The Berkshire Beat: November 15, 2024
All of the latest Warren Buffett and Berkshire Hathaway news!
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Berkshire Hathaway filed its 13F yesterday afternoon — revealing exactly which stocks Warren Buffett and co. bought and sold during the third quarter.
I, for one, love getting this rare peek behind the curtain at Berkshire’s investment activity — and, with it, another opportunity to learn a bit more about how Buffett and his two lieutenants play the money game.
But, to be honest, I had pretty low expectations for this one. We already knew that Berkshire bought just $1.5 billion of stocks in the quarter, while unloading ~$36 billion. Being a net seller again hardly sets the heart racing.
Not to mention most of the big news had already been spoiled by Berkshire’s 10-Q earlier this month (and regular filings for the Bank of America sales).
Happily, I was wrong.
Berkshire’s latest 13F ended up being plenty interesting…
Someone at Berkshire Hathaway opened new positions in Domino’s Pizza and POOLCORP (a swimming pool supplies distributor). I say “someone” because both purchases are on the small side and likely come from either Todd Combs or Ted Weschler. In fact, considering the only other addition was 5,445 shares of HEICO, it’s very probable that Warren Buffett himself made no purchases in Q3.
But that doesn’t mean the Oracle wasn’t busy. Buffett sold exactly 100 million shares of Apple — reducing Berkshire’s holding to 300 million shares on the dot. Back in May at Berkshire’s annual shareholders meeting, Buffett did not sound like he planned to sell out of Apple completely. “Unless something dramatically happens that really changes the capital allocation strategy,” he said, “we will have Apple as our largest investment.” If he still feels that way, it might mean we’re closing in on the end of his Apple sales. Or maybe something has “dramatically” changed and he gets out of AAPL 0.00%↑ completely. Who knows?
The most unusual (and distinctly un-Berkshire-like) streak is officially over. For the first time since Buffett opened a position in Chevron back in Q3 2020, he did not buy or sell any shares of the oil major in a quarter. Yes, you read that right. Buffett had chopped and changed his CVX 0.00%↑ holding for 16 consecutive quarters — until now.
The Sirius XM and Liberty Media SXM tracker numbers above are more than a little misleading. These “sales” are merely the result of the combination back in September that turned Sirius XM into an independent public company. In fact, Berkshire appears to have actually added more shares of SIRI 0.00%↑ in the third quarter. This 13F is current only as of September 30, meaning that Berkshire’s filing on October 31 (showing an ownership interest of 33.2% in the satellite radio provider) is the most up-to-date information publicly available.
In other news, Berkshire trimmed Capital One Financial for the second quarter in a row, cut back on both Nu Holdings and Charter Communications, and exited Floor & Decor entirely.
The most unexpected sale of the quarter, though, has to be Ulta Beauty. Admittedly, the ULTA 0.00%↑ trade is insignificant in the big picture — but it’s pretty weird nonetheless. Someone opened this position in one quarter and then unloaded 96.5% of it the next. Reminiscent of Buffett’s lightning-quick reversal on TSMC in 2022-23, albeit on a much smaller scale. It’s never boring around here.
And, now, onto the latest news and notes out of Omaha…
Berkshire Hathaway is well represented on Fortune’s inaugural list of the 100 Most Powerful People in Business. Warren Buffett sits in the #4 spot and his eventual successor as CEO, Greg Abel, clocks in at #28. Buffett earned praise for “his golden gut for building companies and picking stocks” and retained the honorific of “American capitalism’s unofficial Lord Protector”. (If anyone ever said that about me, it would go straight on to my business card.) Fortune called Abel “a rare combination of visionary, dealmaker, and top operator.”
Other names on Fortune’s list with a Berkshire connection include: Apple CEO Tim Cook (#6), Bank of America CEO Brian Moynihan (#13), Citigroup CEO Jane Fraser (#15), and BYD founder Wang Chuanfu (#19).
Buffett and co.’s gargantuan cash mountain — $305.5 billion as of September 30 — drew an inordinate amount of media attention this week. Much ink was spilled over Buffett’s decision to accumulate so much cash by paring back long-time holdings like Apple and Bank of America. Some wonder if he’s preparing to make a big acquisition, while others see Buffett’s recent moves as a thinly-veiled statement about the current valuation of the market. Or, just maybe, he’s sticking to his principles and taking profits while the price is right — while patiently biding his time for a big score.
