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Bar, >> market caps over $10 billion <<
Yes, a good strategy. While I have a bunch of them under $10 bil (link below), anything under $1 bil is rare. Currently only one - Climb Global Solutions (CLMB), which I found largely from it's nice 10-15 year chart, which is very rare for a microcap. The last one was Winmark (WINA), but it's now over $1 bil.
Looking at how Buffett, Munger, and Graham approached investing in the early days, what jumps out is how aggressive they were. But Buffett says for us regular investors (mere mortals), the idea is to be extremely diversified, and mainly use index funds. So basically the opposite of his own 'Oracle' approach. I figure some individual stocks are OK, but only small positions and widely diversified.
Buy / Hold Stocks (by market cap) -
https://investorshub.advfn.com/Buy-Hold-Stocks-42434
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GFP I knew this Munger-ism decades before Charlie made it famous:
"'You gotta do it': the late Charlie Munger once said your first $100K is the toughest to earn — but most crucial for building wealth."
The tax law was once quite favorable to putting money in a kid's name. And I took advantage of that by opening a low cost Vanguard brokerage account for each of my sons soon after they were born. Both accounts were populated with the Vanguard Total Market Stock index mutual fund (there were no ETFs then). I or grandparents may have added a little more money as time went on, but I never sold. And I paid for their educations through college.
Hence, the day the kids graduated college both had a good notion of how to preserve wealth and how to grow it.
LOL and bookmarked! Thanks GFP. I'm a huge fan of of the crusty Charlie Munger but I never knew of his early involvement with hamsters. Our family went two rounds with them. Damn it was hard to keep the little critters in their place. They'd get out of their aquarium and we'd eventually find them sometimes weeks later in the middle of the night waddling across the floor.
Fortunately I parted with Munger over his extreme love of banking stocks. I've never bought one but did inherit two, Regions and BOA, about 20 year ago... stinkin' investments.
Yes, BABYF is utter junk with *ALL* the earmarks of a rubbish foreign penny stock. Note BABYF has a tiny market cap of just $31 million. I advise shunning stocks with market caps under $10 billion! BABYF is unprofitable and pays no dividend. And its lone product, "toddler food," has no moat or brand recognition, a floorless stock.
How Warren Buffett Made His First $1,000,000 -
History of Charlie Munger, and how he made his first $1,000,000 -
Thanks, watched it all. "Security Analysis" by Ben Graham is one of the few stock market classics I've never read. I have skimmed major parts of it. Much is quite dated and inappropriate for today's average investor.
In that YT video we again see the outsized role one stock, Geico, played, in the wealth of Buffett, Munger and Graham.
Here's an interesting history of Ben Graham, with Buffett entering the picture at 23:45. These guys wheeled + dealed on steroids, the antithesis of index investing. But.. they were smart enough to do it (unlike the rest of us 99.9%) -
This somewhat obscure Buffett quote is one of my favorites:
"On my honeymoon I traveled out west. When I visited the casino and saw all these smart well-dressed people participating in a game with the odds against them, it was then that I realized I won't have a problem getting rich!."
"Meanwhile, others were placing money on bets guaranteed to lose. These weren't dumb people -- they had money to blow in Las Vegas, after all -- but they weren't playing to win. They were playing games of chance where they were almost guaranteed to lose."
https://www.fool.com/investing/general/2014/02/22/warrenbuffettgambling.aspx#:~:text=On%20my%20honeymoon%20I%20traveled,a%20defining%20moment%20for%20Buffett.
Bar, Travelers is a great one for sure. Buffett trimmed / sold some of his insurance related holdings like AON, GL, MKL, MMC, which seemed somewhat surprising since they are such great long term holdings. Fwiw I decided to keep those for the long haul, but they are modest sized positions. Here's my full list for the financial sector (link below), with the actual holdings highlighted in red. Additional suggestions are welcome :o)
https://investorshub.advfn.com/Financial-Sector-Ideas-25505
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Bar, >> charts <<
Using CTAS as an example, just check out their 10 and 15 year chart over on Stockcharts.com (link below). That's one phenomenal chart and company --> unbelievable steadiness and trajectory. A lot of insurance related stocks (Buffett's favorite sector) have similarly phenomenal long term charts -- MMC, PGR, AJG, BRO, etc.
Anyway, it's a great screening tool - just find a bunch of companies with long term charts that look like CTAS, MMC, PGR, and the odds are you have some great long term holdings -
https://stockcharts.com/h-sc/ui
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"Speaking of which, I see Apple is under anti-trust investigation by the US govt." I guess that may explain the sell-off in BRK today. That was one case where WB found a stock with too big a moat. LOL!
As you know I don't use charts or T/A to trade stocks. I pay no attention to silly chart patterns. But, like you, I'll go back a long way to see how the stock performed in tough times especially during the Great Recession of 2008-9. A big dividend isn't important. However I like to see regular increases that roughly keep up with inflation or exceed it. That's a sign the books are kept honestly.
Bar, >> is this a stock Warren or Charlie would buy? <<
I ask that question too, but not having Buffett's stock analysis abilities (or anything close), I end up screening individual stocks mainly based on their 10-15 year charts. Does the chart have the steadiness and trajectory over time that would indicate a stable, consistently profitable business, and sound capable management? When the long term chart qualifies (CTAS for example), the rest of the analysis is usually favorable (margins, return on equity / assets, debt level, net income, cash flow, lack of shorts, div payout %, etc). But I figure Buffett would reject most of my picks based on valuation.
Buffett says a big problem is that the group of stocks qualifying for purchase by Berkshire is very limited, and they've been thoroughly picked over by others looking for the same type of bargains, hence Berkshire's huge cash position. The problem stems from his success --> having so much $ to invest means only the largest cap companies can be considered. If Buffett could go back to managing smaller sums, he could shoot the lights out every year like in the early days. But now he is forced into large and mega cap ideas.
Speaking of which, I see Apple is under anti-trust investigation by the US govt (link below). So that's the risk of having so much invested in one stock -
>>> Justice Department files antitrust suit against Apple <<<
https://finance.yahoo.com/news/justice-department-files-antitrust-suit-against-apple-145514025.html
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That post shows you know the smart way to invest but you often stray!
I always tell my two sons that investing SHOULD be boring. When deciding between two courses, go for the boring one. The problem I have now is my kids aren't interested in stocks. They've always had money. They're content to let Dad handle the investing. They know I've generally done well in the market and certainly better than their 30-ish year old friends, who mostly chase fads like many new investors.
A key question is WHY do index funds outperform most active management. Index funds don't fall for fads. They don't panic when headlines turn ugly. They don't chase the latest cool gadget (like VTOL). They're tax efficient by trading very little. Index funds never attend cocktail parties to chatter about their newest cool investment. I mix in a few other factors such as only buying large/mega caps to increase survivability in recessions. And -- with a CPA for a son -- I only buy the strongest Big Four audited stocks.
Finally, I ask myself, is this a stock Warren or Charlie would buy?
bar, the article was on what might be the mystery stock BRK has been buying up shares in, with the right to not disclose the identity of the ticker yet, and it went through the analysis and settled on MUFG being the likely target ticker due to WB and BRK increasing its investments in Japan and that MUFG would be a great compliment to the 5 trading houses. Not to mention the potential significant stake in Morgan Stanley through MUFG.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=174063446
Bar, >> subscriptions <<
No subscriptions, just regular info and articles from the internet. Buffett, Weschler, and Combs say they each read ~ 500 pages / day, so it's no wonder they have such great results :o)
Buffett also says that for people who are not professional money managers (ie just about everyone), extreme diversification is the way to go --> broad, low cost index funds (video below). And he also says to avoid trading.
So it's simple, but why don't more people do it? A few reasons come to mind -- 1) An overly cavalier attitude, especially in the early years of investing, 2) The lure of 'get rich quick', 3) The 'drug' of active trading, 4) Index funds are boring, 5) Individual stocks/sectors are a fun / interesting hobby.
