The Berkshire Beat: November 24, 2023 🦃

All of the latest Berkshire Hathaway news and my must-reads of the week!

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The latest news and notes out of Omaha…

• This week, Warren Buffett converted 1,600 of his Berkshire Hathaway Class A shares into 2.4 million Class B shares and donated them to four family foundations. Buffett still owns 216,687 Class A shares (and 344 Class B shares) — leaving him with 30.8% of the aggregate voting power and 15.0% of the economic interest at Berkshire.

  • In the accompanying press release, Buffett assured shareholders that “at 93, I feel good — but fully realize I am playing in extra innings”.

    • More from Buffett: “[After my death], Berkshire — one of the largest and most diversified companies in the world — will inevitably encounter human errors in judgment and behavior. These occur at all large organizations, public or private. But these mistakes are unlikely to be serious at Berkshire and will be acknowledged and corrected. We have the right CEO [Greg Abel] to succeed me and the right Board of Directors as well. Both are needed.”

    • “In the short-term, Berkshire’s distinctive characteristics and behavior will be supported by my large Berkshire holdings,” he continued. “Before long, however, Berkshire will earn whatever reputation it then deserves. Decay can occur at all types of large institutions, whether governmental, philanthropic, or profit-seeking. But it is not inevitable. Berkshire’s advantage is that it has been built to last.”

• 🤑 It’s been yet another busy week of cashing dividend checks over at Berkshire. Warren Buffett and co. received $29.3 million in quarterly dividends from Citigroup, $7.5 million from Capital One Financial, and $1.7 million from Louisiana-Pacific. Not exactly huge numbers by Berkshire’s standards, but every little bit of dry powder helps the cause.

• A few more details have trickled in about Berkshire’s latest yen-denominated bond sale: In all, Berkshire will sell 122 billion yen ($815 million) worth of these securities in five tranches. The largest one being a three-year note that carries an interest rate of 0.955%. (That’s slightly higher than the 0.907% rate from April, but still very cheap debt.) This could, of course, be the prelude to Buffett increasing his investment in the five leading Japanese trading companies even further. Something to keep an eye on in the days and weeks ahead.

  • The other tranches of yen-denominated bonds include a five-year (1.194%), ten-year (1.685%), twenty-year (2.24%), and thirty-five-year (2.502%).

• 🦃 It seems a fitting time to revisit an old Omaha World-Herald article from 2002 in which the paper of record asked Berkshire staff members a very important question: What do you say at Thanksgiving dinner when asked about Buffett?

  • Here are a few of the best responses…

    • Deb Bosanek (one of Buffett’s assistants): “To me, he’s just my boss. He always says that he’s got the best job in the world — and I say, ‘No, I’ve got the best job in the world.’ I’m lucky to work for him. He is very down to earth. He answers his own phone and he replies to letters. He has a policy when he travels, he gets caught up with mail. He answers a lot of mail by himself. I don’t screen it out. He really cares. That’s the neat thing. I’ll get calls and emails from people who are amazed that Warren Buffett responds [to them].”

    • Marc Hamburg (CFO): “Family and friends know I don’t really talk about Warren. I try to separate what happens here from my personal life — [but] I can’t begin to tell you how much I’ve learned in the first fifteen years.”

    • Kelly Muchemore (another of Buffett’s assistants): “Working with Warren is like hanging out with Warren. He’s just normal. He wears shirts and puts on pants one leg at a time like everyone else. He’s exceptionally funny. He’s an honest, great guy — as boring as that sounds.”

    • Debra Ray (receptionist): “He’s like everybody else. He eats hamburgers. He’s normal and wonderful to work for. He’s amazing and so smart. I love listening to his stories. I could listen to them for hours and hours. So many would work here for free.”

• Last week, a reader left the following comment — and I’m hoping someone here might have the answer. “I remember reading a post not so long ago (can’t remember where) that analyzed Berkshire’s exposure to long-term Treasuries since records exist and compared it to the prevailing interest rates at each time. Would you, by any chance, know which article I am talking about and where to find it?” Does that ring a bell to anyone? If so, please let me know in the comments.

• And, finally, I think I’ve found the perfect way to kick off the Christmas season — with an especially festive pair of Brooks running shoes. The seasonal footwear of choice for any discerning Berkshire shareholder. (These are actually my brother’s.)

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Sirius XM Holdings: The New Kid on Berkshire’s Block

Shares: 9.68 million

Current Value: $47.4 million

The biggest story of Berkshire Hathaway’s Q3 2023 investment activity is, no doubt, the mystery stock(s) that must remain confidential for the time being. (And we’re probably not getting an answer on that one for another three months or so…)

So, in the meantime, it might behoove us to get better acquainted with the only other stock that Berkshire affirmatively purchased in the quarter. (Atlanta Braves Holdings and the two other Liberty Live positions were received as part of a split-off and reclassification respectively. Berkshire did not go out into the market and buy them.)