The Financial Times quotes Morningstar analyst Greggory Warren speculating that Buffett might be clearing the deck, so to speak, for Abel. “[Buffett] has been a lot more cognizant about how he talks about Berkshire and the future,” said Warren. “He knows he won’t be there that much longer. He doesn’t necessarily want to saddle the guys with situations they have to deal with. He wants Greg to have as large of a cash pile [as possible] to work with.” (It seems to me that leaving Abel with $300+ billion of cash to deploy would increase — rather than lessen — the pressure on him right out of the gate. Replacing Buffett will be tough enough without shareholders breathing down the new guy’s neck to spend all that money.)
The article ends with this intriguing note: “Investors will have to wait another three months before they know for sure [what Buffett thinks about Berkshire’s cash number]. The company told the FT that Buffett was waiting to share any thoughts on the matter for his annual letter due in February.” That might just be a form response from buttoned-up Berkshire — or it could be a hint that Buffett plans to more fully address the cash situation in February.
The Wall Street Journal, meanwhile, asks: “When the world’s most-followed investor doesn’t feel comfortable investing, should the rest of us be worried?” In short, does Buffett know something that we don’t? The paper had the good sense to reach out to
for comment — who noted that Buffett knows better than anyone that “markets gyrate and go to extremes”.
Last week, I mentioned how Pilot significantly reduced its interest expense after becoming a wholly-owned Berkshire subsidiary. Back in March, the travel center network borrowed $5.7 billion from some of Berkshire’s insurance subsidiaries to pay off its existing third party obligations. A reader kindly provided some of the details (via National Indemnity’s NAIC filing for Q1 2024) about this arrangement.
Occidental Petroleum repaid $4 billion of debt during the third quarter — which is nearly 90% of its short-term debt reduction target. Oxy has no remaining debt maturities this year and enough cash on hand to cover the $1.5 billion due in 2025. “We remain fully committed to achieving our medium-term principal debt target of $15 billion,” CEO Vicki Hollub said on this week’s earnings call.
A chunk of that $4 billion came from Oxy’s sale of non-core Powder River Basin assets to Anschutz Exploration for $779 million. “We saw early on that the southern part of the Powder River Basin was, by far, the most contiguous and the part that we felt like we could get the most value out of,” said Hollub. “We want to always be focused and always have contiguous acreage where possible … So we sold the part that’s north of that focal part in the southern part of the basin.”
🤑 Dividends: Berkshire collected $75 million in quarterly dividends from Apple, $8.7 million from Ally Financial, and $2.8 million from Aon this week. Assuming, of course, that Buffett did not sell any more shares of AAPL 0.00%↑ in the fourth quarter.
Speaking of Apple, the Cupertino-based tech giant will reportedly release an AI-powered smart home display early next year. This home-hub-meets-command-center will focus on Siri and allow users to make FaceTime calls and control smart home devices like doorbells and lights. This new product has not yet been officially announced, but Mark Gurman at Bloomberg does not often miss on stories like this.
It's interesting how un-Buffett-like the purchases of Combs and Weschler tend to be. While Poolcorp and Domino's both have great financials, they're both at ~30x earnings, and they're not exactly fast-growers. I'm not sure I can remember a time when Buffett paid that sort of multiple for a company - maybe BYD? But clearly that was a different kettle of fish.
On the one hand, Buffett has the pick of the litter when it comes to choosing his successors for the investment operation, and he's emphatically expressed his confidence in both of them (and they both seem to me like very smart guys with the right philosophy). On the other hand, they've both underperformed not only the market but also Buffett himself, despite having a much larger investment universe, and have shown some slightly erratic behaviour (eg. ULTA). And I'm not convinced these recent purchases at a very attractive price, though maybe they're more profitable than they look. I'm curious to hear your thoughts.
One other thing. I've heard some people saying it's looking more like Abel is going to lead the investment operation post Buffett, rather than Ted & Todd - is there any truth to this? (is it a public markets vs whole-company acquisitions split or something?)
Thanks!