With #5, I figure the idea is to have the benefits of the hobby, while minimizing the risk. Therefore small individual positions, with the bulk of the stock allocation in the broad index / S+P 500. And for the individual stock side --> find stocks like CTAS :o)
GFP do you subscribe to any stock research such as MF or Seeking Alpha? I was just reading more about MUFG but am content to hold the five trading houses indirectly via BRK as I have for years.
BTW I see that BRK is up 17% YTD and 37% for the past year. Excellent. My huge Cintas holding is up an incredible 45% YTD. Of course my index funds are doing very well. My kids' long held QQQ is up a stunning 45% for the past year.
We do have a few stinkers, mostly smaller holdings. Walgreens, Boeing, and worst... Leggett and Platt.
Bar, >> Japanese bank <<
The proposed target bank in the article is Mitsubishi UFJ Financial Group (MUFG), with a market cap ~ $120 bil. But as Prudent Capitalist pointed out, the idea would be for Berkshire to buy a sizable chunk, rather than acquiring the entire bank. MUFG also has a stake in Morgan Stanley (see below), so MUFG sounds like a distinct possibility to be the mystery stock.
Another angle is that with Japan finally reversing their ZIRP / negative % policy, their banking sector could benefit. Unlike most sectors, bank stocks can go up during rising %. So perhaps Buffett had an early 'heads up' on the Japanese % reversal, and he loaded up on MUFG early.
>>> MUFG is the largest bank by assets in Japan. More importantly, it's trading at a reasonably low forward P/E ratio of less than 12, and is valued modestly below its reported book value. High-quality banks trading below their book value have often been a lure that's attracted Buffett. Comparatively, Morgan Stanley is valued about 60% above its book value.
Furthermore, MUFG is actually riding Morgan Stanley's coattails to massive profits since the financial crisis more than 15 years ago. Mitsubishi UFJ Financial Group purchased $9 billion worth of preferred stock in Morgan Stanley following the collapse of Lehman Brothers. This stake in Morgan Stanley has consistently generated between 30% and 40% of MUFG's annual profits in recent years.
Why buy Morgan Stanley stock when Buffett can get exposure to Morgan Stanley via Mitsubishi UFJ Financial Group at a fraction of the cost? I strongly believe MUFG to be the confidential stock Warren Buffett is buying at Berkshire Hathaway. <<<
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"so to use $120 bil of it to buy a Japanese bank" Those 5 Japanese trading companies aren't much like traditional US "Banks".
Anyway, just about everything I own is at or very near all-time high.
Berkshire Hathaway speeds up stock buybacks
By: Reuters | March 18, 2024
Berkshire Hathaway BRK.A has increased its pace of repurchasing its own shares, a sign that longtime Chairman Warren Buffett considers them undervalued and a good place to spend excess cash.
In its proxy filing on Friday, Berkshire said it repurchased the equivalent of 3,808 Class A shares this year through March 6, spending approximately $2.2 billion to $2.4 billion depending on the dates of the buybacks.
Nearly three-quarters of the repurchases took place after Feb. 12.
Berkshire repurchased $2.2 billion of its own stock in last year's fourth quarter, and $9.2 billion in all of 2023.
Its peak year for buybacks was 2021, when they totaled $27 billion.
Buffett, 93, has run Omaha, Nebraska-based Berkshire since 1965, and oversees buybacks and other major capital allocation decisions.
Repurchases help Buffett deploy some of the conglomerate's cash and equivalents, which totaled $167.6 billion at year end.
Berkshire has said it will maintain a $30 billion cash cushion, and that "financial strength and redundant liquiditywill always be of paramount importance."
Through Friday, Berkshire's share price was up 14% this year, about twice the gain for the Standard & Poor's 500 SPX.
Read Full Story »»»
DiscoverGold
The article was not discussing the notion of WB and BRK buying an entire company right now. It discussed what was likely the "mystery stock" stock he is buying up share in without having to disclose publicly what ticker it is.
Prudent Capitalist, The idea that Buffett is looking to spend over $100 bil to acquire a single company, it just doesn't seem that likely. Berkshire currently has approx $168 bil in cash, so to use $120 bil of it to buy a Japanese bank? The overall Japanese stock market is really high right now, and they finally decided to start raising % rates. So, I think it's 'back to drawing board' for all us Buffett sleuths trying to gaze into the Oracle's crystal ball :o)
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Fascinating article that makes a heck of a lot of sense. In particular due to the large recent investments in the Japanese trading companies and WB's comments on Japanese assets being undervalued of late.
Concerning Buffett's 'mystery stock', it could be more than one stock, in which case the 'over $100 bil market cap' assumption would be incorrect. The unaccounted-for $5 billion in Q3 + Q4 last year might be divided between two or more stocks.
Another key data point noted is the lack of the required SEC filing when Berkshire accumulates over 5% of a company. The reason could be the same as above --> the unaccounted-for $5 bil could be split among two or more stocks. For example - $2.5 in one $60 bil company, and another $2.5 bil in another $60 bil company. So neither would reach the 5% threshold, therefore no required SEC filing.
The third data point they cite is that Berkshire's "banks, insurance, and finance" category grew by $2.38 bil during Q4-23, which occurred despite Berkshire selling their last holdings of Markel and Globe Life (which by my inexact math would have yielded in the $325 mil range). But this entire 3rd data point is fuzzy, since some of that $2.38 bil growth was presumably due to changes in the market value of Berkshire's already existing stock positions. So how much of the $2.38 bil was due to that, and how much due to the new 'mystery stock' purchases? So the numbers are fuzzy, but at minimum we can say that Berkshire likely bought a big chunk (maybe $2 bil range) of something in Q4 and it is in the 'banks, insurance, finance' sector. But again, that ~ $2 bil could have been divided among several different stocks.
So.. the mystery stock's $100 bil market cap assumption seems bogus, at least based on the currently available info. Also, the assumption that Buffett wants to fully acquire the mystery stock has not been established, and he may merely be looking for a sizable chunk of one or more companies.
Anyway, the mystery continues.. :o)
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New Clues Strongly Suggest This Is the "Confidential Stock" Warren Buffett Has Been Buying
By: The Motley Fool | March 18, 2024
• Berkshire Hathaway is secretly building up its stake in one or more companies. New clues and details point to one very specific stock.
For nearly 60 years, Berkshire Hathaway (BRK.A -0.04%) (BRK.B 0.07%) CEO Warren Buffett has captivated the attention of professional and retail investors by running circles around Wall Street many times over. Since becoming CEO in the mid-1960s, he's overseen an aggregate return of 4,938,103% in his company's Class A shares (BRK.A), as of the closing bell on March 14. For the sake of comparison, this is 146 times greater than the aggregate total return of the S&P 500, including dividends paid, over the same period.
Even though the affably named "Oracle of Omaha" won't be right all the time, his track record suggests he has a knack for finding value that's hiding in plain sight. That's why investors wait so anxiously for Berkshire Hathaway's Form 13F filings with the Securities and Exchange Commission (SEC).
Berkshire Hathaway's 13F is a powerful tool for investors
A 13F is a required filing each quarter for institutional money managers who are overseeing at least $100 million in assets under management. As of March 14, Buffett and his team had $366 billion of invested assets spread across 45 stocks and two index funds.
What makes 13Fs valuable is they allow investors to easily see what Wall Street's brightest and most successful money managers have been buying, selling, and holding. These filings can provide valuable insight into what stocks and trends are piquing the interest of Wall Street's top investors.
For example, Berkshire Hathaway's 13Fs have shown that Warren Buffett and his investing aides, Todd Combs and Ted Weschler, have been actively adding to their positions in two energy stocks: Chevron (CVX -0.09%) and Occidental Petroleum (OXY 0.88%). Though energy stocks have historically not accounted for a sizable percentage of Berkshire's invested assets, the combination of Chevron and Occidental comprise nearly 10% of the aforementioned $366 billion portfolio.
Having this much capital put to work in two integrated oil and gas stocks is a pretty clear message that Berkshire Hathaway's brightest minds expect the spot price of oil to remain above historic norms, if not head even higher. Years of capital underinvestment during the COVID-19 pandemic has led to tight global oil supply, which is helping to lift the spot price of crude.
Being able to track the investments Warren Buffett makes has allowed investors to ride his coattails to potentially life-changing returns.