This is definitely not a deep dive into Sirius XM’s future prospects, but rather a collection of background information and other interesting aspects of the company that jumped out at me after a quick read through the 10-K.

• Sirius XM Holdings includes two separate businesses: SiriusXM satellite radio and the Pandora streaming service. Roughly speaking, the revenue split between these segments clocks in around 75/25.

• A free trial of SiriusXM satellite radio comes with many new cars these days — and the company typically converts about 37% of these trials into paying customers. Churn remains pretty low at 1.6%, though that has ticked up a bit over the past few months. Through the first nine months of the year, paid subscriptions to SiriusXM have dipped from 34.2 million to 33.9 million.

• Pandora offers both a free ad-supported radio service and a paid tier that allows users to select songs on-demand. With just 6.1 million paid subs, Pandora hasn’t really made much of a dent against bigger competitors like Spotify and Apple Music. As such, the lion’s share of its revenue comes from advertisements.

  • Back in 2019, Sirius XM acquired Pandora for $3.5 billion in an all-stock deal. The company countered this dilution by repurchasing all of these newly-issued shares within one year.

• This is a very, very small position by Berkshire’s standards. In truth, it’s more like a rounding error than a substantial bet on the company’s future. And, based on its diminutive size, I think we can safely say that this was not a Warren Buffett pick. (Of course, my track record on such statements is pretty poor, so who knows…)

• Liberty Media owns 83.5% of Sirius XM — and Berkshire itself is already a major shareholder of Liberty’s SXM-related tracking stocks. Near the end of the third quarter, Liberty proposed a combination of its SXM tracking stock group with SIRI 0.00%↑ to form a new public company. This would result in one class of common stock for the combined “New Sirius XM”.

  • From the press release: “The minority shareholders of Sirius XM [Holdings] would collectively own approximately 16% of New Sirius XM, and the former holders of LSXM [Liberty’s tracker] common stock would collectively own approximately 84% of New Sirius XM.”

    • All of Liberty Media’s various machinations (split-offs, reclassifications, combinations, tracking stocks, etc.) make my head spin. Which, if I’m being cynical, is probably the point.

• This is neither here nor there, but it’s a little funny that this investment (in a John Malone-adjacent company) gets revealed right around the same time that Charlie Munger criticized Malone on the Acquired podcast.

  • “I’ve never liked John Malone’s extreme manipulations,” Munger said. “I don’t want to be known as the great manipulator like John Malone is. He paid less income taxes than anybody. He just pushed everything to the ideological extreme.” (I don’t want to put words into Charlie’s mouth, but he seems to be referring to Malone’s penchant for creatively lessening his taxable income.)

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More Must-Reads

Other awesome things that I read this week…

Why Apple Is Working Hard To Break Into Its Own iPhones (The Independent)

• “If you asked someone to keep a secret number in their head and let you try and guess it, for instance, you might tell them to multiply the number by two and see how long it takes and how hard they are thinking; if it’s a long time, it suggests the number might be especially big. The same principle is true of a [computer] chip — it’s just that the signs are a little different.”

Buffett Accelerates Gifts to Family Foundations

The Rational Walk

• “It is unreasonable and impossible to expect Warren Buffett or Charlie Munger to make any sort of guarantees about Berkshire’s long term future once they are no longer on the scene. Ultimately, Berkshire’s future depends on the wisdom of its management and board of directors. To avoid the downward pull toward the average American corporation, whoever controls Berkshire’s voting power in the future will have to ensure that the culture remains intact.”

Interview — François Rochon

Compounding Quality

• “I read a lot. Basically anything I can get my hands on. I read 10-Ks, articles, blog posts, reports from Morningstar… I have been reading Value Line religiously every single week since the early 1990s. The beautiful thing today is that, thanks to the internet, you can read the annual report of Japanese or Polish companies in English without any problems. That’s something you couldn’t do twenty years ago. I don’t keep track, but I estimate that I spend 80% of my day reading.”

Is The U.S. Economy Slowing Down Faster Than Anticipated?

Amrita Roy

• “Ultimately, I continue to be less bullish than many of the bulls, but less bearish than most of the bears. I believe that large fiscal deficits have created an unusual environment for the Fed’s policies to effectively work.”

Wisdom from the Swiss Alps

Special Situation Investing

• “Capital should be respected for what it is — a hard-earned, lifetime’s worth of savings. It can easily be lost but never truly replaced … Money is essentially a battery that stores our effort and time, both of which are truly irreplaceable. Capital should be treated with the respect commensurate with this weighty fact.”