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AMZN, AAPL, TEVA - >>> Warren Buffett's 3 Biggest Winners in the First Half of 2020: Are They Still Buys Now?
Winning stocks for the Oracle of Omaha were few during the first six months of the year.
Motley Fool
by Keith Speights
Jul 5, 2020
https://www.fool.com/investing/2020/07/05/warren-buffetts-3-biggest-winners-in-the-first-hal.aspx
Warren Buffett ranks as one of the greatest investors of all time. But the billionaire's investments didn't fare well in the first half of 2020. Buffett's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) shares fell 21% in the first six months of the year. Most of the stocks in Berkshire's investment portfolio were down as well.
However, there some stocks in the group that delivered impressive returns. Here are Warren Buffett's three biggest winners in the first half of 2020 -- and whether or not they're still great stocks to buy for investors who aren't yet legends.
1. Amazon.com
Buffett readily acknowledges that he has been a fan of Amazon.com (NASDAQ:AMZN) for a long time but didn't buy the stock. It took the prodding of one of his trusted investment managers to add the e-commerce giant to Berkshire's portfolio last year. Buffett is undoubtedly happy with the purchase: Amazon was his biggest winner in the first half of the year with a 49% gain.
Like most stocks, Amazon's shares slid during the coronavirus-fueled market sell-off that began in late February. However, investors realized pretty quickly that Amazon's business was actually booming as a result of the COVID-19 pandemic as consumers increasingly shopped online.
It didn't seem to matter too much to investors that Amazon's profits were squeezed somewhat as the company's pandemic-related costs rose. Many of the products with a spike in demand generate low margins. Amazon also is spending a lot more on wages and bonuses, personal protective equipment, and is even investing $300 million to build a COVID-19 testing lab for its employees.
2. Teva Pharmaceutical
Earlier in his career, Buffett was known as a by-the-book value investor. His training under another legendary investor, Benjamin Graham, might have made Teva Pharmaceutical (NYSE:TEVA) look like an attractive value stock. And the drugmaker's value was unlocked quite a bit in the first six months of 2020 as Teva's shares jumped 25%.
Teva's revenue fell in 2019. However, the company posted a 5% year-over-year revenue jump in the first quarter. That's pretty impressive considering that Teva continues to face declining sales for its former top-selling multiple sclerosis drug Copaxone and a challenging U.S. generic drug market.
Buffett has always maintained a long-term perspective, though. He led Berkshire to invest in Teva when it wasn't performing very well. It's likely that he viewed the pharma stock as dirt cheap considering the potential growth in the generic and prescription drug markets over the next couple of decades as the world's population ages.
3. Apple
Apple (NASDAQ:AAPL) ranks as Berkshire's top holding, by far. Buffett said in an interview with CNBC earlier this year that Apple is "probably the best business I know in the world." It's also one of his best-performing stocks, with Apple shares vaulting 24% higher in the first half of the year.
The company closed its Apple stores across the world temporarily in response to the COVID-19 pandemic. Apple stock plunged more than 30% during the overall market meltdown. But it roared back as investors realized the impact on the company's business should only be temporary.
Apple also benefited from several moves. It launched a new 13-inch MacBook Pro. The company unveiled 12-month no-interest installment payment plans for all of its devices. Apple also confirmed a highly anticipated shift to using its own chips in its Mac computers.
Are they buys now?
My view is that two of Buffett's three biggest winners of the first half of 2020 are still good picks, but one isn't.
I'm not a big fan of Teva. Some stocks are cheap for a season, while some are cheap for a reason. I think the latter is the case for Teva. The drugmaker still has a massive debt load even after paying down some of its debt. Its solid Q1 results were likely boosted largely by individuals stocking up on prescription drugs during the early part of the COVID-19 pandemic -- a temporary effect. Teva claims some promising new products. But it also has plenty of headwinds.