New clues emerge about the "confidential stock" Warren Buffett is buying
However, Berkshire Hathaway's 13F isn't telling the full story in more ways than one. In addition to Warren Buffett's company having a $621 million "secret" portfolio, Berkshire Hathaway has also been granted an exemption by the SEC for confidential treatment regarding one or more of its holdings.
In other words, Buffett and his team are building a position in one or more companies, and they don't want the cat to be let out of the bag while doing so. Since investors tend to pile into the stocks Buffett and his aides purchase, this confidential treatment allows Berkshire to, presumably, build its stake at a lower cost basis.
Berkshire's last two quarterly 13Fs have come with this confidential treatment disclosure, which means the Oracle of Omaha and his aides have been purchasing shares of a stock, or multiple stocks, from perhaps July through December. Though I've previously thrown a dart at which mystery stock this might be, new clues point to a very specific company as Warren Buffett's "confidential stock."
While there are genuinely thousands of publicly traded companies that Buffett could, in theory, be putting his money to work in, three clues quickly narrow down the field. First, we can examine how much Berkshire Hathaway spent purchasing equity securities during the third and fourth quarters and compare this figure to the rough value of the stocks purchased during those respective quarters, as listed in Berkshire's 13Fs. In the neighborhood of $5 billion in equity security purchases is unaccounted for on a combined basis over the second-half of 2023.
What's interesting about this figure is that Berkshire Hathaway would be required to file with the SEC once it's reached at least a 5% stake in a publicly traded company. Since there's currently no filing, it intimates that the company Buffett and his team are secretly buying has a market cap of $100 billion or more. That eliminates all but 120 publicly traded companies in the U.S.
Secondly, Berkshire Hathaway's fourth-quarter operating results show that the company's cost basis for equity securities held in "banks, insurance, and finance" grew by $2.38 billion to $27.14 billion from the September-ended quarter. This cost basis grew despite Buffett and Co. selling stakes in insurers Markel Group and Globe Life. This is something my Foolish colleague Adam Levy pointed out two weeks ago, and all but ensures that Buffett's confidential stock hails from the financial sector.
There are only 24 stocks with a $100 billion or greater market cap found in the financial sector.
The third clue is that Warren Buffett loves a good deal and will stubbornly sit on his hands until he gets one. This means any stock with a relatively high forward price-to-earnings (P/E) ratio is off the table. Setting the forward P/E cap at 15 reduces the number of candidates to just 13.
Here's the confidential stock Berkshire Hathaway is likely buying
Among the 13 remaining financial stocks are a handful of companies Berkshire already owns, including Bank of America, American Express, and Citigroup, as well as companies that were sold within the past few quarters or years, such as JPMorgan Chase, Goldman Sachs, and Wells Fargo. It's highly unlikely Buffett would reenter JPMorgan Chase, Goldman Sachs, or Wells Fargo on a confidential basis, and we'd see buying activity via the 13F if it was the former three stocks Berkshire currently owns.
This leaves seven possible choices:
Morgan Stanley (MS -0.47%)
HSBC Holdings
Royal Bank of Canada
Mitsubishi UFJ Financial Group (MUFG 1.57%)
Toronto Dominion Bank
Chubb
UBS Group
Having followed Buffett's trading activity for so long, I can't recall a time when he's shown much, if any, interest in Canadian banks. Furthermore, while the Oracle of Omaha is willing to go to bat for a reclamation project in the U.S. (e.g., Bank of America in 2011), European banks aren't his cup of tea. This likely eliminates HSBC, UBS, Toronto Dominion, and Royal Bank of Canada from the discussion.
To go one step further, Berkshire's investment team just purged its portfolio of Markel and Globe Life, meaning there's probably not a big desire to pile into an internationally based insurer like Chubb.
This leaves two companies that meet what Warren Buffett is looking for: Morgan Stanley and Mitsubishi UFJ Financial Group, which is better known as "MUFG."
Morgan Stanley can't be ruled out as Berkshire's potential "secret" buy. It's valued at 12 times forward-year earnings and generates a substantial portion of its sales and profits from the company's wealth management division. In theory, wealth management should help insulate Morgan Stanley from inevitable downturns in the U.S. and global economy.
In Warren Buffett's recently released annual letter to shareholders, he described the small group of companies he values as core holdings that will be held "indefinitely." While Coca-Cola and American Express unsurprisingly made the list, the Oracle of Omaha touted Occidental Petroleum and the five Japanese trading houses -- Mitsubishi, Mitsui, Itochu, Sumitomo, and Marubeni -- as companies he'd never sell. In fact, Buffett has upped his company's stake to around 9% in each of these Japanese trading houses. Berkshire's investment team have not hidden their belief that Japan's economy can outperform over the long run.
MUFG is the largest bank by assets in Japan. More importantly, it's trading at a reasonably low forward P/E ratio of less than 12, and is valued modestly below its reported book value. High-quality banks trading below their book value have often been a lure that's attracted Buffett. Comparatively, Morgan Stanley is valued about 60% above its book value.
Furthermore, MUFG is actually riding Morgan Stanley's coattails to massive profits since the financial crisis more than 15 years ago. Mitsubishi UFJ Financial Group purchased $9 billion worth of preferred stock in Morgan Stanley following the collapse of Lehman Brothers. This stake in Morgan Stanley has consistently generated between 30% and 40% of MUFG's annual profits in recent years.
Why buy Morgan Stanley stock when Buffett can get exposure to Morgan Stanley via Mitsubishi UFJ Financial Group at a fraction of the cost? I strongly believe MUFG to be the confidential stock Warren Buffett is buying at Berkshire Hathaway.
Read Full Story »»»
DiscoverGold
Berkshire Buys More Liberty Sirius XM, Now Owns $2.2 Billion of Tracking Stock
By: Barrons | March 7, 2024
Berkshire Hathaway purchased about 3.7 million shares of Liberty Sirius XM Holdings, the tracking stock for Sirius XM Holdings, in recent days, bringing its stake in the tracker to almost 76 million shares, according to filings late Wednesday.
Berkshire now holds $2.2 billion of Liberty Sirius XM Holdings, a roughly 23% stake in the company. Berkshire purchased both the voting Class A shares an d nonvoting Class C shares for a total of more than $100 million from Monday through Wednesday of this week. Sirius XM operates a satellite radio network with over 32 million paying subscribers.
This continues intermittent purchases of the tracking stock so far this year by Berkshire. The Liberty Sirius XM voting A stock ended Wednesday at $29.38, down 0.1% while the nonvoting C shares finished at $29.25, off 0.2%.
Berkshire appears to be looking to capitalize on the spread between the value of the Sirius XM stock that will be received by Liberty Sirius XM shareholders under a deal reached in late 2023 and the current price of the tracking stock.
Sirius XM ended Wednesday at $4.19, up 0.5%. Liberty Sirius XM holders are due to get 8.4 shares of New Sirius XM for each share of the tracking stock. That's worth about $35, allowing Sirius XM holders to make about 20% ($6 a share divided by the current tracker stock price). The deal is due to close in the third quarter. Current Sirius XM holders will get the new stock on a share-for-share basis.
The spread has narrowed so far in 2024 as Sirius XM stock has come down from a price of about $5.50 in late December. The spread could narrow further as the closing date approaches and after the transaction closes — assuming the deal occurs. Liberty Media owns over 80% of Sirius XM and that stock could start hitting the market once the deal closes.
Some investors have bought the tracking stock and shorted Sirius to capture the spread, but that can be difficult to do now given the thin float in Sirius, high short interest in the stock, and high borrowing costs to short it.
Some Berkshire watchers think the company's Liberty Sirius XM holding is overseen by Ted Weschler, one of two Berkshire investment managers who run about 10% of the roughly $350 billion equity portfolio. CEO Warren Buffett oversees the rest. Weschler is believed to be close to Liberty Media CEO Greg Maffei.
