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The Berkshire Beat: May 19, 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…
Warren Buffett may have poured cold water on any hopes of buying a controlling interest in Occidental Petroleum, but that doesn’t mean he’s lost interest in the company. Over the past week, Berkshire Hathaway purchased 5.6 million more shares of OXY 0.00%↑ at prices ranging from $56.33 to $58.92. This $327.1 million outlay boosts Berkshire’s stake in the oil-and-gas giant up to 24.3%.
Also on Monday, the European Union officially approved Microsoft’s $68.7 billion acquisition of Activision Blizzard. This isn’t the end of this regulatory tug-of-war, but it’s good news all the same for arbitrageurs (including Berkshire). After a small sale of ATVI 0.00%↑ in Q1 2023, Buffett and co. still own 6.2% of the video game maker. Now, all eyes turn back to the CMA and FTC.
Speaking of the CMA — and its nonsensical decision to block the merger — the EU pointedly said that Microsoft’s concessions allayed any worries over cloud gaming competition. “We had a concern about cloud gaming,” Margrethe Vestager told CNBC, “[but] we were given a remedy. A 10-year license for free for existing and coming games, now to be made available. So we think this is not only … solving a problem, but is also pro-competitive. And that, for us, is a good thing.”
🤑 May 18 was a big dividend day for Berkshire — with $219.7 million pouring into the company coffers via Apple. AAPL 0.00%↑ is, by far, the largest holding in Berkshire’s portfolio: 915.5 million shares at a current value of $160+ billion. (And, no, Buffett did not buy more in Q1 2023.)
For a fuller explanation of Berkshire’s recent investment activity — and the confusion it unleashed — check out my article from Tuesday. I tried my best to sort through everything and set the record straight.
A reader kindly pointed out that a new edition of Security Analysis will be released next month. Published by McGraw Hill, this seventh edition of the Benjamin Graham and David Dodd classic will include “the ideas and methods of today’s masters of value investing, who discuss the influence of Graham and Dodd on today’s markets and contextualize the philosophy that has influenced so many famous investors”.
And, happily, this appears to be in addition to the new edition of The Intelligent Investor that Buffett “announced” at the annual meeting. He specifically mentioned corresponding with an editor from HarperCollins (the publisher of The Intelligent Investor) about its sales history ahead of the new release. With Security Analysis coming from McGraw Hill, it seems unlikely that he got the two mixed up.
Between these two Graham classics and the new Poor Charlie’s Almanack from Stripe Press, it’s shaping up to be quite a year for students of value investing.
It’s safe to say that Jazwares (and those Warren Buffett and Charlie Munger Squishmallows) stole the show in Omaha — and catapulted the toymaker into one of the buzzier Berkshire subsidiaries. “Jazwares is a gem,” Buffett told Reuters in an email. “And Judd and Laura [Zebersky] are the ideal Berkshire managers.”
Huge credit to Alleghany Corp. for unearthing Jazwares and bringing it into the Berkshire family.
The Zeberskys, who now report to Greg Abel, are big fans of Buffett’s handpicked successor. “Greg is exactly what we have all learned about the Berkshire model,” said Laura. “He lets us run our business. He lets us operate in the way we see best.”
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What Were Other Super-Investors Buying & Selling in Q1 2023?
Berkshire Hathaway’s 13F — and the ensuing confusion over the whole New England Asset Management situation — monopolized most of my attention earlier this week.
But, thankfully, that’s all done and dusted — and, now, we can turn our attention to more straightforward matters. Like the investing activity of other legendary money managers during the first quarter…
Charlie Munger (Daily Journal): This probably won’t come as a shock to anyone, but Munger made no domestic moves in Q1. The US-exchange portion of the DJCO 0.00%↑ portfolio remains unchanged — Bank of America (2.3 million shares), Wells Fargo (1.6 million shares), Alibaba (300,000 shares), and U.S. Bancorp (140,000 shares). After an unusually busy 2021 and 2022, this one might be headed back into buy-and-hold hibernation.
Li Lu (Himalaya Capital): Admittedly, the bulk of Himalaya’s investments are focused in Asia — so any 13F only reveals a small part of the overall picture. But Li Lu made a few intriguing moves in the first quarter that deserve to be highlighted. He pounced on bank stocks — adding 3.5 million shares of Bank of America and opening a new position in East West Bancorp — while also slashing his stake in Micron Technology (a value investor favorite) by more than 40%.
Terry Smith (Fundsmith): At the Fundsmith annual meeting in February, Terry Smith expressed concern over Adobe’s recent M&A activity — leading many to wonder whether ADBE 0.00%↑ would soon be jettisoned from the portfolio. And that’s exactly what happened — with Smith fully exiting the software company in Q1. Fundsmith also added big chunks to Procter & Gamble and Apple during the quarter.
Prem Watsa (Fairfax Financial): Watsa made two moves that might be of interest to Berkshire fans. First, he purchased 2.1 million shares of Occidental Petroleum — more than tripling Fairfax’s existing stake in the oiler. On the flip side, though, he sold over 75% of his position in Activision Blizzard.
Other awesome things that I read this week…
“Buffett treated Berkshire’s money as their savings, not as money to grow a corporate empire, hand out stock-based comp to his employees, or anything else that was selfishly motivated. He guarded their capital as if it was his own (which it was in large part as well). Berkshire has never issued a stock option. All managers who want to own shares pay for the shares in full with their own cash.”
“Strategist Russell Napier thinks we’ve moved from a market dominated by central bankers to one dominated by politicians. And relying on politicians is always… tricky. So one plausible outcome is we could spend a long time talking about re-shoring and fiscal stimulus and it never actually happens. Global trade has mostly shrugged off the deglobalization narrative, so politicians continue to talk tough and do relatively little. Moreover, many nation states are now less powerful than multinational corporations.”
“The past couple of weeks have been a rare chance to hear both Buffett and Druckenmiller speak (including on one shared topic, the banking crisis). Both have been wildly successful in markets, yet with often seemingly diametrically opposed philosophies. Both are keenly focused on survival. Druckenmiller does it by allowing himself to frequently change direction … Buffett, on the other hand, focuses on being right about the business and operating with a margin of safety.”
“Warren Buffett once said: ‘Any calls you get on Sunday, you’re going to make money. Those rare calls are the best since they are inevitably from seriously distressed sellers.’ Mark Leonard has said something similar as his most attractive acquisitions took place during recessions. ‘Unlike most people, we would be hoping that there would be a major correction in the stock market,’ [said Leonard]. ‘If I have the access to capital and there is a downturn, we will buy as much as we can.’”
“Henry Ford, Jeff Bezos, and Jim Sinegal have much in common. They all left dollars on the table in the short run, generating massive consumer surplus, and this resulted in market share gains leading to economies of scale followed by further price reductions. As Henry Ford wrote, ‘All that has to be done to adopt it is to overcome the habit of grabbing at the nearest dollar as though it were the only dollar in the world.’”