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The Berkshire Beat: May 12, 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’s stake in BYD continues to get smaller and smaller. On Monday, a new filing out of Hong Kong revealed that Berkshire recently reduced its interest in the Chinese EV maker down to 9.87% as of May 2, 2023. In all, the total has dropped from 225 million H-shares to 108.3 million since last August. Due to Hong Kong regulations, the next filing will come if/when Berkshire’s position dips under 9%.
Also on Monday, Whitney Tilson released his current intrinsic value estimates for Berkshire: $567,000 for Class A shares and $378 for Class B shares. “The company is incredibly safe, the stock is fairly cheap, and intrinsic value is growing nicely,” he wrote. “What’s not to like?”
Occidental Petroleum reported Q1 2023 results this week and disappointed the market with a 48% decline in earnings year over year. The oil-and-gas giant repurchased $752 million of its own stock during the quarter — boosting Berkshire’s stake in the company up to 23.7%. Oxy also redeemed $647 million of preferred stock (with Berkshire receiving $712 million because of the 10% premium). OXY 0.00%↑ dropped into the $56-58 range on the earnings miss. 👀
Stripe Press’s new edition of Poor Charlie’s Almanack will release this November — both in print and online. Great news for Munger fans, especially since previous editions of this classic are not easy (or affordable) to find these days. Aeditor also confirmed that this updated version will not be as unwieldy as past ones. (It might actually fit on a bookshelf this time!)
In 2005, Poor Charlie’s Almanack came up at the annual meeting. “I didn’t want to do it,” Munger said. “[Peter Kaufman] went and saw Warren and Warren got enthusiastic — and Warren suggested this ridiculous name, Poor Charlie’s Almanack. Between the two of them, they really got me to do it.” Eventually, though, Munger saw the book’s true value. “If you assimilate everything in that simple book,” he said, “you will know a lot more than about 95% of your compatriots.” Buffett agreed that it is a “sensational” resource that teaches a “whole, whole lot about life”.
🤑 Wednesday was dividend day for Berkshire — with $90.9 million coming in from long-time holding American Express.
When Berkshire releases its 13F next week, I will be checking for any movement in the company’s Paramount Global position. Buffett has recently made several ominous comments about the streaming business, leading some to believe that Paramount might be on the chopping block. Or maybe I’m reading way too much into it and Berkshire will pick up more PARA 0.00%↑ for the fifth consecutive quarter.
Mario Gabelli, for one, has not lost faith in the streamer. “Now that they cut [the dividend], they’re saving $1 billion over two years,” he told Becky Quick. “They have to sell a couple of assets. The Federal Trade Commission stopped one sale, which was Simon & Schuster, and they’ll get x dollars on that. And Bob Bakish is doing a very good job. The stock dropping $6, I just sat there and bought it.” Gabelli went on to say that Paramount could be a $75 stock in three years.
An interesting tidbit buried in the 10-Q: The Haslam family can force Berkshire to purchase more of Pilot starting next year. “Under the terms of an agreement, the holder of the remaining non-controlling interest in Pilot has the option to require us to redeem for cash, all or a portion of the interest, beginning in 2024. The cash consideration will be based on Pilot’s future earnings, cash, and debt.”
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What Others Are Saying: Annual Meeting Edition
Notable business leaders, investors, and shareholders all flock to Omaha each year for the festivities surrounding Berkshire Hathaway’s annual meeting. And the media doesn’t miss the chance to pepper them with questions about Berkshire and Buffett.
Basically, in the span of a few days, we get an avalanche of interviews and comments from people close to Warren and Charlie — along with a revealing peek behind the conglomerate’s curtains.
Here are a few of my favorites from last week…
Ron Olson (Director, Berkshire Hathaway)
Warren Buffett closed the morning session of Saturday’s Q&A with another strong endorsement of Greg Abel. “Greg is inheriting a good business and I think he will make it better.”
But, as Berkshire director Ron Olson told attendees at the Value Investor Conference two days before, Abel’s ascension to the throne is still a long ways off.
“Charlie at 99? That brain is as good as it ever was. Warren is the same way. His energy is amazing. So don’t count on Greg taking over tomorrow,” Olson said.
When that day comes, though, Abel will have the full backing of everyone at Berkshire. “Not only is Warren satisfied, Charlie is satisfied that Greg … will carry out the culture.”
Stephen Squeri (CEO, American Express)
Over the years, Squeri has gotten an up-close view of Buffett’s calm, patient style of leadership. And never was that more evident than during the pandemic.
