Discover more from Kingswell
The Berkshire Beat: October 6, 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…
Last Friday, Berkshire Hathaway closed out Q3 2023 clinging to the slimmest of leads (year to date) over the S&P 500: 13.4% to 13.07%. This week, though, has been a difficult one for Berkshire — and, now, both its Class A and Class B shares trail the benchmark index by roughly 0.6% on the year.
I don’t imagine that Warren Buffett is overly troubled by this turn of events. A falling stock price plays right into his hands from a buyback perspective. (Or at least that’s what I tell myself — I’m a glass half-full kind of guy.)
Berkshire continues to slash its stake in HP — selling 8.19 million more shares between September 28 and October 3 for a total amount of $212.4 million. This drops Berkshire’s stake in HPQ 0.00%↑ down to 9.9%, which means that future sales no longer need to be disclosed within two business days.
As such, Berkshire probably kept selling more shares of HP on Wednesday and Thursday — but we won’t get confirmation of that for quite a while.
The dividends just keep rolling in. On Monday, Berkshire received $184 million in quarterly dividends from Coca-Cola — and, somewhat less impressively, $4.68 million from Paramount Global. Then, on Wednesday, another $30-31 million from HP.
Over the past week — including last Friday — Berkshire has collected approximately $597 million in dividends from Bank of America, Kraft Heinz, Coke, Paramount, and HP. The money machine in Omaha never stops.
On Tuesday, Occidental Petroleum and ADNOC (wholly owned by the Emirate of Abu Dhabi) agreed to “commence a jointly-funded preliminary engineering study” related to the possible construction of a Direct Air Capture facility in the United Arab Emirates. If this project ultimately gets the green light, it would be the first megaton-scale DAC plant of its kind built outside the United States.
Oxy CEO Vicki Hollub also provided an update on Permian Basin production levels this week at the ADIPEC conference in Abu Dhabi. “We’ve seen continuing improvement in our oil well productivity, so we haven’t seen a drop off. Some operators are experiencing degradation … but I think the Permian still has enough additional oil to develop that [it] will continue to grow over the next few years.”
More change at Pilot: The sprawling truck stop and travel center network, which officially became a Berkshire subsidiary back in January, named Brad Anderson its new chief operating officer. Anderson will oversee Pilot’s retail and food operations — a segment currently being overhauled and upgraded as part of the company’s New Horizons initiative.
From Trucking Dive: “This marks the third major executive change Pilot has made in recent months. In May, Adam Wright and Joe Lillo took over as the convenience retailer’s new CEO and CFO, respectively, succeeding former CEO Shameek Konar and former CFO Kevin Wills.”
And, finally, a move that comes out of left field: On September 30, National Indemnity Company (a wholly-owned Berkshire subsidiary) transferred its 100% ownership interest in the BNSF railroad to Berkshire itself. This one is something of a head-scratcher, but might be an attempt to right-size NICO’s capital level.
Kingswell is a reader-supported newsletter. To better support my work, please consider upgrading to a paid subscription. 🙏❤️
In the Spotlight: Warren Buffett on Conservative Investment
When Warren Buffett ran his investment partnership back in the 1950s and 1960s, he did not approach the money game like many of his contemporaries. He favored so-called “cigar butt” investments right out of the Ben Graham playbook, while also dabbling in event arbitrage opportunities and the occasional control situation.
His results obviously speak for themselves, but his unorthodox approach — and large concentration in just a few stocks — did beget a question or two from partners about the apparent lack of conservatism in BPL’s portfolio.
In 1961, Buffett answered these queries in his annual letter to partners. And, in doing so, laid out an investment philosophy that continues to echo through the ages.
Many people, some years back, thought they were behaving in the most conservative manner by purchasing medium- or long-term municipal or government bonds. This policy has produced substantial market depreciation in many cases, and most certainly has failed to maintain or increase real buying power.
Conscious — perhaps overly conscious — of inflation, many people now feel that they are behaving in a conservative manner by buying blue chip securities almost regardless of price-earnings ratios, dividend yields, etc. Without the benefit of hindsight as in the bond example, I feel this course of action is fraught with danger. There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy and capricious public will put on earnings.
You will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you. In many quarters, the simultaneous occurrence of the two above factors is enough to make a course of action meet the test of conservatism.
You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct, and your reasoning is correct. True conservatism is only possible through knowledge and reason.
Become a paid supporter today and receive immediate access to three annotated transcripts full of wit and wisdom from the top names at Berkshire Hathaway.
Paid subscribers will also continue to receive a new annotated transcript each month.
Other awesome things that I read this week…
“In human relationships, whether professional or personal, one should give the benefit of the doubt when initially offended. If you believe that most people are decent, as I do, then you are most likely dealing with ignorance or stupidity rather than malice.”
Theodore Johnson, the UPS Employee Who Donated $70 Million to Charity (Dividend Growth Investor)
“Investing so much in employer stock is risky, because it could have gone either way. While UPS stock was privately held and did very well, it could’ve turned out otherwise. Still, I find this story inspiring … If you are patient, and think in terms of decades, your investments would compound to pretty neat amounts.”
“George Goodman, who went by the pseudonym Adam Smith, was the author of Supermoney. In the book, Goodman asks a friend why he buys individual stocks rather than buying funds despite the fact he continues to lose money. ‘If I couldn’t look my stocks up in the paper, I’d really miss it,’ he replied. ‘Part of my life that I enjoy would be gone.’”
An Early Investor in Warren Buffett’s Berkshire Hathaway is Now Worth $3 Billion — and Joined the Forbes 400 This Year (Theron Mohamed || Business Insider)
“[Stewart] Horejsi first invested in Berkshire in 1980 because he was frustrated by the fierce competition facing his family business. He promptly bought 300 shares at prices ranging from $265 to $330, and gradually increased his stake to 5,800 shares at its peak, before reducing it to 4,300 shares starting in 1998 … Horejsi attended more than 30 of Buffett’s famous annual meetings, including some early ones where fewer than a dozen shareholders sat in folding chairs in a cafeteria.”
“The message [Buffett] was trying to convey was how the greats are not the ones who can play their best all the time, but what makes them great is their ability to do the little things right consistently.”