 1% of the time following markets and related nonsense as I do, and I have to remember that all Wall Street cares about is Wall Street, and that Wall Street’s worries are not the worries of several hundred million Americans.”
“I don’t want to look at other’s projections. I’ve never seen a projection from an investment banker that didn’t show the earnings going up over time. And, believe me, earnings don’t always go up over time.” (Warren Buffett in 2011)
“Companies and organizations succeed best when they create a world others can join. Nike doesn’t make shoes. They created a world where you could be a weekend warrior even if you didn’t win races. It created generations of weekend athletes. Steve Jobs said he didn’t make computers. He created a world where bright people could create without having to think about their computers. Tolkien created a world full of heroic Hobbits. Brands are worlds, and cosmopoiesis is the act of world-building. So, what’s the world you are trying to build that others can join?”
All Together Now (Morgan Housel)
“When you realize how susceptible you are to others’ emotions, you become more thoughtful about who you surround yourself with. Who you follow on Twitter, who you watch on TV, where you work, who you hang out with after work. Who you marry — that’s a huge one. The higher the stakes, the more thoughtful you need to be about those who surround you.”
“When comparing the gyrations of [stock indices] during a certain period of time and comparing it to other periods of time, it may seem like you’re trying to learn about the behavior of a singular thing to better predict its future behavior. But the thing itself is similar to the Ship of Theseus, of which every part was replaced over time, or the proverbial grandfather’s axe, of which both the head and the handle had been replaced multiple times. Is it the same thing?”
“As things stand, the median rate projection sees rates hitting 5.1% by the end of 2023, 4.3% by the end of 2024, and 3.1% by 2025. I suppose it makes people feel more secure trying to project rates. Not wishing to admit that the reality is nobody knows. The Fed’s original stance on rates, while a tad delayed, began as a proactive measure. Today, they are looking to be more reactive in nature.”