“I talked to him [early on in the pandemic] and said to him that, ‘Look, the reality is we’re probably not going to have a great year. We could actually lose money this year,’” Squeri told Yahoo Finance last week.
“As we went through this, he said, ‘I don’t care about this year — and I don’t care about next year. What I care about is that you keep the brand special, that you continue to invest in the brand, and that you retain your customers.’”
“He doesn’t react to peaks and valleys,” Squeri continued. “When you have an investor that is focused on the long- to medium-term like he is, it is easy to make the right decisions for the business.”
The AmEx CEO also weighed in on Greg Abel: “Warren has selected someone [to succeed him] who is philosophically aligned with him. My anticipation is that things will continue as they are.”
Adam Wright (Incoming CEO, Pilot)
Wright may not officially take over as Pilot CEO until the end of this month, but he’s already hard at work getting up to speed on the sprawling travel center network.
“There’s a lot of sophistication in the truck stop business,” he admitted to Becky Quick. “That was one of my biggest surprises. You think of truck stops, you think diesel and maybe a Slurpee.”
Not so at Pilot with its many diversified business lines.
Especially with the company’s plans to embrace the EV future (whenever that may arrive). “We definitely want to be a catalyst for the transition to electrification in the transportation sector,” Wright said. “We’ve got a great partnership with GM right now and that work continues to progress.”
When it comes to electrifying long-haul trucking, though, Wright struck a more cautious note. “Basically, it’s taking what a typical house uses in a month and condensing that down to a one-hour charge period. That takes a ton of infrastructure. A lot has to get built for that to happen.”
Wright also echoed Buffett’s comments about slowing economic activity. He mentioned that there are currently 1.25 trucks for every truckload of freight that needs to be moved. Or, in other words, excess capacity due to lower shipping/transportation demand.
Something to keep an eye on.
Warren Buffett (🐐)
Even the Oracle got in on the act by sitting down with Omaha’s WOWT News — and sharing his take on artificial intelligence after playing around with ChatGPT a few months ago.
“I don’t think it’s going to tell you what stocks to buy,” he said. “It can tell me every stock that meets a certain criteria in three seconds, but it has decided limitations in some ways. You ought to see the jokes it came up with.”
“I told Bill [Gates] to bring it back when I can ask it, ‘How are you going to get rid of the human race?’ I want to see what it says — and pull the plug out before it does it.”
Other awesome things that I read this week:
“Hearing Warren and Charlie speak about the simplicity of the investing process (even if difficult) reminds me to focus on the few things that matter. For me, that’s focusing my time, staying within my circle of competence, keeping things simple when it comes to looking for the essence of a business (and if I can’t figure it out putting it in the too hard pile), and continuing to learn/grow.”
“When Berkshire first purchased Apple in 2016, iPhone volumes were falling and revenues came in 7% below the prior year. While the sub 15x PE ratio looks like theft today, at the time it was a reflection of the market’s uncertainty and lack of confidence. The Berkshire team were wagering that the market’s pessimism was unjust.”
Reflections from Omaha 2023 (Eddie Palmgren // Redeye)
“I’m biased, but I believe that the strong culture of learning and socializing among many of the world’s best investors in Omaha has a good chance of surviving Buffett and Munger. Why? (1) Berkshire Hathaway needs to arrange its AGM every year. It will be in Omaha. (2) Most of the side events are hosted by people admiring Buffett and Munger. These should continue in their honor. (3) Like Davos, investors enjoy the festival feeling of a small city such as Omaha, where you constantly stumble upon similar-minded thinkers.”
“In 2017, Prem [Watsa] stated that he had never lost a single manager to a competitor despite many of them being offered superior compensation. And one thing you’ll notice when you attend/watch the AGM, read Prem’s letters, or watch any interview with him is that he’s the biggest cheerleader of his teams at any chance he gets. He speaks highly about everybody — a culture of integrity and team spirit that’s distilled down in the organization.”
Plus, Lauren Templeton — one of my faves — is on Fairfax’s board of directors.
Alan’s Angle: Paramount’s Q1 2023 Earnings (The Crossover)
“‘We will see what happens.’ This has been Warren Buffett’s go-to line when asked by Becky Quick what he sees in Paramount and why he has scooped up 90M shares of the company. Interestingly, almost every statement Buffett has made regarding Paramount has been negative like calling streaming a bad business. So then why did he pick up 90M shares? Was this a Ted or Todd pick? Does he think there is an acquisition in play? Do we think he sold his stake in the company this past quarter? Who knows.”