On the other hand, I really like both Amazon and Apple. Amazon continues to have strong growth prospects in e-commerce and cloud hosting. I suspect the company will also become a major player in healthcare. Apple should see stronger sales as it rolls out 5G iPhones. The company's services business is another solid growth driver. My hunch is that Amazon and Apple could be two of Buffett's biggest winners not just in 2020 but over the next 10 years.
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>>> Meet the Stock Buffett Has Spent $7 Billion Buying Over the Past 2 Years
There hasn't been a more attractive stock on the Oracle of Omaha's radar.
by Sean Williams
Jul 30, 2020
https://www.fool.com/investing/2020/07/30/meet-the-stock-buffett-has-spent-7-billion-buying.aspx
In recent years, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett has taken a lot of flak for his investment style. More specifically, Buffett's unwillingness to chase after innovative tech stocks has left his company to underperform the benchmark S&P 500. Some folks have even implied that the Oracle of Omaha has lost his touch.
But a quick look at Berkshire Hathaway's performance under Buffett shows that his steadfastness in long-term investing is exactly what's made his company so successful. Since 1965, Berkshire Hathaway's per-share market value has risen by 2,744,062%. Put another way, a $100 investment back in 1965 would have been worth more than $2.7 million as of the end of 2019. When coupled with the fact that Buffett is up more than $50 billion on his company's stake in Apple, it's somewhere between premature and wrong to suggest he's lost his touch.
Buffett has been gun-shy about putting his company's record cash hoard to work
What has been odd, though, is Buffett's unwillingness to deploy his capital over the last 4.5 years. Although he and his team did spend more than $10 billion over the past couple of weeks by acquiring natural gas transmission and storage assets from Dominion Energy, as well as by purchasing 33.9 million shares of Bank of America stock, Berkshire's cash hoard is still, presumably, near its record high of $137 billion.
The Oracle of Omaha has made a habit over the past five decades of regularly acquiring brand-name businesses with entrenched economic moats. This has resulted in Berkshire Hathaway owning about five dozen companies, including well-known names like insurer GEICO, railroad operator BNSF, and confectioner See's Candies.
However, since the buyout of Precision Castparts in January 2016, Buffett has predominantly sat on his hands. Many investors -- myself included -- have taken this lack of participation as a signal that equities aren't a good value.
But there has been one stock to catch the Oracle of Omaha's eye. It's a stock that Buffett sank close to $1 billion into in 2018, nearly $5 billion into in 2019, and has acquired approximately $1.6 billion of just during the first quarter of 2020. And it's not Apple or Bank of America, if that's what you're thinking.
Instead, the real Apple of Buffett's eye is (drum roll) Berkshire Hathaway.
That's right, Buffett can't stop repurchasing his own stock.
This is the real apple of Buffett's eye
Believe it or not, Buffett and his right-hand man Charlie Munger went approximately five years without repurchasing a single share of Berkshire Hathaway stock between 2013 and 2018. That's because a rule was in place that disallowed buybacks if Berkshire Hathaway's stock was any higher than 20% above its book value. For years, Berkshire was regularly valued between 30% and 60% above its book value, thereby disallowing Buffet and Munger from pulling the trigger on share buybacks.
Then things changed in 2018. A new repurchase program structure was laid out that allowed Buffett and Munger to rebuy Berkshire Hathaway stock as long as two criteria were met:
There would need to be at least $20 billion in cash and cash equivalents on the company's balance sheet; and Buffett and Munger must agree that Berkshire Hathaway's stock is trading at a sizable discount to its intrinsic value.
The best aspects of these new criteria are that they eliminate any sort of time constraints that might be associated with a rigid line-in-the-sand book value metric and they allow two great money managers to do what they do best: buy value when they see it.
Clearly, this dynamic duo has seen opportunity of late. Berkshire Hathaway is currently trading at 25% above its book value, a level that was last consistently seen in 2012.
By repurchasing Class A and B shares, Buffett and his team are driving down the number of outstanding shares of the company. This usually has a positive impact on earnings per share (since there are fewer shares to divide net income into), and it can make a company more fundamentally attractive.
