The Berkshire Beat: September 1, 2023
All of the latest Berkshire Hathaway news — including a birthday tribute to Warren Buffett — and my must-reads of the week!
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The latest news and notes out of Omaha…
It’s more than a bit ghoulish to discuss reinsurance claims in the aftermath of a deadly hurricane, but ignoring the financial impact of Hurricane Idalia doesn’t make a whole lot of sense, either. Back in May, vice chairman Ajit Jain revealed that a catastrophic hurricane in Florida could cost Berkshire Hathaway as much as $15 billion. It’s much too soon to speculate about the final bill from Idalia, but Berkshire may have dodged a bullet this time. “I am skeptical that [Idalia] will impact them much,” said Matthew Palazola of Bloomberg. “This event is not what they were describing when they were talking about a worst case.”
“We have a very unbalanced [reinsurance] portfolio,” Ajit Jain said a few months ago. “What that means is if there’s a big hurricane in Florida, we will have a very substantial loss.”
More from Jain: “If the hurricane happens in Florida, we could lose — across all units — as much as $15 billion. If there isn’t a loss, we’ll make several billion dollars as profit.”
Last Thursday, Reuters released a list of those companies that spent the most money on stock buybacks over the past ten years (through Q1 2023). Apple, unsurprisingly, lapped the field with $621.31 billion of share repurchases — far outpacing Alphabet in second place with $193.07 billion. But what makes Apple’s prolific buyback spree all the more impressive is that it hasn’t just canceled out stock-based compensation. Since 2016, the Cupertino-based tech giant managed to reduce its outstanding share count by nearly 30%.
Bank of America, the second-largest holding in Berkshire’s stock portfolio, finished sixth with $112.87 billion of buybacks.
Berkshire nabbed a spot on the Reuters list, too. Warren Buffett and co. have shelled out $70.27 billion on share repurchases over the last decade.
Berkshire collected quarterly dividends from a few of its smaller holdings this week:
$96,228 from UPS (And, no, that’s not a typo.)
$14.5 million from Kroger’s
$3.7 million from Visa
According to Redfin, just 14 of every 1,000 homes in the United States changed hands during the first half of 2023. That’s the lowest turnover rate in at least a decade. With so many homeowners happy to stay put with their locked-in mortgage rates, prospective buyers have nowhere to turn but new construction. This, more than anything, explains Berkshire’s recent investments in homebuilders like D.R. Horton, NVR, and Lennar.
On Tuesday, Apple sent out press invites to its special “Wonderlust” event on September 12. (Sadly, Kingswell did not make the cut.) There, Apple will unveil a slew of new products — including the much-anticipated iPhone 15 and iOS 17.
Dan Ives of Wedbush Securities believes that iPhone 15 will spur a “mini super-cycle” of device upgrades and new purchases.
NV Energy, a subsidiary of Berkshire Hathaway Energy, will power Las Vegas’s spectacular Sphere entertainment venue with mostly renewable energy for the next twenty five years. (Assuming, of course, that Nevada’s Public Utilities Commission approves the BHE proposal.) Up to 70% of Sphere’s energy will come from the Sierra Solar Project, a 400-megawatt photovoltaic solar generation plant that is currently being built in Nevada. It should be complete sometime in 2027.
Happy Birthday to the Oracle! 🥳🎂
On Wednesday, Warren Buffett celebrated his 93rd birthday.
What makes his story all the more incredible is that he continues to thrive at an age when almost anyone else would be long retired. (Personally, I’m just hoping to still be alive at 93.)
“He’s still at the top of his game,” Dr. David Kass told CNBC’s Yun Li. “His mental acuity is [as] sharp as ever.”
The good doctor is right about that. Over the past year, Buffett proved that — no matter his age — he’s still firing on all cylinders and not ready to slow down one bit.
