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The Berkshire Beat: September 29, 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…
HP remains on Berkshire Hathaway’s chopping block — with Warren Buffett and co. selling 9.4 million more shares ($248.9 million) over the past ten days at prices ranging from $25.575 to $27.73 per share. Berkshire still owns 10.7% of HPQ 0.00%↑, though that may change in the days and weeks ahead. Stay tuned.
🤑 Today is a big dividend day for Berkshire — with over $378 million rolling into Omaha from two of the conglomerate’s largest holdings. Berkshire will receive $247.9 million from Bank of America and $130.2 million from Kraft Heinz. That’s a lot of capital to allocate, but something tells me that Buffett is up to the challenge.
Colorado’s 36-14 victory over Nebraska earlier this month hit Warren Buffett right in the wallet. Buffett and Chevron CEO Mike Wirth (a Colorado alum) wagered $5 on the college football game — which ended up being a rout of his beloved Cornhuskers. “After Nebraska lost, I sent my $5 [to Wirth] by Federal Express,” Buffett told Barron’s Andy Serwer in an email. “He won fair and square … Fortunately, I had $5 in my wallet that had been untouched for decades.”
Wirth: “[I’m] happy to have Berkshire Hathaway as a shareholder. Finding a FedEx package from Warren on my desk is just a little icing on the cake.”
Speaking of Berkshire’s “old energy” investments, Occidental Petroleum CEO Vicki Hollub fielded questions from Bloomberg Television earlier this week at the 2023 American Energy Security Summit in Oklahoma City.
When asked about the possibility of oil prices hitting $100 per barrel, Hollub demurred. “We all, in the industry, have an opinion on oil prices — but usually we’re wrong.”
Hollub added that even if oil shoots above $100 in the near future, she doesn’t expect it to last for very long. And such temporary price swings won’t have any impact on Oxy’s production strategy. “[We’re] much more focused on returns than production volumes.”
Despite the best efforts of the interviewer, Hollub would not be drawn on how much Amazon paid for those 250,000 carbon removal credits from Oxy’s STRATOS Direct Air Capture (DAC) facility currently being built in Texas. “I don’t think that we’ve negotiated a [carbon credits] contract yet that didn’t take almost a year or more because people are just starting to understand the industry. Our legal people have never written contracts like we’re writing today. We’re at the forefront of this — and I feel like we’re leading the way.”
On Oxy’s plan to use captured carbon to wring every last drop of oil out of existing reservoirs: “It’s really important to get the most barrels of oil out of the reservoirs we have in the United States — and we can do that today. We have the infrastructure in the Permian [Basin] to begin there. Then, as we expand out, we can do it in the rest of the areas in the United States. That guarantees more energy independence for the United States.”
Cover art for the upcoming Stripe Press re-release of Poor Charlie’s Almanack. According to Amazon, both the digital version and hardcover edition are scheduled for release on December 5, 2023.
NFM (Nebraska Furniture Mart) announced that construction of its fifth store — located in Cedar Park, Texas — will begin some time next year. This 1.2 million square foot store will be NFM’s second in the Lone Star State.
Two NFM fun facts from the press release:
NFM provides its employees with 40 hours of paid time off each year for volunteering and charitable activities.
In its 86-year history, NFM has never laid off a single employee. 👀
According to the U.S. Department of Housing & Urban Development and the U.S. Census Bureau, sales of newly-built homes fell by 8.7% in August. Likely due to soaring mortgage rates that spent most of the month well above 7%. Not exactly encouraging news for Berkshire’s latest portfolio picks — homebuilders D.R. Horton, NVR, and Lennar.
“Homebuilders continue to benefit from the extremely tight supply of existing homes for sale,” writes CNBC, “but that boost may finally be overcome by higher interest rates.”
And, lastly, many thanks to everyone here for the wonderful reception to this month’s paid supporter bonus: Warren Buffett Q&A Transcript || 1994 at UNC. These annotated transcripts take a great deal of time — I do them all by hand without any AI or transcription software assistance — so it’s very gratifying to see people enjoying them so much.