DiscoverGold
History of Warren Buffett's Berkshire Hathaway $BRK.B every March since 1997
By: Evan | March 3, 2024
• History of Warren Buffett's Berkshire Hathaway $BRK.B every March since 1997
1997: $45B
1998: $70B
1999: $90B
2000: $67B
2001: $105B
2002: $110B
2003: $95B
2004: $140B
2005: $140B
2006: $130B
2007: $160B
2008: $210B
2009: $110B
2010: $200B
2011: $210B
2012: $195B
2013: $250B
2014: $280B
2015: $360B
2016: $335B
2017: $430B
2018: $500B
2019: $500B
2020: $510B
2021: $570B
2022: $710B
2023: $670B
2024: $880B
Read Full Story »»»
DiscoverGold
"Buffett Calls This Metric "Worse Than Useless," but Everyone Uses It. Here's How to Make Yourself a Smarter Investor."
"Investors look forward to Warren Buffett's annual shareholder letter, and in the 2023 version, released on Feb. 24, he didn't disappoint. It was chock-full of Buffett's typical down-to-earth, blunt, and solid investing advice mixed with his wit and humor.
He paid tribute to his decades-long investing partner, Charlie Munger, who passed away last year, and in a first, he addressed the letter as if he were writing to his sister Bertie.
She's a longtime Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) shareholder whom Buffett described as understanding "many accounting terms, but ... not ready for a CPA exam." In doing so, he's addressing the vast majority of individual investors.
In the letter, he points to Berkshire's earnings numbers, which look strange when you consider how they have changed over the past three years. And he calls the net income metric "worse than useless." Here's how he counsels investors to use it when evaluating a company.
Net income vs. operating income
Buffett highlighted Berkshire Hathaway's net income, in contrast with its operating income.
Metric
2021
2022
2023
Net income (loss)
$89.9 billion
($22.8 billion)
$96.2 billion
Operating income
$27.6 billion
$30.9 billion
$37.4 billion
Data source: Berkshire Hathaway.
He noted how something looks off with the changes in net income, so even though a public company has fulfilled its legal duty by reporting "this worse-than-useless 'net income' figure" according to regulations, it makes him uncomfortable.
The main difference between the two figures is unrealized capital gains and losses, which refers to price changes for stocks Berkshire Hathaway owns. Individual investors don't usually have to worry about unrealized capital gains or losses; gains or losses only come into play when they sell a stock, at which time there are capital gains tax considerations for the shareholder."
https://news.yahoo.com/finance/news/warren-buffett-calls-metric-worse-144000377.html
I thought that was an important quote, too. But I pretty much knew that already. And by "equities" he means large cap blue chips, not IHUB penny crap.
Warren Buffet released his 2023 Annual Letter to shareholders and said: “I can't remember a period since March 11, 1942 ... that I have not had a majority of my net worth in equities.”
By: Cheddar Flow | February 29, 2024
Warren Buffet released his 2023 Annual Letter to shareholders and said: “I can't remember a period since March 11, 1942 ... that I have not had a majority of my net worth in equities.”
— Cheddar Flow (@CheddarFlow) February 29, 2024
I complexly agree with your thoughts. BRK can still outperform most investments if we go into a deep bear market. Those jumbo caps still have a place. and BRK can seek out offbeat investments like those Japanese trading houses which are pretty damn big. . . .
Bar, I was surprised that Buffett came flat out and said -- "we have no possibility of eye-popping performance". He's basically admitting that investors would be better off in an index fund. A phenomenal stock picker like Buffett or Peter Lynch can only outperform the broad indexes by a wide margin when they can take outsize positions in their favorite stocks. But once they get vast sums to invest, they are force into larger and slower growing companies, and the performance regresses back to the mean.
Buffett's huge Apple position was one way around this conundrum. In the past he avoided tech stocks because they were outside of his 'circle of competency'. But to continue achieving outsize returns for Berkshire, he had to make a concentrated bet, and found a tech stock with an understandable business and strong 'brand'. But in doing so, Berkshire's returns are heavily dependent upon one stock.
An alternate strategy to ensure beating the broader market (S+P 500) over time would be to just buy the QQQ or Nasdaq. This way you get the outsize returns of tech stocks, plus diversification. With Berkshire's '40% in Apple' approach, the risk is that Apple will stumble at some point. Fwiw, I always figured Apple was vulnerable to 'commoditization', since a $70 cell phone can do nearly everything that a $1000 I-phone can.
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Thanks GFP, hadn't read the letter yet.
"the company hadn't made a sizable acquisition since its 2015 purchase of Precision Castparts for $37 billion."
And, the last I heard BRK believed it had overpaid for it.
>>> Warren Buffett: Charlie Munger was the 'architect' of the modern Berkshire Hathaway
Yahoo Finance
by Myles Udland
Feb 24, 2024
https://finance.yahoo.com/news/warren-buffett-charlie-munger-was-the-architect-of-the-modern-berkshire-hathaway-145356261.html
Warren Buffett's annual letter to Berkshire Hathaway (BRK-A, BRK-B) shareholders published Saturday morning marked the first missive sent to his investors since his longtime right-hand man, Charlie Munger, died last November at 99 years old.
To begin his letter to Berkshire shareholders, Buffett reminded readers of the role Munger played in creating what is now the country's largest conglomerate. A conglomerate, Buffett wrote Saturday, that has "by far...the largest GAAP net worth recorded by any American business."
"In reality, Charlie was the 'architect' of the present Berkshire, and I acted as the 'general contractor' to carry out the day-by-day construction of his vision," Buffett wrote.
"Charlie never sought to take credit for his role as creator but instead let me take the bows and receive the accolades. In a way his relationship with me was part older brother, part loving father. Even when he knew he was right, he gave me the reins, and when I blundered he never — never — reminded me of my mistake."
"In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten," Buffett wrote.
"Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie should forever be credited with being the architect."
'I made a dumb decision'
Buffett and Munger both grew up in Omaha, where Berkshire is still headquartered. The two, however, didn't meet until 1959, when Buffett was 29 and Munger 35.
A lawyer by trade and a founding partner at the law firm Munger, Tolles, & Olson which bears his name, Munger was named vice chairman at Berkshire Hathaway in the late '70s.
But Munger and Buffett's investing relationship began long before this formal engagement, with Buffett writing Saturday it was Munger who told him in 1962, "that I had made a dumb decision in buying control of Berkshire."
At the time, Berkshire Hathaway was a struggling textile manufacturer in New England. Textile operations later ended, but the Berkshire Hathaway of today still bears the company's name.
Buffett wrote Saturday that, "Charlie, in 1965, promptly advised me: 'Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practiced at small scale.' With much back-sliding I subsequently followed his instructions."
Elsewhere in his letter to shareholders, Buffett wrote, "Our goal at Berkshire is simple: We want to own either all or a portion of businesses that enjoy good economics that are fundamental and enduring."
But Buffett noted the advice from Munger offered nearly 60 years ago to only buy "wonderful businesses purchased at fair prices" means the days Buffett and Berkshire Hathaway had plenty of investment opportunities to choose from are "long behind us."
"This combination of the two necessities I've described for acquiring businesses has for long been our goal in purchases and, for a while, we had an abundance of candidates to evaluate," Buffett wrote.
"If I missed one — and I missed plenty — another always came along. Those days are long behind us; size did us in, though increased competition for purchases was also a factor."
Berkshire purchased insurance company Alleghany for $11.6 billion 2022 and took full control of rest stop operator Pilot earlier this year. Prior to these deals, the company hadn't made a sizable acquisition since its 2015 purchase of Precision Castparts for $37 billion.
"There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others," Buffett continued.
"Some we can value; some we can't. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance."
A 'severe' disappointment
Buffett also touched on the struggles at Berkshire's railroad and utilities businesses in 2023, with the latter serving as a "severe earnings disappointment last year."
In Buffett's view, a shifting regulatory outlook in some states has "broken" a model that relied on private investment backed by what Buffett called a "fixed-but-satisfactory-return" for these operators. Agreements that were made on a state-by-state basis.
"Whatever the case at Berkshire, the final result for the utility industry may be ominous: Certain utilities might no longer attract the savings of American citizens and will be forced to adopt the public-power model," Buffett wrote. "Nebraska made this choice in the 1930s and there are many public-power operations throughout the country. Eventually, voters, taxpayers and users will decide which model they prefer.