Yes, Berkshire Hathaway is an attractive investment opportunity
But these repurchases are about far more than just helping to pump up Berkshire Hathaway's earnings per share. They're about recognizing the real value that lies in these shares.
Though Buffett's company has underperformed in 2020, it has exceptionally strong tie-ins to the health of the U.S. and global economies. A quick peek under Berkshire's hood shows that a vast majority of the company's investment portfolio is tied up in Apple, bank stocks, and consumer staples. These are all companies/industries/sectors that benefit when the economy is running on all cylinders. Buffett emphatically proclaimed during his company's virtual shareholder meeting in May that investors should "never bet against America." This series of buybacks over the past two years supports that thesis.
To add to this point, Berkshire Hathaway has five dozen owned subsidiaries that also have cyclical tie-ins -- some of which have near-guaranteed cash flow. Berkshire Hathaway rarely invests in the utility sector, but subsidiary Berkshire Hathaway Energy owns quite a few energy-generating and natural gas-transmitting assets. These are businesses you can count on to deliver in virtually any economic environment.
With Berkshire Hathaway valued at levels last seen eight years ago and Buffett still very much in control of the big decision making, it looks to be every bit the value that the Oracle of Omaha perceives it to be.
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>>> Berkshire's energy unit to buy Dominion Energy's gas transmission, storage business
Reuters
July 5, 2020
https://finance.yahoo.com/news/berkshires-energy-unit-buy-dominion-193311697.html
(Reuters) - Warren Buffett's Berkshire Hathaway Inc <BRKa.N> said on Sunday it agreed to buy Dominion Energy Inc's <D.N> natural gas transmission and storage business for $4 billion in cash, expanding its energy operations while allowing Dominion to focus on its utilities operations.
Berkshire's energy unit, Berkshire Hathaway Energy, is buying Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission; 50% of the Iroquois Gas Transmission System, and 25% of the Cove Point liquefied natural gas facility in Maryland.
The transaction includes more than 7,700 miles (12,390 km) of natural gas storage and transmission pipelines and about 900 billion cubic feet of gas storage.
Berkshire Hathaway Energy will also assume $5.7 billion of Dominion's debt, giving the transaction a $9.7 billion enterprise value. It expects a closing in the fourth quarter, pending regulatory approvals.
"We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business," Buffett said in a statement.
The transaction does not include Dominion's interest in the Atlantic Coast Pipeline.
Dominion and Duke Energy Inc <DUK.N> announced separately on Sunday they would cancel that project, saying delays and uncertain costs threatened its economic viability.
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>>> Bill Ackman Gives Up on Warren Buffett
If Berkshire Hathaway isn’t spending on investments, why get tied up in the stock?
Bloomberg
By Tara Lachapelle
May 27, 2020
https://www.bloomberg.com/opinion/articles/2020-05-27/bill-ackman-gives-up-on-warren-buffett-and-berkshire-hathaway?srnd=premium
If Bill Ackman is suggesting he can do better himself, others may be feeling that way, too.
What’s Berkshire Hathaway Inc. without its deals? Perhaps not worth owning. That’s the calculation Bill Ackman seems to have made in choosing to exit his stake in Warren Buffett’s company, and who can blame him?
Ackman, the widely followed hedge fund manager, disclosed Wednesday that his firm, Pershing Square Capital Management, sold a short-lived stake in Buffett’s Berkshire Hathaway, an investment that was valued at nearly $1 billion. It’s a telling move from a shareholder who seemed to be all in on Berkshire just weeks ago — perhaps until a normally sanguine Buffett signaled that he was feeling far less certain about how the U.S. recovers from this crisis relative to the many others he’s witnessed in the past.
