The Berkshire Beat: October 20, 2023
The Berkshire Beat: October 20, 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! ❤️
The latest news and notes out of Omaha…
Pretty much immediately after pressing send on last week’s issue of The Berkshire Beat, Microsoft completed its $68.7 billion acquisition of Activision Blizzard. The company (finally) received regulatory approval from the Competition & Markets Authority in the UK — and wasted no time in closing the deal and making it official. And, while Warren Buffett closed out his arbitrage play sometime during the second quarter, Berkshire Hathaway still stands to profit from the merger.
Either Todd Combs or Ted Weschler purchased 14.6 million shares of ATVI 0.00%↑ in Q4 2021 at an average price of $77 per share. This position was not sold as part of Buffett’s arbitrage exit and (as far as we know) earned the agreed-upon price of $95 per share. That’s a $260+ million gain in two years — good for an overall pre-tax return of 23.4% (which far outpaces the wider market during this period).
As revealed in a filing earlier this week, BYD expects to report record earnings of at least $1.3 billion in Q3 2023. “Despite the increasingly intense competition in the automobile industry in the third quarter, [BYD] continued to record profit by leveraging its improving brand influence, continuously expanding scale advantage, and strong industrial chain-wide cost-control capability.”
Paramount Global CEO Bob Bakish reiterated that the recent strikes in Hollywood have been “accretive to our cash in 2023” for both PARA 0.00%↑ and the wider industry. He also expects “significant streaming growth driven by significant reduction in streaming losses” in 2024.
Last week, I mentioned Charlie Munger’s closing keynote at Zoomtopia. And, while I’m still hoping to track down a copy of the video so that it can be transcribed, this might be the next best thing. Zoom released a short summary of some of Munger’s key points — and I’ve pulled out a few of the best quotes below.
“You won’t see the people who eat and drink a lot — or who chain-smoke — grow old.”
“In poker, everyone is trying to mislead you — and the same is true in life. It’s easy to get too addicted to gambling against the odds, but you should only play poker [when] you’re one of or the best at the table.”
“I’m surprised my life worked out as well as it did. It took a long time to get ahead. I will say, in retrospect, I’m glad it took so long because it was interesting … It’s going to be harder for the present generation to get rich because there’s more competition. But you have to get better and better or you will lose. Try harder, work harder, and you’ll do better.”
A quick reminder: To ensure that future issues of this newsletter get delivered straight to your inbox — and not filtered out as spam or marked as potentially dangerous (I’m looking at you Gmail) — please add the Kingswell email address to your contacts list. Sorry for the inconvenience, but I’m unfortunately at the mercy of Gmail’s algorithm here and I’d hate for anyone to miss out.
Warren Buffett & Charlie Munger on BYD
Speaking of BYD’s (anticipated) blockbuster earnings report, I dusted off an old interview from 2011 in which Warren Buffett and Charlie Munger discuss their decision to invest in BYD.
So how did Munger convince Buffett to pull the trigger on BYD?
“I think he threatened to shoot me,” Buffett told Liz Claman of Fox Business. “It took a pretty rigorous [sales pitch]. The truth is he understood it … and I didn’t — but I had enough confidence in Charlie that, in this game, he knew a whole lot more about it than I did. And he was right.”
Other highlights from the interview…
On BYD founder Wang Chuanfu:
They’ve got a brilliant fellow on top [of the company] and they have a way of implementing his ideas very quickly and effectively. There’s no ossification — and many American companies, obviously, have suffered from that. Perhaps Berkshire Hathaway [has], in some ways. But when they decide to do something, it gets done. They have very high expectations of themselves and they meet it.
On investing in a Chinese EV maker:
The world benefits no matter where [electric vehicles] come from. The fact that penicillin came from England doesn’t mean we don’t benefit from it. It’s not a zero-sum game in the world. We ought to be happy if General Motors comes up with a wonderful electric car [and] we ought to be very happy if BYD comes up with a wonderful electric car.
On persevering through failure:
Munger: The companies that succeed are often the ones who just improve better and faster than the competition — and just keep doing that. And that is the essence of BYD. I see not the slightest flagging in their ambitions to keep doing things better and better.
They’re willing to [push through] enormous failures for a long time, like Edison, in order to get improvements. Not only do I admire that, but I think that it’s likely to work.
More Must-Reads
Other awesome things that I read this week…
Investing in Inflections and Buffett’s Airline/Railroad Investments
“Buffett saw a business and industry that investors had always viewed as capital intensive and cyclical… but he realized the business had consolidated down to an oligopoly, and that it would be very difficult for new players to enter the industry going forward (for railroads, because no one can build a new railroad today; for airlines, because loyalty programs and credit card miles give huge advantages to incumbents/large players).”
15 Books to Read Before You Die
“Mostly every review of [The Intelligent Investor] will tell you to read chapters 8 and 20; the ones that discuss Mr. Market and why he should be ignored, as well as the principle of margin of safety. It’s true, they are the most useful chapters of the book — and it doesn’t hurt to remind yourself now and then.”
A Few Laws of Getting Rich (Morgan Housel)
“Charlie Munger was once asked by one of his rich friends if leaving his kids a bunch of money would ruin their drive and ambition. ‘Of course it will,’ Charlie said. ‘But you still have to do it.’ ‘Why?’ the friend asked. ‘Because if you don’t give them the money, they’ll hate you,’ Charlie said. Like a lot of Munger advice, I think this interaction is designed to be memorable. It’s probably 80% true. But, by and large, he’s right.”
“You probably can’t know what the world needs you to do until it tells you. And it can’t tell you until you’ve offered it something of value first. This is what a sacrifice is … Everyone’s gifts are different, but the only consistent truth is that it seems to require some kind of considered leap — an ‘active surrender’ — into the murky unknown.”
Great info as always. Think I remember a very old Fortune article of Munger saying he saw Wang Chuanfu as a combination of Jack Welch (ability to get things done) and Thomas Edison (technical abilities). That's pretty high praise from Munger.