"When the dust settles, America’s power needs and the consequent capital expenditure will be staggering. I did not anticipate or even consider the adverse developments in regulatory returns and, along with Berkshire’s two partners at BHE, I made a costly mistake in not doing so."
'Berkshire is built to last'
As he does most years, Buffett also took extensive time in this year's letter to write about his overarching investment philosophy and how it impacts the current iteration of Berkshire Hathaway.
For aspiring investors looking to Buffett for insights on how to manage their own portfolios, these passages are the main draw.
The modern Berkshire Hathaway, in Buffett's view, is built to both protect against and take advantage of the inevitable seizures and panics that have, and will again, gripped markets.
"Indeed, markets can — and will — unpredictably seize up or even vanish as they did for four months in 1914 and for a few days in 2001," Buffett wrote. "If you believe that American investors are now more stable than in the past, think back to September 2008. Speed of communication and the wonders of technology facilitate instant worldwide paralysis, and we have come a long way since smoke signals. Such instant panics won't happen often — but they will happen."
In turn, Berkshire holds a pile of cash and highly-liquid Treasury bills that Buffett called "far in excess of what conventional wisdom deems necessary."
Berkshire also does not pay dividends — a preordained cash outlay for companies — and makes no commitment on the size of any future stock buybacks. Buffett runs Berkshire Hathaway in a manner that keeps cash on hand for the sake of keeping cash on hand, not for some planned future deployment.
"During the 2008 panic, Berkshire generated cash from operations and did not rely in any manner on commercial paper, bank lines or debt markets," Buffett wrote. "We did not predict the time of an economic paralysis but we were always prepared for one.
"Extreme fiscal conservatism is a corporate pledge we make to those who have joined us in ownership of Berkshire."
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Bar, Here's a summary of some of Berkshire's recent buy / sell activities (link below). It isn't meant to be all inclusive, but merely summarizes Berkshire's portfolio changes as outlined in various financial articles. I'm going to try to at least keep up with the changes in each new quarter. Your approach of just buying Berkshire stock itself would be a lot easier, but I like doing things the hard way I guess, lol -
https://investorshub.advfn.com/Long-Term-Stocks-36147
Berkshire Portfolio Changes -
***********************************
2023 - O4 - Sales
********************
Apple - Reduced
DR Horton - Sold all
Globe Life - Sold all
Hewlett Packard - Reduced
Markel - Sold all
Paramount Global - Reduced
StoneCo - Sold all
2023 - Q4 - Buys
********************
Chevron - added
Occidental - added
Sirius XM - added
Mystery Stock - bought / added
========================================
2023 - Q3 - Sales ($7 Bil total)
*********************
Activision - Sold 100% (sold prior to MSFT acquisition closing)
Amazon - Reduced 5% (holds 1.3 Bil)
Aon - Reduced 5% (holds $1.3 Bil)
Celanese - Sold all
Chevron - Reduced 10% (holds $18.6 Bil)
General Motors - Sold all
Globe Life - Reduced 67% (holds $184 mil)
Hewlett Packard - Reduced 15% (holds $2.6 Bil)
Johnson & Johnson - Sold all
Liberty Media - Spun off Atlanta Braves team
Markel - Reduced 66% (holds $234 mil)
Mondelez - Sold all
Procter & Gamble - Sold all
United Parcel Service - Sold all
2023 - Q3 - Buys ($1.7 Bil total)
*********************
Sirius XM - Bought $44 mil (new holding)
Mystery Stock - Bought (most of the $1.7 Bil)
==========================================
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I've read a number of articles about chocolate shortages this year.
Bar, Yes, a lot of the insurance stocks are way up now. We know Buffett likes to get a substantial discount, and Progressive (PGR) did have a sizable dip in the middle of last year, which is when Buffett apparently started buying the mystery stock. So that part would fit, but now PGR is sky high and no longer a bargain. It also has a huge 110 bil market cap, and Chubb's is also over 100 bil, so the mystery stock is probably something smaller. Travelers has a $50 bil market cap, and WR Berkley is 29 bil, so these might be contenders, but just a wild guess. Both are way up though, so no longer bargains.
Some other insurance related ideas from my own stock list would be -- AJG, BRO, EG, KNSL, and some smaller caps RLI, CBZ. But again, not exactly bargains.
I guess we'll find out eventually. Hershey has been down 30% for some time, so a relative bargain, and it has an iconic brand. But it sounds like the mystery stock is likely in finance / insurance / banking.
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I'm curious too. My long-held Travelers Insurance stock is at all-time high right now.
>>> Berkshire Hathaway's Mystery Stock: Have Buffett and Munger Finally Bought the Stock They Can't Stop Praising?
Motley Fool
By Courtney Carlsen
Nov 24, 2023
https://www.fool.com/investing/2023/11/24/berkshire-hathaways-mystery-stock-have-buffett-and/
KEY POINTS
Berkshire Hathaway requested confidentiality on some third-quarter stock purchases of $1.7 billion. It frequently uses such measures when accumulating large positions, to avoid being front-run by market participants.
The purchase is likely a stock in the banking, insurance, or financial sector, based on its quarterly earnings report.
The conglomerate is quietly accumulating over $1 billion in stock in a mystery company. Could it be this longtime competitor?
Berkshire Hathaway's (BRK.A 0.51%) (BRK.B 0.63%) legendary performance is undeniable. Since CEO Warren Buffett took over the failing textile business in 1965, the stock has returned investors 20% compounded annually -- doubling the S&P 500's average annual return in the same period.
This track record of success is why investors eagerly await Berkshire Hathaway's quarterly form 13-F, a required filing by the Securities and Exchange Commission (SEC) that discloses institutional investors' investing activity during the period. In the third quarter, Berkshire Hathaway purchased $1.7 billion in stock. However, a sizeable chunk of that amount is in a mystery stock on which Berkshire has requested confidential treatment.
Buffett and his team at Berkshire occasionally request confidentiality when they accumulate a stock position and don't want to tip off the markets until they finish buying. The company last requested confidentiality when building stakes in Chevron and Verizon Communications in 2020.
The move has investors speculating over what could be the next big position for Berkshire Hathaway. One company that could be on the short list has previously earned high praise from Buffett and Berkshire Hathaway Vice Chairman Charlie Munger. Here's what that stock is and why it could be the next stock in Berkshire's $354 billion portfolio.
Is this the mystery stock that Berkshire Hathaway bought in the third quarter?
In the third quarter, Berkshire Hathaway sold off part of its holdings in Globe Life, Markel, and Aon, all insurance companies within the financial sector. However, in its third-quarter earnings report, the conglomerate reported that its cost basis for investments in banks, insurance, and finance stocks increased by about $1.2 billion.
There are numerous potential investments that Buffett and his team could've bought. One intriguing stock that the conglomerate could have added during the period is Progressive (PGR). Progressive is the second-largest auto insurance company in the U.S., trailing only State Farm. The third-largest auto insurance company is Berkshire Hathaway's own GEICO, which it acquired in 1996.
When it comes to future leaders in the industry, Buffett sees it as a two-horse race between Progressive and GEICO. During Berkshire’s 2019 annual shareholder meeting, Buffett said
I have always thought for a very long time [that] Progressive has been very well run. They have an appetite for growth. Sometimes they copy us. Sometimes we copy them. And I think that will be true five years from now, ten years from now.
Even Munger sang Progressive's praises, saying, "In the nature of things, every once in a while, somebody is a little better at something than we are."
Progressive's underwriting discipline makes it a top dog in a highly competitive industry
To understand Progressive's stellar performance, you have to go back to 1965, when Peter B. Lewis, son of one of the co-founders, Joseph Lewis, took over the company. At the time, insurers commonly accepted that they would break even on their policies, and the actual returns would come from their investment portfolios. Lewis rejected this notion and instead set a goal that Progressive would earn an underwriting profit on its policies, even if it meant forgoing drivers who wanted lower-cost policies.
When it went public in 1971, the company prioritized achieving a combined ratio of 96, meaning it would earn $0.04 of profit for every dollar of premium earned. This philosophy has been core to Progressive's disciplined underwriting and is a big reason for the insurer's massive success.
