The Berkshire Beat: September 20, 2024

All of the latest Warren Buffett and Berkshire Hathaway news! Including updates on Ajit Jain, Bank of America, Chevron, Oriental Trading Company, BNSF Railway, Occidental Petroleum, and more...

Happy Friday and welcome to our new subscribers!

Let’s check in on the latest news and notes out of Omaha…

WARREN BUFFETT SOLD ANOTHER 22.3 MILLION SHARES OF BANK OF AMERICA BETWEEN SEPTEMBER 17-19. At an average price of $40.23 per share, that adds another $896.1 million to the Berkshire Hathaway coffers. After this latest sale, Berkshire’s stake in BAC 0.00%↑ drops to 10.8%.

• For those keeping score at home, Buffett has now sold 196.9 million shares for $8.1 billion since July 17. Berkshire still owns 835.9 million shares.

• Earlier this month, Barron’s speculated that Berkshire might stop selling Bank of America once the holding reaches 700 million shares. Not because of Buffett’s new penchant for round numbers, but because those 700 million shares (via the preferred stock investment in 2011) have a cost basis of just $7 a piece. The other 300+ million shares were purchased in 2018 “at around $30 a share”.

VICE CHAIRMAN AJIT JAIN’S SURPRISING SALE OF 200 CLASS A SHARES LAST WEEK MADE WAVES. And, on Friday evening, we got word of two more divestitures: Warren Buffett gifted 20 Class B shares (valued at about $9,000) to one or two unnamed individuals on September 12. That same day, Jain donated 23 Class B shares (valued at over $10,000) as a charitable gift. These aren’t exactly earth-shaking transactions from a monetary standpoint, but it’s kinda interesting to see so much activity by Berkshire’s top brass all at once.

• After this latest round of gifting, Buffett now owns 207,963 Class A shares and 1,333 Class B shares. Ajit directly owns 61 Class A shares and 443 Class B shares — with another 105 A shares and 124,308 B shares held indirectly in family trusts and the Jain Foundation.

• The Rational Walk
  wrote about the Ajit Jain situation in the latest edition of his digest. And, as always, he took a calm, measured approach that is all-too-lacking in most financial media. “Applying Occam’s Razor, my baseline assumption is that [Ajit Jain] sold the shares because Berkshire stock is no longer cheap, at least compared to its “typical” valuation since the financial crisis of 2008-09.”

CHEVRON CEO MIKE WIRTH: “THE U.S. CONTINUES TO BE AN ENERGY SUPERPOWER.” On Tuesday, Wirth spoke to CNBC at Gastech 2024 and discussed his company’s domestic energy production.

• Permian Basin: “[In the] Permian Basin, we’ve been running ahead of our plans. In fact, we’ve upped our guidance for this year [and] expect to be at 1 million barrels a day — just Chevron — in 2025.”

• Gulf of Mexico: “We just started up a project last month in the deepwater Gulf of Mexico. The Anchor project [is] the first ever to get into a 20,000 pound per square foot regime of subsurface pressure, which is essentially equivalent to an elephant standing on a quarter. It’s a new technology. A breakthrough. It’s good for Chevron — and for the U.S. — because it opens up a new regime for us to explore and produce resources here in this country in the deepwater Gulf of Mexico, which has a lot of running room left ahead of it.”

• Denver-Julesburg Basin: “We’re producing 400,000 barrels a day in the D-J Basin [in Colorado and surrounding states].”

YESTERDAY, BERKSHIRE REVEALED THAT IT NOW OWNS 105,155,029 SHARES OF SIRIUS XM. That’s good for 31.0% of the company — and, incidentally, is bigger than previously believed. Either I botched the math when calculating the post-combination share count (which I don’t think I did) or Berkshire bought more SIRI 0.00%↑ in the current quarter.

BNSF RAILWAY: “REVENUE ADEQUATE” IN 2023. The Surface Transportation Board announced that BNSF — along with two other major railroads — was “revenue adequate” last year. In layman’s terms, this means that the railroad achieved a rate of return on investment better than the current cost of capital for the industry at large. In 2023, that benchmark was 9.87%. BNSF squeaked by with a 10.63% return on investment — while Union Pacific topped the group at 15.98% and CSX came second with 14.27%.