When Ackman first bought Berkshire shares last summer, he said he was expecting Buffett to spend some of the company’s $100 billion of “excess cash” on large acquisitions and stock repurchases. (Weren’t we all.) That hasn’t happened, even before Covid-19 struck. Still, on March 23 as the virus took hold, Ackman told Bloomberg TV that he added to his Berkshire stake as part of a “recovery bet” on the U.S. economy that involved exiting short positions and using the proceeds to increase certain equity holdings. “We are all long,” Ackman said on air. “No shorts, you know, betting on the country.” Yes, betting on the country the way Buffett was expected to.
What’s changed since then is Buffett’s outlook. Even as Berkshire sits on $137 billion of cash, and as the pandemic would seem to have created cheap buying opportunities, Buffett is selling stocks and avoiding acquisitions. “The cash position isn’t that huge when I look at the worst-case possibilities,” he said during Berkshire’s virtual shareholder meeting earlier this month, leaving his listeners’ mouths agape — maybe Ackman included.
Cash Conundrum
As Warren Buffett allows Berkshire Hathaway's cash to accumulate, investors like Bill Ackman are looking elsewhere for better returns
If Buffett isn’t spending, Ackman will. Pershing Square’s managers suggested during a conference call with their own investors Wednesday that they can put money to work faster than Buffett at this stage, which is why it doesn’t make sense to have funds tied up in the stock even though they still see Berkshire as a strong company. It’s hard to argue against that thinking. Buffett’s ability to continuously convert the company’s insurance float and cash into high-return deals and fruitful stock picks has long underpinned Berkshire as an investment. Otherwise, it’s just a collection of sturdy but slow-growing businesses that represent a cross-section of the U.S. economy at a time when the economy isn’t looking so good, as Buffett himself says.
Shares of Berkshire are down 18% this year, compared with a 7% loss for the S&P 500 Index. That under-performance also isn’t new: The stock has trailed behind the benchmark index for the last decade, as the market recovered vigorously from one crisis, then recently plunged back into another. While Buffett says that he still thinks “nothing can stop America,” his actions are making it harder to believe him. And at almost 90 years old, he’s coming dangerously close to leaving his successor stuck with so much cash that it’s less a blessing than a curse.
Berkshire Loses Its Luster
Shares of Warren Buffett's Berkshire Hathaway have lagged behind the broader market over the last 10 years:
Berkshire still has a very devoted shareholder base. But it’s a group that looks a lot like Buffett himself: graying, male, not long from retirement. At last year’s shareholder meeting — the real-life one in Omaha — what was evident from looking out at the some 40,000 enthusiastic attendees was that Berkshire needs to work on courting younger investors. Given his deal-making hiatus and Berkshire’s under-performance, they may not have the same fascination with Buffett and his company as his loyal followers do. If even Ackman is saying, in so many words, “With respect, Mr. Buffett, we can do better,” certainly others are starting to feel that way, too.
Then again, it would take just one big, splashy purchase for people to say that Buffett’s got his groove back. That’s probably how he’d prefer to hand off the company, too.
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>>> Opinion: Warren Buffett has lost at least $7 billion from his last 3 big investments
MarketWatch
May 23, 2020
By Howard Gold
https://www.marketwatch.com/story/warren-buffetts-recent-track-record-is-really-really-bad-2020-05-21?mod=mw_more_headlines
Berkshire Hathaway’s recent track record is really, really bad
Last week I wrote that this was the end of the Warren Buffett era as Berkshire BRK.A, +0.45% BRK.B, -0.00% underperformed the S&P 500 SPX, +0.23% over the entire 2009-2020 bear market. Even Buffett himself recommends investors buy the S&P.
Many Buffett fans responded by saying don’t count Buffett out yet because when (not if) the market tanks again, he’ll have more than $130 billion in cash to scoop up bargains. My MarketWatch colleague Mark Hulbert noted that top advisers often come back from losing streaks to post big gains.
So, what have the nearly 90-year-old Buffett and his 96-year-old business partner Charlie Munger done for us lately? Based on Berkshire’s SEC filings, three of Buffett’s biggest recent investments—Kraft Heinz KHC, +0.80% , Occidental Petroleum OXY, -0.84% , and airline stocks—have lost at least $7 billion altogether out of an investment of roughly $10 billion in each.