Here’s a little taste of what Warren Buffett accomplished as a 92-year-old…
He personally spearheaded Berkshire Hathaway’s $11.5 billion purchase of Alleghany, which closed in October 2022. (It also ranks as Berkshire’s biggest acquisition since Precision Castparts in 2016.) Alleghany is not only a savvy insurance pickup, but it brings CEO Joe Brandon back into the Berkshire fold.
I don’t think Brandon’s return to Berkshire can be overstated. Over the past few years, Buffett has lost many professional friends and confidantes (like Tom Murphy, Sandy Gottesman, Lou Simpson, etc.) — leaving his inner circle smaller than ever. Brandon brings a bit of balance in that regard, adding another trusted voice to Buffett’s orbit.
In January, Berkshire secured majority ownership of Pilot through the pre-arranged purchase of an additional 41.4% of the travel center network. This boosted Berkshire’s stake up to 80%. The Pilot acquisition kind of flies under the radar — probably because it was spread out over six years — but should prove to be a massive addition to the Berkshire family.
Buffett upped his holdings in the five leading Japanese trading houses three separate times over the past year — turning them into (collectively) one of Berkshire’s biggest stock investments. He also visited Japan, alongside Greg Abel, to meet with the executive teams of these sogo shosha.
Most impressive of all, Buffett notched another big win over the S&P 500 in 2022. Berkshire beat the benchmark index by more than 22% last year, making it five wins in the last seven years. It’s much the same story if you take Berkshire’s results in the 365 days that Buffett spent as a 92-year-old. From August 30, 2022, through August 29, 2023, Berkshire doubled the S&P 500’s gains.
Not to mention the all-time highs hit in early August.
More than anything, I marvel at Buffett’s ability to retain a long-term mindset as he grows older. “His preferred holding period is — in his words — forever,” Kass told CNBC. “He still has this infinite time horizon, even at the age of 93.”
More Must-Reads
Other awesome things that I read this week…
“Mr. Buffett shows no signs of slowing down other than handing over day-to-day operational responsibilities to Berkshire’s Vice Chairmen a few years ago. He’s still handling almost all of the company’s capital allocation, a formidable task given Berkshire’s current size. Berkshire is likely to continue returning capital to shareholders via repurchases in the years to come, but I suspect that if Mr. Buffett keeps at it for several years, the painting will continue to evolve. The evolution will be subtle from year to year, but could be striking in a decade.”
Another Industry On Which Berkshire Hathaway Could Have Been Built
“An important aspect of Berkshire Hathaway is the safety it has provided for shareholders. The country has experienced many difficult economic periods since Buffett took over Berkshire in 1965, but Berkshire’s solvency was never even remotely questioned. This safety is the result of the skilled management of Buffett, but it also is the result of the conglomerate structure that Buffett built.”
I highly recommend McDonough’s book (Capital Allocation: The Financials of a New England Textile Mill), too!
Why I No Longer Mind Losing An Argument
“Because we are human, the way we package content is paramount if the other side is to be willing to receive it. Criticism is futile because it puts a person on the defensive and usually makes him strive to justify himself. Criticism is dangerous because it wounds a person’s precious pride, hurts his sense of importance, and arouses resentment.”
“One of my strongest beliefs is that, the older and more widespread a story is, the more evolutionary value it contains. ‘Be careful what you wish for’ is a ubiquitous staple of myths and fairy tales. You go to the witch and ask for a potion… but it comes at a terrible, unexpected price. King Midas wishes for everything he touches to be turned to gold, but that includes his food and even his own daughter. If you hold on too tightly to your goals, you risk locking yourself in a prison of your own making.”
Neglected Aspects of Investing
“The stock market is like a town square for the paranoid to project their insecurities onto others; it’s a distraction from the act of investing. Stepping back from the public discourse can improve clarity and reaffirm that position attrition is not a necessary component to success. It’s okay to have intentional periods of inaction. Save intensity for when it matters. Silence and peace are underrated.”
Re: share repurchases - would be interesting to see a list of “net” buybacks since many of those mentioned, starting with AAPL, have to repurchase shares just to keep the total share count even.