You can analyze Progressive's disciplined underwriting by looking at its loss ratio. This ratio is one component of the combined ratio (the expense ratio being the other) and calculates the percentage of losses to premiums earned. Good companies can control losses and keep loss ratios in check, which Progressive has done exceptionally well. Over the last eight years, Progressive's loss ratio has averaged 72%, an excellent number in the highly competitive auto insurance industry. GEICO, also a solid underwriter, averaged 83% over that period.
Berkshire Hathaway's head of insurance had this to say about Progressive's outperformance
Ajit Jain is Berkshire Hathaway's Vice Chair of Insurance Operations and is also on the board of directors. Jain has worked for Berkshire since 1986 and has extensive knowledge about its insurance operations. Buffett has showered Jain with praise, mentioning in his 2012 annual letter to shareholders: "Ajit insures risks that no one else has the desire or the capital to take on. His operation combines capacity, speed, decisiveness and, most important, brains in a manner unique in the business."
Jain appreciates Progressive's underwriting performance and has credited its outperformance to several factors, including its use of telematics. Telematics uses driver data like mileage driven, speed, and braking time and personalizes rates for drivers based on this information.
When it comes to pricing models, more data helps Progressive make more informed decisions, manage its risk well, and keep loss ratios low. In 2019, Jain said that GEICO is working on its telematics program and hoped to catch up to Progressive over time. However, as you can see above, Progressive continues to outperform on the important loss ratio metric.
A stellar stock to own, regardless of whether Berkshire is buying it
It's possible that Berkshire Hathaway sees Progressive's ongoing outperformance and decided to add shares to its $354 billion portfolio. Progressive's long history of collecting driver data is one part of its stellar underwriting performance, and maybe Buffett and his team caved and wanted a piece of the action.
However, investors can't know for sure if Berkshire is buying Progressive until the company posts its fourth-quarter filing (assuming the purchase is not still marked as confidential), which won't come out until mid-February. Regardless, Progressive has been an excellent long-term performer for investors, and even if Berkshire isn't buying it, it can make an excellent addition to your portfolio today.
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Board, Anyone care to guess what Buffett's 'mystery' stock purchase has been over the last two quarters? Berkshire reportedly filed a reporting exemption in Q3 and Q4. Sounds like Progressive (PGR) is a distinct possibility (see next post). I was thinking it might be Hershey (HSY) since there was some possible interest in 2021 (article below), but it looks more likely the mystery company is something in the 'banking / insurance / finance' sector -
>>> Is Hershey Warren Buffett's Kind of Business?
Motley Fool
By Brett Schafer
Jun 30, 2021
https://www.fool.com/investing/2021/06/30/is-hershey-warren-buffetts-kind-of-business/
The Oracle of Omaha may be going after the candy giant.
Last week, a report came out that Hershey's (HSY) corporate jet recently flew to Omaha, Nebraska, where Warren Buffett's conglomerate Berkshire Hathaway (BRK.B) is headquartered. It's unknown what the jet was doing in Omaha, but analyst Don Bilson of Gordon Hackett's research team speculated that the Oracle of Omaha may be looking to acquire the chocolate company.
Bilson has been right with these reports in the past, predicting Berkshire's financing of Occidental Petroleum's takeover of Anadarko Petroleum after tracking the company's jet back in 2019. What would a Hershey deal mean for Berkshire Hathaway? Let's take a look.
What Hershey owns
Milton Hershey founded the Hershey Chocolate company more than 125 years ago. In 1900, the first Hershey bar was sold, and the company hasn't looked back since.
Hershey's still sells its famous chocolate bars around the globe but has bought and incubated many other candy and snack brands over the years. Its current portfolio includes popular brands like Hershey bars and kisses, Reese's, Twizzlers, and Ice Breakers. It also has new, health-focused brands like Skinny Pop, which have helped the company grow, as well.
The business is as steady as it comes
Chocolate and candy bars may be considered simple or even "boring" by many investors, but Hershey's stock has put up fantastic returns over the long haul. Since 1972, shares have gone up 14,000%, while the S&P 500 has "only" grown 4,000% over that time span. And those returns don't include the consistent dividend Hershey pays out to shareholders, which currently yields 1.84%.
Why has Hershey's stock done so well over the long term? There are many factors, but the main reason is that it has consistently grown its free cash flow. Before 2000, Hershey generated well below $500 million in free cash flow a year. Over the last 12 months, it generated over $1.6 billion in free cash flow. Couple that with the fact Hershey's share count has gone from 360 million in 1992 down to 206 million today, and you can see why the stock has done so well over the decades.
What it could mean for Berkshire Hathaway
Hershey has all the makings of a Berkshire Hathaway subsidiary. Buffett already owns junk-food companies like Sees Candies and Dairy Queen, while also owning large chunks of Coca-Cola and McDonald's stock. He loves businesses that are incredibly predictable like candy, which is why investors speculate he would love owning Hershey under the Berkshire umbrella. And while many governments are cracking down and regulating sugar consumption around the world, people will likely be consuming chocolate 50 years from now, just as they did 50 years ago.
On top of being a Buffett-style business, Hershey's may only have one suitor -- Berkshire. The Hershey Trust Company has over 80% of the voting rights of Hershey stock and likely doesn't want a buyer that would interfere with the business operations. Berkshire Hathaway famously has a hands-off approach with its subsidiaries, which could help in negotiations with Hershey shareholders.
One thing Buffett may not like is the price he would have to pay to acquire the Hershey company. The stock currently trades at a market cap of $36 billion, giving it a price-to-free-cash-flow (P/FCF) of 22.5. This doesn't look expensive on a trailing basis, but Buffett hates to overpay for a business and would likely need to offer a decent premium to Hershey's current market cap to convince the Hershey Trust to sell.
With over $145 billion in cash on its balance sheet, Berkshire has plenty of ammo to do a Hershey deal. Unless he can get it at a reasonable price, however, Buffett's unlikely to pull the trigger and buy the Hershey company.
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>>> 4 Warren Buffett Stocks to Buy After Berkshire Hathaway’s Latest 13F Filing
Plus, the stocks Berkshire bought and sold last quarter.
Morningstar
by Susan Dziubinski
Feb 14, 2024
https://www.morningstar.com/stocks/4-warren-buffett-stocks-buy-after-berkshire-hathaways-latest-13f-filing
Warren Buffett’s Berkshire Hathaway BRK.A BRK.B has released its fourth-quarter 2023 13F. The report indicates that Berkshire wasn’t a big buyer of stocks last quarter. That’s not surprising, given that stocks skyrocketed during the period: The Morningstar US Market Index was up about 12% during the fourth quarter.
Here’s a look at some of the stocks that Warren Buffett and his team bought and sold during the fourth quarter, as well as several of the most undervalued Buffett stocks to buy in Berkshire Hathaway’s portfolio today.
What Stocks Berkshire Hathaway Bought Last Quarter
Chevron CVX
Add to Existing
3 stars
Occidental Petroleum OXY
Add to Existing
3 stars
Sirius XM Holdings SIRI
Add to Existing
5 stars
Berkshire Hathaway’s fourth-quarter 13F didn’t indicate that Buffett added any new names to the publicly traded portfolio. According to the report, Berkshire simply added to existing positions in Chevron CVX, Occidental Petroleum OXY, and Sirius XM Holdings SIRI.
Berkshire Hathaway 13F Filing: More Sells Than Buys in Quieter Q4
However, it’s what Berkshire Hathaway didn’t report that has the financial media abuzz. Explains Morningstar strategist Greggory Warren:
“The SEC occasionally permits confidential treatment for new stock purchases by large portfolio managers, exempting them required disclosure in quarterly 13F filings when ‘such action is necessary or appropriate in the public interest and for the protection of investors or to maintain fair and orderly markets.’ Berkshire received an exemption last quarter (much as it has at different times in the past), as well as for the third quarter of 2023, and now its biggest stock purchase during the third and fourth quarters remains a mystery to investors. Eventually, the company will disclose the stock (or stocks) that they have been buying.”
