The Berkshire Beat: October 13, 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…
Today is yet another big dividend day for Berkshire Hathaway — with approximately $217 million pouring into the company’s coffers via Occidental Petroleum. That includes $40.3 million from Berkshire’s common stock position in OXY 0.00%↑ and $176.6 million from the preferred shares acquired in 2019 as part of the Anadarko deal.
Under the assumption, of course, that Oxy has not redeemed any more of those preferred shares in Q3. So far in 2023, the O&G giant has redeemed about 12% of its high-yielding preferreds — reducing Berkshire’s holding from 100,000 shares to 88,312 shares. But, on its last earnings call, Oxy admitted that it expected to fall short of the mandatory redemption trigger in the third quarter — forcing the company to (temporarily) press pause on any further redemptions.
FYI: Any time Oxy distributes more than $4 per share to stockholders over the trailing twelve months, it triggers a mandatory dollar-for-dollar preferred redemption. That’s what happened in Q1 and Q2.
On the other hand, higher-than-expected oil prices in recent weeks may have flipped the script on additional redemptions. We’ll find out — one way or the other — when Oxy reports Q3 2023 earnings next month.
And, in slightly less-important news, Berkshire will also receive $245,650 in quarterly dividends from Mondelez International.
Speaking of Berkshire’s investments in the “old energy” field, the Wall Street Journal included a surprising tidbit in its weekend story on O&G mega-deals in the Permian Basin: “As recently as the beginning of the year, Chevron was interested in Occidental Petroleum, one of the largest producers in the Permian, according to people familiar with the matter. Acquiring Occidental, which has a market capitalization of about $55 billion, would rival Exxon’s deal for Pioneer, but Chevron’s interest has fizzled in recent months.”
The WSJ adds that Chevron has “moved on to other, smaller targets”.
Earlier this month, Charlie Munger gave the closing keynote speech at Zoomtopia. (Munger, for those who don’t know, is a big fan of Zoom video conferences.) Unfortunately, it doesn’t look like any video recording of his remarks will be released to the public. The next best thing, though, is this Markets Insider article with comments from several people who were in the room for Munger’s talk — which touched on crypto, artificial intelligence, and risk-taking.
If anyone has video of Munger’s closing keynote at Zoomtopia, please let me know. I would love to transcribe it for a future issue of this newsletter.
In the Spotlight: Todd Combs on the Art of Investing Podcast
It’s been a relatively quiet week on the Berkshire Hathaway news front — with one (very) notable exception.
On Monday morning, the all-new Art of Investing podcast dropped its very first episode — an hour-plus discussion with Berkshire investment manager (and GEICO chief exec) Todd Combs. Here, the usually-media-shy Combs opens up about his evolution as an investor and how he ended up working for Warren Buffett and Charlie Munger.
Both Todd Combs and Ted Weschler prefer to keep a very low profile — and I don’t blame them for that — so opportunities to learn more about their careers and investing approaches don’t come around very often. In fact, this interview feels a bit like unexpected manna from heaven.
I will probably write a longer piece later this month about Combs’s comments and the many lessons that we can take from them. But, in the meantime, I’ve pulled out a few highlights for everyone to chew on.
Needless to say, it’s well worth your time to listen to the whole interview.
On the importance of curiosity…
If you have a lot of curiosity and you’re a hard worker and you have moderately decent judgment and intelligence and clarity of thought, you’ll go a long, long way — because that’s how you get the compounding over time. People usually rise to their level of complacency … and that doesn’t matter whether it’s investing or at a big company or whatever.
On short selling…
[Short selling] is one of the few things Warren and I disagree on. I think we probably agree on 99% or 99.9% [of everything else].
He and Charlie both had such a miserable experience [with] short selling. In fact, this is a great story — the first time I met Warren in his office, he’s got a certificate from Obama with the Medal [of Freedom] on it. He’s got his certificate from the Dale Carnegie class. But, then, he’s got this Western Union certificate. I’m looking at these and some of them are obvious [why he keeps them].