OCCIDENTAL PETROLEUM PUSHES AHEAD WITH DIRECT AIR CAPTURE. The U.S. Department of Energy agreed to provide up to $500 million to support 1PointFive’s development of the South Texas DAC Hub. (1PointFive is a wholly-owned Oxy subsidiary.) The first $50 million has been earmarked for engineering, permitting, and procuring equipment for the planned DAC project. “Large-scale Direct Air Capture is one of the most important technologies that will help organizations and society achieve their net zero goals,” said CEO Vicki Hollub.

• And, no, Berkshire has not added any more shares of OXY 0.00%↑ while its price has languished down in the low $50s over the past few weeks.

MUST-SEE TV: I greatly enjoyed seeing

The Science of Hitting

— one of my favorite financial writers — on the Value: After Hours podcast this week. The discussion mostly revolved around energy drinks, dollar stores, and home improvement retailers — but Alex managed to sneak in a little Berkshire talk, too. (For reference, he’s talking about some investors’ concerns that Berkshire does not provide enough specific data on its many operating businesses.)

• “It’s the way I’ve always felt about Berkshire in terms of the people having certain complaints about the level of data that’s given on any certain business or segment,” he said. “That’s just not how I think about the bet. The high-level data that you do get is more than sufficient to make a long-term investment decision.”

THE NEXT ANNOTATED TRANSCRIPT FOR PAID SUPPORTERS WILL BE OUT ON MONDAY. I don’t want to spoil the surprise, but it is widely regarded to be one of Warren Buffett’s best interviews and really hits all the high notes of his approach to both business and life. So, if you’ve been on the fence about upgrading, there’s no time like the present.

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Oriental Trading Company CEO: “It’s not a level playing field, for sure.”

Today, we continue on with our trip through the many interviews left over from annual meeting weekend. (We’re getting close to the end. I promise.)

A common refrain from many of the Berkshire Hathaway subsidiaries was that their customers were “feeling the pinch” from higher prices and a slowing economy.

“Everybody knows what’s going on with inflation,” Oriental Trading Company CEO Steve Mendlik told Becky Quick. “[People] are paying more at the grocery store. Even Walmart — what’s growing for Walmart? It’s grocery.”

General merchandise, on the other hand, was still struggling. And that’s pretty much OTC’s bread and butter. In the best of times, the company thrives on selling event-related merchandise to both consumers (like parents) and non-consumers (like schools, churches, and businesses). Mendlik said that, of the two, the non-consumer segment seemed to be holding up better under current economic conditions.

“Probably more than half of our business is non-consumer,” he said. “The consumer is feeling the pinch. There’s no question about it. [Consumer] is probably high single digits less than the performance of the rest of the non-consumer business.”

✨ The U.S. government will reportedly crack down on the “de minimis” rule that overseas retailers like Temu have feasted on in recent years — at domestic retailers’ expense. That will likely come as good news to Oriental Trading Company.

“It’s not a level playing field, for sure,” said Mendlik.

(Under the current de minimis rule, shipments valued at less than $800 can enter the U.S. duty-free, which allows some companies to sell products at mind-bogglingly cheap prices if they are shipped directly to the customer. Again, like Temu.)

But Mendlik also highlighted another concern about these cut-rate retailers. “The other thing I think is important is the safety rules that apply,” he said. Like product testing, checking for lead-based paint, and more.

“There’s really no mechanism to make sure that that is happening on packages that are going directly from the manufacturer right to the consumer,” he said. “When you’re importing a container at a time [like Oriental Trading Company], you’re filing paperwork and the CPSC has the ability to take a look at an individual container or at your paperwork — making sure that you’re doing the testing that is appropriate for the product that you’re bringing in.”

Even though OTC has a “significant amount” of its products made in China, they all “absolutely” undergo that kind of testing. Because, as Mendlik said, containers full of merchandise arriving at a port goes through many more checks than an individual package shipped directly from Temu to the customer.

✨ Mendlik also said that “the supply chain is getting much, much better”.

“I love our transportation team,” he laughed, “[but] it wasn’t great spending every day with the transportation team — which I had to do during the pandemic. We meet a little less frequently now, which is great.”