The Berkshire Beat: September 8, 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…

• On September 1, Berkshire Hathaway Energy completed its acquisition of Dominion Energy’s 50% interest in Cove Point LNG. This $3.3 billion all-cash deal boosts BHE’s stake in the Maryland-based LNG terminal up to 75%. Cove Point holds special value as one of the very few domestic operations capable of exporting liquefied natural gas.

  • “We are pleased for this opportunity to own a greater stake in the Cove Point LNG business,” said BHE’s Paul Ruppert. He added that Berkshire will “continue its excellent operating and commercial performance at Cove Point, which plays an important role in BHE’s delivery of clean, low-cost, and sustainable energy solutions to customers and communities”.

• As it turned out, Hurricane Idalia was not the reinsurance nightmare that some people feared. Moody’s RMS currently estimates private market insured losses of $3-5 billion from the hurricane — with the actual cost likely falling on the low end of that range. BMS Re, the reinsurance arm of BMS Group, agrees: “The insurance industry dodged a bullet as Hurricane Idalia tracked over relatively rural areas with low population density.”

• On Tuesday, Warren Buffett shared a touching remembrance of the late Jimmy Buffett (no relation) with the Wall Street Journal. A longtime Berkshire Hathaway shareholder, Jimmy Buffett was also a visionary businessman in his own right — turning the tropical escapism of Margaritaville into a billion-dollar empire.

• Yesterday, Berkshire Hathaway received $389,249 in quarterly dividends from Johnson & Johnson. It’s a minuscule part of the Berkshire portfolio, but, hey, money is money. Plus, this AAA-rated Dividend King’s yield also just crept up over 3% — which doesn’t happen all that often.

  • And, today, Berkshire collects $18.9 million in dividends from Moody’s. Lest we forget, MCO 0.00%↑ is the eighth-largest holding in Berkshire’s massive stock portfolio.

• Over the past year, Berkshire has pared back its position in BYD by 56% — but, recently, the pace of sales noticeably slowed (or, maybe, even stopped altogether). On June 19, Berkshire reported that its stake in the Chinese EV maker had dropped below 9%. And, since then, silence. That doesn’t mean Berkshire stopped selling — just that it still owns more than 8% of BYD.

  • CNBC’s Warren Buffett Watch pointed out that, based on Berkshire’s previous sales cadence, we should have gotten a new filing (indicating that Berkshire dipped under 8%) sometime in mid-July. But, obviously, that didn’t happen. Perhaps BYD’s recent run of record-breaking EV sales has played a part, too.

• And, finally, a little housekeeping:

  • Many thanks to everyone here for their steadfast support of this newsletter! For the first time in its (brief) history, Kingswell had more than 50,000 views over the previous thirty days. 🤯

  • We’re also closing in on an important paid supporter milestone. If you’ve been on the fence about upgrading to a paid subscription, now is the perfect time to jump in and push us over the line. It costs less than the price of lunch and unlocks those Charlie Munger and Todd Combs annotated transcripts, too. Paid supporters will continue to receive a special “bonus” each month, similar to the aforementioned transcripts.

  • Speaking of which, September’s paid supporter “bonus” will be an annotated transcript of an old-school Warren Buffett interview that doesn’t get a lot of attention today. Can’t wait to share it with everyone later this month!

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🗣️ Warren Buffett & Charlie Munger Sound Off on 10-Ks

Todd Combs’s comment on the NFM podcast — “I think most people would probably be surprised how few people actually read annual reports and 10-Ks” — has really stuck with me over the past few weeks.

Reading 10-Ks can be a real drag sometimes. Many companies seemingly go out of their way to make it as joyless a task as possible. Technical jargon, legalese, and the like clutter page after page of almost every annual report.

If I were being cynical, I might suspect that such filings are more aimed at causing investors’ eyes to glaze over and give up than in providing a full accounting and understanding of a business’s performance.

Happily, Berkshire Hathaway takes the road less traveled and writes its annual report in a (relatively) easy-to-read and accessible way. If others followed suit, the investing world would be a much better place. Alas, I’m not holding my breath.

For those struggling to make it through a 10-K, I bring to you what Warren Buffett and Charlie Munger had to say on the subject at Berkshire’s 1998 annual meeting…

Buffett: We start by looking at the reports of companies that we think we can understand. We hope to be reading reports — and I do read hundreds of them every year — of businesses that are understandable to us.

Then, we see from that report whether the management is telling us about the things that we would want to know about if we owned 100% of the company. When we find a management that does tell us about those things and that is candid in the same way that a manager of a subsidiary would be candid with us and talks in language that we can understand, it definitely improves our feeling about investing in such a business.

And the reverse turns us off, to some extent. If we read a lot of public relations gobbledygook and we see lots of pictures and no facts, it has some effect on our attitude toward a business.

We want to understand the business better when we get through with the annual report than when we picked it up. That is not difficult for a management to do if they want to do it. If they don’t want to do it, we think that is a factor in whether we want to be their partners over a ten-year period or so.

But we’ve learned a lot from annual reports. For example, I would say that the Coca-Cola annual report over the last good many years has been an enormously informative document. I can’t think of any way if I’d have had a conversation with Roberto Goizueta — or, now, Doug Ivester — and they were telling me about the business, they would not be telling me more than I get from reading that annual report.

We bought that [Coca-Cola] stock based on an annual report. We did not buy it based on any conversation of any kind with the top management of Coca-Cola before we bought our interest. We simply bought it based on reading the annual report — plus our knowledge of how the business worked.

Munger: If you’ve got a standardized bunch of popular jargon that looks like it came out of the same consulting firm, I do think it’s a big turn-off. That’s not to say that some of the consulting mantras aren’t right, but I think there’s a lot [to be said] for candid, simple, coherent prose.

Amen.

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More Must-Reads

Other awesome things that I read this week…

Should I Sell Or Should I Hold? (Dividend Growth Investor)

• “One of the risks of selling after a company has not done well is that you let emotions, such as fear, drive the actions. As a group, investors tend to feel the worst and most likely to capitulate around the time of a major bottom. We want to avoid that. However, we also want to avoid hoping for a turnaround that never happens, tying up precious capital in the process.”

Evil Eyes and Tall Poppies

Rob Henderson

• “There was an interesting finding some years ago about the game show Who Wants To Be A Millionaire? Some of you may be familiar with the ‘Ask the Audience’ lifeline. In America, when contestants ask the audience for help with a question, about 90% of the time, the audience gives the correct answer to help the contestant. But in Russia, participants often avoid using this lifeline, because audiences often provide wrong answers to thwart the contestant from earning money. I’m not sure if that is something inherent in Russian culture or if it is a relic of communism, but an interesting cultural difference, nonetheless.”

Defense Wins Championships

Low Risk Rules

• “My friend, who refused to take part in the internet stock craze, who I openly mocked, had the last laugh. He has experienced decades of steady growth in his portfolio of safe, dividend-paying stocks. And, meanwhile, I spent far too much time in search of the next great growth company, completely ignoring these massive wealth creation machines because I perceived them as ‘too boring’.”

Respect and Admiration (Morgan Housel)

• “Once you see people being respected and admired for reasons that have nothing to do with the stuff they own, you begin to wonder why you have such a strong desire for those possessions. I tend to view material desire as a loose proxy for the inverse of what else you have to offer the world. The higher my desire for fancy stuff, the less real value I have to offer.”