Discover more from Kingswell
The Berkshire Beat: May 26, 2023
All of the latest Berkshire Hathaway news and my must-reads of the week!
Happy Friday and welcome to our new subscribers!
Special thanks, too, to those who recently became paid supporters! ❤️
Not much news out of Omaha this week. Nonetheless, I tried to dig up a few noteworthy items that might be of interest…
Well, I’m nothing if not a jinx. After writing about Berkshire Hathaway’s persistent interest in Occidental Petroleum on Tuesday — and hinting that more purchases could be revealed this week — all has gone quiet on the Oxy front.
Warren Buffett bought OXY 0.00%↑ on six consecutive business days (May 11-18), but called time last Friday when the stock moved up into the $59-60 range. And, as far as we know, he’s still standing on the sidelines — waiting to jump back in at a better price. (That’s my guess, anyway.) Still, I remain on Form 4 watch in case anything changes.
Speaking of Oxy, I want to highlight an insightful comment that was left on Tuesday’s article — pointing to a Wall Street Journal report from March on the declining prospects of the Permian Basin. I remember reading this when it first came out, but discarded most of my worries over its ominous forecast when Oxy reported record-breaking Permian production in Q1 2023. Plus, on the earnings call, CEO Vicki Hollub announced that more wells in the Permian are expected to come online in Q2 than in Q1. So, while I read that WSJ article with great interest back in March, I haven’t really seen its conclusions match up with Oxy’s own performance. But this is definitely something to keep an eye on in the future.
Some good news for those concerned by Apple’s heavy reliance on China for the manufacture and supply of its top products. This week, the Cupertino-based tech giant announced a multi-year, multi-billion-dollar deal with Broadcom to develop critical 5G radio frequency and wireless connectivity components in the USA.
“All of Apple’s products depend on technology engineered and built here in the United States,” says CEO Tim Cook, “and we’ll continue to deepen our investments in the U.S. economy because we have an unshakeable belief in America’s future.” A very Buffett-like comment there from Tim.
Another Berkshire portfolio pick, Paramount Global, might be on the verge of its own windfall. Bloomberg reports that several top names — including Tyler Perry, Shaquille O’Neal, and Sean Combs — are interested in purchasing BET from Paramount. And, if a bidding war breaks out, PARA 0.00%↑ could end up with more than $3 billion for the network. It’s not a crazy number: BET earned $188 million of cash flow in 2022, putting this price tag at around 16x FCF.
Amazing point by Magellan on Twitter: “A unit that produces roughly 1.5% of Paramount’s revenue is worth 30% of [its] market cap.” 🤯
Kingswell is a reader-supported newsletter. To better support my work, please consider upgrading to a paid subscription. 🙏❤️
In the Spotlight: Gabelli Omaha Value Investor Conference
I’m still sorting through the overwhelming flood of information that came out during the recent Berkshire Hathaway annual shareholder meeting. So don’t be surprised to see more stories pop up in future issues based on material from that weekend.
Case in point: On May 5, three heavy-hitting Berkshire experts spoke on a panel at the 14th annual Gabelli Omaha Value Investor Conference.
Christopher Bloomstran, president and chief investment officer of Semper Augustus
Adam J. Mead, author of The Complete Financial History of Berkshire Hathaway and& CEO of Mead Capital Management
Todd Finkle, professor at Gonzaga University and author of Warren Buffett: Investor and Entrepreneur
The three men answered Berkshire-related questions for over forty minutes — with a heavy emphasis on what shareholders can expect in the post-Buffett era.
I’ve pulled out a few of the highlights below…
Bloomstran on Greg Abel:
The word I get from everyone I know in the Berkshire world is Greg is absolutely fantastic. He’s knocking the cover off the ball. He really understands business. He understands capital allocation.
Pretty much at the moment that Greg came in [as vice chairman of non-insurance operations] and they recognized the write-down on Precision [Castparts], you’ve seen an incremental growth and you’ve now got the ROE of that [Manufacturing, Service, & Retailing] group back up to 10%. I think that’s a testament to Greg’s hands-on approach.
Greg gets it. I hope he gets a very long run [as CEO] because I think he’s that good.
Finkle on whether or not Berkshire will break up in the future:
Warren wants the culture the way it is. He’s got [son] Howie that’s going to take over for him as chairman of the board and, more recently, he put [daughter] Susie on the board of directors as well. Wally Weitz is a local guy in Omaha who’s now on the board. He’s putting on the players that will fulfill his dream after he’s gone. My guess is that [Berkshire] won’t break up.
Bloomstran then added that he wouldn’t be surprised to see Abel sell a few underperforming MSR companies after he takes over. Nothing massive, but just a little re-arranging around the edges of Berkshire’s sprawling empire.
“The days of Berkshire getting ‘deals’ because people want to see their business owned inside of a family — I think those days are long gone,” Bloomstran continued. “There’s way too much private equity capital sloshing around. If you’re going to buy a business, you’re going to pay a control premium. You may not be in a bidding war, but you’re not going to get bargains.”
“I think that’s a quaint notion that that thing that existed 20-30 years ago will persist. I think those days are long gone.”
Mead on what will happen to Berkshire stock after Buffett’s eventual exit:
If the value of Berkshire Hathaway is all of the future cash flows — and I’m going to own it for another fifty years — the value of Berkshire is not going to change. It’s not going to go down 7-8% over night. That [selling] is going to be those folks who really haven’t studied the business. Everyone in this room who has studied the company and recognized the value — which is pretty clear, I think — will just hold on.
And the entire panel seemed to be in agreement that if Berkshire stock does drop in price when Buffett shuffles off this mortal coil, they would all eagerly buy the dip.
Other awesome things that I read this week…
Warren Buffett Swapped Shares for Cocoa Beans in a Weird 1950s Deal (Theron Mohamed // Business Insider)
“Jay Pritzker designed Rockwood & Company’s unusual buyback program to cash in on a spike in the price of cocoa beans, while also slashing its outstanding shares in a tax-efficient manner. He detailed his plan during Rockwood’s shareholder meeting in 1954, and received a blunt piece of feedback from a member of the crowd. ‘A 24-year-old kid comes up to them and says, “I didn’t understand anything you just described,” Thomas Pritzker recalled. ‘Dad says, “Great, let’s go have a cup of coffee. It’s a really cool deal. I’ll describe it to you.”’ That 24-year-old was Warren Buffett.”
“Right now, I could have told her, you need to have small victories. These can come from little things like having a clean room, doing a good workout, or going for a run. In my book, I discuss the Stoic concept of dichotomy of control. Despite appearances, most things in life are not under our control. We only have control over our values, our behavior, and how we respond to things. In the short term, you have little control over the outcome of getting a job, but you do have control over your process. That’s life. Focus on the process and keep improving and refining it. Keep showing up.”
“If life were an ocean, and luck was embodied by fish, then Earth’s populants would be a series of fishing vessels with their nets traipsing behind them as they migrate through the waves. Luck will inevitably snare itself in random nets from time to time, but if the vessel has a larger net, the likelihood of catching fish increases. The harder you work towards your desire, the more luck you seem to attract. Your net is expanding.”
“It was inspiring to see how [Robert] Caro dedicated most of his life to studying just two people — Robert Moses and Lyndon B. Johnson … The main question that this film raised for me was: What about all the other subjects that don’t have a Robert Caro? How many important facts and stories will never get discussed because nobody is working on them with this level of dedication and rigor? How many erroneous stories and ‘facts’ won’t get corrected?”