What Stocks Berkshire Hathaway Sold Last Quarter
Apple AAPL
Scaled Back
2 stars
D.R. Horton DHI
Sold Entirely
3 stars
Globe Life GL
Sold Entirely
3 stars (Quantitative Rating)
HP HPQ
Scaled Back
3 stars
Markel Group MKL
Sold Entirely
3 stars
Paramount Global PARA
Scaled Back
4 stars
StoneCo STNE
Sold Entirely
4 stars (Quantitative Rating)
Notably, Berkshire trimmed its position in Apple AAPL during the quarter. But despite the haircut, Apple stock remains Berkshire’s top holding—by a landslide. Buffett and his team slashed their positions in HP HPQ and Paramount Global PARA. Berkshire entirely sold out of its positions in D.R. Horton DHI, Globe Life GL, Markel Group MKL, and StoneCo STNE.
4 Warren Buffett Stocks to Buy Now
Many of the publicly traded stocks held by Berkshire Hathaway are fairly valued or overvalued today, according to Morningstar’s metrics. Here are some of the stocks among its holdings in the latest quarter that looked undervalued as of Feb. 13, 2024.
Charter Communications CHTR
Citigroup C
Kraft Heinz KHC
Kroger KR
Here’s a little bit about why we like each of these stocks at these prices, along with some key metrics for each. All data is as of Feb.
Charter Communications
Morningstar Rating: 5 stars
Morningstar Economic Moat Rating: Narrow
Morningstar Capital Allocation Rating: Standard
Industry: Telecom Services
Berkshire Hathaway owns about 2.6% of Charter Communications’ stock. The company is the result of a 2016 merger of three cable companies: legacy Charter, Time Warner Cable, and Bright House Networks. We think the company has carved out a narrow economic moat, thanks to its efficient scale and cost advantage. Charter Communications stock currently trades a whopping 47% below our $550 fair value estimate.
Here’s what Morningstar director Mike Hodel had to say about the stock after the company’s fourth-quarter earnings release:
Ugly headline numbers marred Charter’s fourth-quarter results. While we don’t see much reason to change our long-term view of the firm, the next couple of years are shaping up to be more challenging than we had expected. We are trimming our fair value estimate to $550 from $580, but we believe the market has overreacted to current weakness.
Customer metrics were very weak, especially given Charter's emphasis on volumes over price. The firm lost 61,000 net broadband customers during the quarter, far worse than the 105,000 added a year ago and the first loss since the second quarter of 2022. Management didn’t flag any recent changes in the competitive environment. Fixed-wireless customer gains and fixed-line results from AT&T and Verizon were generally consistent with recent performance. Charter also claims that it hasn’t seen an impact on broadband customer losses as Spectrum One bundle discounts expire. We agree with management that small changes in customer wins and losses get undue attention when net customer growth is near zero, but those changes haven’t gone in Charter’s favor recently.
Average revenue per residential broadband customer increased only 2.2% year over year, as Spectrum One bundle discounts are allocated between broadband and wireless revenue. Total revenue per residential customer was roughly flat versus a year ago, with television losses offsetting wireless and broadband gains. Residential revenue was flat year over year and total revenue increased 0.3% on modest business services growth, largely offset by a sharp drop in political ad revenue.
Management provided capital spending expectations through 2027 to shed more light on the firm’s investment plans. Charter expects annual spending in 2024 and 2025 to be above $12 billion, about $1 billion more in total than we had forecast. The firm believes spending will drop sharply in 2027, excluding any additional subsidized project wins, to $8 billion, which we suspect is overly aggressive.
Mike Hodel, Morningstar director
Citigroup
Morningstar Rating: 4 stars
Morningstar Economic Moat Rating: None
Morningstar Capital Allocation Rating: Standard
Industry: Banks—Diversified
Citigroup isn’t Berkshire Hathaway’s favorite bank: That honor goes to Bank of America BAC, which is one of the top holdings in Berkshire’s publicly traded portfolio. But Citigroup stock is more attractive from a valuation perspective today, according to Morningstar. Citigroup stock currently trades 20% below our $66 fair value estimate.
Here’s what Morningstar analyst Suryansh Sharma has to say about the stock after the company’s fourth-quarter earnings release:
Citigroup posted a disappointing set of numbers in the fourth quarter with a loss of $1.8 billion, or $1.16 per share. The quarterly loss was primarily due to various nonrecurring charges, including $1.7 billion for an FDIC special assessment charge for uninsured deposits of certain failed banks during the banking turmoil, $0.8 billion for restructuring charges related to organizational simplification, $0.9 billion to account for the impact of Argentina currency devaluation, and $1.3 billion in transfer risk related to Russia and Argentina. Citi’s earnings per share is estimated to be $0.84 after excluding the nonrecurring charges.
While the quarterly results were lackluster, 2024 guidance was encouraging. Management guided for 2024 revenue of $80 billion to $81 billion, up 4% from the full-year 2023 level. Management expects net interest income to be down modestly in 2024 due to lower interest rates. Management’s 2024 guidance for net interest income assumes mid-single-digit loan growth driven by the card business and modest deposit growth. The noninterest income implied from the company guidance points to strong results in Treasury and Trade Solutions and a rebound in the investment banking and wealth businesses.
The company has expectations for $53.5 billion to $53.8 billion in expenses for full-year 2024, down around 1% from $54.3 billion in 2023. Citi’s management has also set a medium-term expense target of $51 billion to $53 billion, which we think is ambitious but achievable. Citi announced a major 20,000 headcount reduction program to reach its medium-term expense reduction target. For context, this is approximately 10% of its 2023 workforce. Expense reduction will continue to be a key deliverable for management and is instrumental in achieving higher returns. Citi remains a complex turnaround story with substantial execution-related uncertainties. We do not plan to materially change our $66 fair value estimate as we incorporate fourth-quarter results.
Suryansh Sharma, Morningstar analyst
Kraft Heinz
Morningstar Rating: 5 stars
Morningstar Economic Moat Rating: None
Morningstar Capital Allocation Rating: Standard
Industry: Packaged Foods
Berkshire Hathaway owns more than 26% of Kraft Heinz’s stock. The packaged-foods manufacturer has revamped its road map and is now focused on consistently driving profitable growth. We think Kraft Heinz stock is worth $53 per share, and shares are trading at a 32% discount to that fair value today.
Here’s what Morningstar director Erin Lash thinks of Kraft Heinz’s fourth-quarter results:
The market soured on no-moat Kraft Heinz following mixed fourth-quarter marks, sending shares down by a mid-single-digit percentage. While its adjusted gross margin popped 260 basis points to 34.8%, organic sales slipped 0.7% on a 4.4% degradation in volume. This shortfall was particularly acute on its home turf (around three fourths of its total sales), where organic sales fell 3% on a 5.5% downdraft in volumes. Beyond a few one-time factors (related to trade timing and retail inventories, which compressed sales by 150 basis points), management was also forthright that consumers are struggling under the weight of higher interest rates and a reduction in SNAP benefits.
The combination of Kraft Heinz’s fiscal 2023 results, the outlook for fiscal 2024 (flat to 2% organic sales growth—which squares with our forecast—and a 1%-3% uptick in adjusted earnings per share, slightly outpacing our profit estimates), and time value should warrant a low-single-digit percentage bump to our $53 fair value estimate. With shares trading around a 30% discount to our valuation, while offering a 4% dividend yield, we think investors should stock up.
We surmise Kraft Heinz is working vigorously to thwart looming challenges. For one, it boosted spending on research and development—wedded in data and analytics—by 15% last year while raising marketing spending at a commensurate rate, which we applaud. The fruits of these efforts were realized in a stabilizing share position across a host of categories (qualitatively referenced) and 150 basis points of shelf space gains (including through club and dollar stores) over the past year. We don’t expect Kraft Heinz will back down from these pursuits; we think it will expend more than 6% of sales annually on its brands while investing around 3.5% of sales to enhance its capacity and digital competence. Further, we’re encouraged by management’s assertion that it doesn’t intend to squander resources on unprofitable promotions, which we see as judicious.