“What is this?” and he laughs and says, “Oh, that’s when I quit short selling.”
He and Charlie had figured out that Western Union was completely and absolutely insolvent. That, basically, the pension hole was greater than the market cap, their enterprise value, etc. So they short it and the stock goes up.
And, so, then they actually do a report and send it out to friends — and the stock goes up. They send it out even broader — and the stock goes up. From where it was then to today has probably been a thousand-bagger or a hundred-bagger or something like that … That was the final straw [for short selling].
For more on Buffett and Munger’s wayward short sale of Western Union, check out this informative thread by Turtle Bay over on Twitter/X.
On his first meeting with Warren Buffett — and how he wasn’t afraid to deliver an unpopular opinion to the legendary investor…
Warren asked me, “Is Progressive [Insurance] better than GEICO or vice versa?”
I said, “Yes, they (Progressive) are.”
He pushed back a little and I said, “GEICO’s better at marketing and branding, but Progressive is a data company and data is going to win in the long run.”
I think he appreciated the candidness because when you’re a CEO — especially [someone like] Warren — everybody kisses your ass. Everybody tells you what they think you want to hear.
I just didn’t care, really. This is my opinion — take it or leave it. I don’t care. I don’t have to agree with you. I’m not here to agree with you — and you’re not here to agree with me.
That is my opinion. I could be wrong, but it is what it is.
Kudos to hosts Paul Buser and Rick Buhrman — co-founders of Sator Grove and executive fellows at the Notre Dame Institute for Global Investing — for facilitating such a great discussion.
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More Must-Reads
Other awesome things that I read this week…
“A great way to learn what to avoid in business and investing is to understand what a good short seller would look for. This is doubly important because I think we all underestimate how common business failure really is. Recall J.P. Morgan found that, from 1980-2020, around 40% of the time a concentrated position in a single stock experienced negative absolute returns.”
Buffett Watchers Tout Japan Financial Firms as Next Value Play (Bloomberg)
“An endorsement from the billionaire goes a long way. The five trading firms that Buffett favored — Mitsubishi, Mitsui, Sumitomo, Marubeni, and Itochu — are up more than 20% since a report in April said he raised holdings in the sector and was looking to increase exposure to Japanese stocks. Gains were even greater three weeks ago, before the market flirted with a correction amid higher bond yields and a small recovery in the yen.”
Costco’s Director Compensation
“If we fast-forward twenty years to 2043, what will Berkshire Hathaway’s board look like and how will members be compensated? The culture and history of the company strongly suggests that Berkshire’s board will continue to be far better than the boards of average American companies. However, Berkshire will lack a shareholder with Mr. Buffett’s enormous economic stake and voting power. How can Berkshire avoid the pitfalls that afflict typical corporate boards? Given Charlie Munger’s service on Costco’s board since 1997, it is worthwhile to examine how Costco approaches director compensation.”
A Certain Trip to Huntington Library Ended in a $40 Million Gift — and a New Vision for Its Future (Pasadena Star-News)
“It was about a year ago when a special visitor showed up at The Huntington. Amid the sprawling San Marino library, its museum, and botanical gardens was finance giant Charlie Munger, getting a tour around the property led by the institution’s longtime president Karen R. Lawrence … While the 99-year-old, who lives not far from the library in Pasadena, was hanging out with Lawrence that day, something struck him. It wasn’t something he saw. It was a vision for the future of the library grounds.”
Bank of America’s Wrong-Way Rate Bet Hurts Moynihan’s Growth Pledge (Katherine Doherty || Bloomberg)
“[Bank of America] piled hundreds of billions of dollars into long-dated Treasuries and mortgage bonds at low rates that prevailed during the pandemic. The decision is still the subject of finger-pointing within the walls of the second-largest U.S. bank … now that those holdings are showing huge paper losses and missing out on some of the best rates since 2007.”
Thank you for including the Todd Combs interview. Fascinating to say to say the least.