I’m already hard at work on October’s transcript.
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In the Spotlight: Christopher Bloomstran x William Green
A long-awaited crossover between two of my favorite investing personalities. Messrs. Bloomstran and Green need no introduction — but I’ll give them one anyway.
Christopher Bloomstran is the president and chief investment officer of Semper Augustus Investments Group — not to mention one of the foremost Berkshire Hathaway experts of this (or any) era. His novella-length annual letters regularly feature remarkable deep dives into the valuation and performance of Berkshire, as well as lessons learned from Warren Buffett and Charlie Munger.
William Green, of course, wrote the fantastic Richer, Wiser, Happier in 2021. But this accomplished author has other facets, too — including a rare talent as an interviewer on his Richer, Wiser Happier podcast. His thoughtful questions and in-depth research make every episode of RWH a must-watch.
So imagine my delight when, in mid-September, he released a special extra-long episode with Bloomstran as his guest. (I particularly enjoyed the discussion about Semper Augustus’s first client, Robert Brookings Smith, who sounds like an incredible character and role model.)
The whole thing is well worth a couple hours of your time. But, this being The Berkshire Beat and all, I’ve pulled out a couple of Bloomstran’s most interesting Berkshire-related comments. Enjoy!
On capital allocation:
From day one, Warren Buffett ran Berkshire to grow its book value per share — and to not put the business in harm’s way. And, when it was in harm’s way, to pivot. The first business they owned, obviously, was the textile business and famously ran it off and eventually closed it in 1985. Several of the first businesses they bought — Blue Chip Stamps, Diversified Retailing — wound up essentially being zeroes. They pivoted away from those. It’s been this capital allocation at Berkshire that has allowed it to be so successful.
On Berkshire’s future returns:
I think the best case on the index, at the moment, is a 5-6% return. More likely than not, you’ll have periods where it’s substantially underwater in the next ten or fifteen years. And Berkshire is a very conservative 10-12% [annual return] if you hold the current valuation constant. It’s a very durable, predictable earnings stream. I think Berkshire is, hands down, an easy bet in a valuation climate like today. (Note: I believe this podcast was recorded in mid-July, so Bloomstran made these comments when Berkshire traded around $345-ish per Class B share.)
Other awesome things that I read this week…
“Warren Buffett, a staunch advocate of qualitative value investing, famously emphasized that value investing transcends buying stocks based on low multiples, eschewing the pure quantitative approach. He argued that qualitative projections for growth and business quality are an integral aspect of a stock’s intrinsic value. Buffett argues that there is a symbiotic relationship between quantitative and qualitative factors in the investment process.”
“Doing it right takes time, there’s no way around it. You can’t get the same quality of information from a clickbait article or some article that spurts off statistics from some computer output — whether written by a human, auto-generated, or perhaps written by AI. And there’s certainly no way one analyst can keep up to date on hundreds of companies and do a good job at it.”
“When you find quality businesses trading around 15x earnings and have confidence in the company’s ability to generate high-single-digit earnings growth over the next five years (this requires qualitative research), the risk-reward balance tilts in your favor. Not all of them will hit the bullseye, but the result should be favorable enough over enough iterations.”
Why Luck Isn’t Real (Nick Maggiulli || Of Dollars And Data)
“We’ve all been on the receiving end of some form of good or bad luck at some point … But believing in luck does very little to help us. It does very little to serve us. After all, if you believe in luck, what lesson do you learn after facing a setback? The answer is — nothing. You can always chalk it up to ‘bad luck’ and move on. But, if [you believe] luck isn’t real, then you can ask yourself, ‘Where did I go wrong?’ and ‘How can I change it?’ You could learn something from even the most unfortunate of events.”
24 Things I Believe About Investing (Ben Carlson || A Wealth of Common Sense)
“I believe self-control can make you far more money than just about any other trait as an investor. I know plenty of high IQ people who are terrible investors because they don’t have the right temperament.”