Erin Lash, Morningstar director
Kroger
Morningstar Rating: 4 stars
Morningstar Economic Moat Rating: Narrow
Morningstar Capital Allocation Rating: Exemplary
Industry: Grocery Stores
Berkshire Hathaway owns about 7% of Kroger’s outstanding shares. Kroger and rival Albertsons have announced merger plans, though regulatory hurdles persist. We think Kroger has carved out a narrow economic moat and is run by a management team that has done an exemplary job of allocating capital. Kroger stock trades 14% below our $53 fair value estimate.
Here’s Morningstar senior analyst Dan Wasiolek’s take on Kroger’s business strategy and outlook:
Of the traditional grocers, we believe Kroger’s scale, partnerships, private-label fare, and data capabilities uniquely position the company to defend its returns against competition that should intensify as Amazon, mass merchandisers, and hard discounters continue to price aggressively to boost volume. We contend that Kroger still benefits from enduring intangible assets and cost advantages, even if its acquisition of Albertsons is derailed by regulators.
Grocers use price as a primary lever to drive traffic, necessitating efficiency and cost leverage to deliver returns. We expect this environment to endure as the industry changes, with an omnichannel experience likely to prevail as customers use a combination of deliver-to-home, click-and-collect, and in-store shopping, particularly since most American consumers drive past grocers on their commutes and home delivery can be inconvenient for buyers with uncertain schedules (although the COVID-19 pandemic likely accelerated delivery adoption in the long term). In physical retail, we anticipate shoppers will choose sellers based on convenience, price, and breadth of assortment, demanding high value as well as a compelling store environment.
Kroger should be able to capitalize on the changing landscape. We maintain that its local market scale allows it to derive cost leverage that fuels competitive pricing and the investments needed to build on its presence in the emerging channels. Its progress should be accelerated by partnerships (with Ocado, Walgreens, Microsoft, and others) that we do not believe are available to smaller rivals because they cannot deliver the same value to counterparts.
Nearly all Kroger's transactions are derived from its loyalty database, providing consumer insights that should play a large role in its digital transformation, fueling promotional efforts and customer engagement while informing assortment and providing salable insights as nongrocery revenue streams. We expect data to play a key role in efforts to drive traffic, efficiency, and conversion that few can match.
More About Warren Buffett Stock Picks
Warren Buffett has said that he doesn’t consider himself to be a stock-picker; instead, he’s a company-picker. That comment pretty much encapsulates how he thinks about stocks: They’re parts of businesses.
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BREAKING: WARREN BUFFETT AND BERKSHIRE HATHAWAY $BRK.B JUST UPDATED THEIR PORTFOLIO (1/X)
By: Evan | February 14, 2024
• BREAKING:
WARREN BUFFETT AND BERKSHIRE HATHAWAY $BRK.B JUST UPDATED THEIR PORTFOLIO (1/X)
Read Full Story »»»
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Warren Buffett and Berkshire Hathaway's $BRK.B stock portfolio should be updated later today. We will see what their portfolio looked like as of the end of Q4
By: Savvy Trader | February 14, 2024
• Warren Buffett and Berkshire Hathaway's $BRK.B stock portfolio should be updated later today
We will see what their portfolio looked like as of the end of Q4
Here's their last portfolio updated for Q3.
Read Full Story »»»
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>>> Warren Buffett Just Added $246 Million to 1 of Berkshire Hathaway's Top Holdings
by Adam Levy
Motley Fool
February 12, 2024
https://finance.yahoo.com/news/warren-buffett-just-added-246-100100988.html
While Warren Buffett hasn't seen a whole lot to like in the stock market recently, there's one stock he seemingly can't get enough of.
Over the last couple of years, he's built up a 28% stake in Occidental Petroleum (NYSE: OXY) for Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). That makes it one of Berkshire's top holdings, just behind fellow oil and gas company Chevron (NYSE: CVX).
The Oracle of Omaha has added to his Occidental position on three separate occasions since the start of December. His most recent purchase for Berkshire Hathaway's portfolio amounted to about $246 million. That follows purchases of about $589 million and $312 million in December. Meanwhile, Berkshire still owns about $8.5 billion worth of preferred shares in Occidental, which pay an 8% dividend.
Here's why Occidental has become Buffett's favorite energy stock and could soon top Chevron as Berkshire's biggest investment in the industry.
A big bet on oil prices
Occidental and Chevron are both integrated oil and gas companies. However, where Chevron makes most of its money from downstream operations like refineries and chemical plants, Occidental is heavily invested in drilling oil out of the ground. As a result, Occidental's business is much more closely tied to the price of oil.
Its strong position in the Permian Basin gives it a cheap source of oil production. It strengthened that position with the acquisition of Anadarko, supported by Berkshire's $10 billion investment in the company. More recently, it added CrownRock last December, when Buffett started buying up shares again.
Occidental's big investments in the Permian Basin have put pressure on its balance sheet. The company now holds a significant amount of debt. Management plans to divest non-core assets to accelerate the paydown of that debt. It did something similar following the Anadarko acquisition in 2019 and the subsequent drop in oil prices in 2020.
The moves to add more cheap sources of oil make sense in light of Occidental CEO Vicki Hollub's extreme bullishness on the price of the commodity. For one, she said the CrownRock acquisition will generate an additional $1 billion in cash flow in its first year as long as oil prices remain above $70. That was exactly the spot price of oil at the time of the acquisition, and it's only climbed to the mid-70s since.
More recently, Hollub has noted the potential for an oil supply shortage as soon as 2025. A production cut from OPEC combined with growing demand from China will push oil prices higher, she says. As a result, she sees oil climbing to $80 per barrel by the end of the year.
Buffett has a lot of confidence in Hollub. He called her "an extraordinary manager" at Berkshire's 2023 Shareholder meeting in May. After managing the company through the depressed oil prices of 2020 right after acquiring Anadarko, she seems to be up for almost any task.
Should you follow Buffett into Occidental?
Shares of Occidental have gotten off to a poor start in 2024. While Chevron shares have climbed about 2% since the start of the year, Occidental is down about 3.5%.
Moreover, the valuation for Occidental is extremely attractive. Shares currently trade for an enterprise value/earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of just 5x. By comparison, Chevron trades for a 6.6x multiple.
That said, there's a lot more risk in buying Occidental than competing oil and gas companies. For one, it's heavily reliant on the price of oil. As explained, the bulk of its revenue comes from drilling, not downstream operations. Moreover, Occidental's balance sheet includes substantial levels of debt following the CrownRock acquisition. That leverage puts added pressure on management if oil prices decline in the future, making it less profitable to drill.
It's important to note that while Buffett is very confident in the future of Occidental, it's still less than 4% of Berkshire's equity portfolio and an even smaller percentage of the conglomerate's total holdings when you include its cash position and wholly owned subsidiaries. So, remaining diversified is key.
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BERKSHIRE HATHAWAY INC.
Charles Munger (Charlie), BRK Vice Chairman Warren Buffett, BRK Chairman/CEO Photo circa 1970
Berkshire Hathaway, Inc NYSE Symbols: BRK-A Class A shares BRK-B Class B shares | Berkshire Hathaway, which began in 1839 as a textile mill, neared collapse in 1962 when 32-year old Warren Buffett started buying control in the belief the company could be saved. Buffett initially maintained Berkshire’s textile business, but by 1967, he was expanding into other investments. Berkshire bought stock in the Government Employees Insurance Company (GEICO) that now forms the core of its colossal insurance operations. Other early acquisitions included See's Candies, Blue Chip Trading Stamps and Dairy Queen. BRK moved from the OTC to the NYSE in 1988. Today Berkshire is a combination of 66 wholly owned subsidiaries such as the BNSF Railroad and 47 passive minority investments, notably its huge stake in Apple. As of 2021, BRK has a market cap of >$600 billion and 360,000 employees. Berkshire Hathaway is the nation's 7th largest business. |
Useful Links Berkshire Subsidiary Companies Buffett's Famous Annual Letters BRK Portfolio Tracker CNBC Buffett Archive http://www.BerkshireHathaway.com/ Buffett's office in Omaha. His desk has no computer Headquarters Address:: 3555 Farnam Street Omaha, NE 68131 b | |
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