To my knowledge, this is the first time anyone has reported that figure. (Berkshire did not respond to my emailed questions by deadline.)
Heinz debacle
In 2013 Berkshire and private equity firm 3G Capital paid $23.2 billion to buy H.J. Heinz Co., and two years later Heinz bought Kraft Foods Group for $54 billion. Kraft Heinz Co. stock moved closely with the S&P for a couple of years. Then, after hitting an all-time closing high above $93 in February 2017, it began a long decline.
Last year Berkshire wrote down its investment by $3 billion, while Kraft Heinz took a $15 billion write-off on its Kraft and Oscar Mayer brands. In February, even before the market selloff began, Fitch Ratings and S&P Global Ratings downgraded Kraft Heinz to junk status. Meanwhile, in 2018 and 2019, 3G sold millions of shares (it still has a big stake) as Berkshire held firm. As of March 31, Berkshire’s Kraft Heinz shares were worth about $8 billion, around $2 billion less than what it paid for them.
When the deal was struck, The New York Times called it “a big bet on conventional staples of the American cupboard, even as consumers are shifting away from processed foods.”
Millennials just aren’t in to the iconic brands Buffett enjoyed as a boy.
“I made a mistake in the Kraft purchase in terms of paying too much,” Buffett told CNBC last June. No kidding.
Occidental Petroleum
Just two months later, in August, Berkshire completed a $10 billion investment in Occidental Petroleum, which helped Oxy win a bidding war against oil giant Chevron CHV, -1.06% to buy Anadarko Petroleum for $38 billion. The deal made Occidental the biggest player in the U.S.’s Permian Basin, the world’s highest producing oilfield.
Berkshire got 100,000 preferred shares, which gave it first dibs on dividend payments if things went south. That’s exactly what happened less than six months later. After the recent collapse in crude, Occidental cut dividends on its common stock by 86%. But it still owes Berkshire a hefty 8% annual dividend on the preferred shares, which Occidental has paid out in depreciated common stock rather than cash.
On Wednesday, Occidental common shares changed hands below $15, about one third the $44 a share at which it traded when the deal closed. As of March 31, Berkshire had lost about $500 million on the common stock it owned, but the April dividend payment doubled Berkshire’s common share holdings, cutting its paper loss in half.
We couldn’t determine a current price for the preferred shares of Occidental, which don’t trade regularly. The accumulation of those preferred dividends over time, whether in cash or common stock, could soften the blow of an investment that at best looks like a masterpiece of bad timing.
Not one, not two, not three, but four
And then there were the airlines. From mid-2016 through early 2017, Berkshire bought tens of millions of shares in the four largest U.S.-based carriers—American Airlines Group AAL, -1.92% , Delta Air Lines DAL, -2.02% , Southwest Airlines LUV, -2.46% , and United Airlines UAL, -1.70%
The price tag was north of $9.3 billion, by my calculations.
But when coronavirus hit, airline stocks plummeted, and by the time Berkshire dumped them all in April, they were worth about $4.3 billion, assuming all shares were sold on the SEC filing dates. That amounts to a stratospheric loss of $5 billion. Add all these losses together and you have at least a $7 billion hit to Berkshire, not including any decline in value on the Oxy preferred shares it owns.
Buffett has had some bad luck. Who could have foreseen COVID-19? But the problems with Occidental happened soon after the deal closed and there have been big clouds hanging over energy stocks for years. Buffett also waited until April to dump airline stocks, near the bottom.
Even more troubling, after he bought a stake in USAir in 1989, he complained the investment had “soured before the ink dried on the check.”
“Investors have regularly poured money into the domestic airline business to finance profitless (or worse) growth,” he wrote to shareholders in 1992.
As recently as 2007, he noted that “a durable competitive advantage [in the airline industry] has proven elusive ever since the days of the Wright brothers.” Even in 2013, he called airlines “a death trap for investors.”
So, he didn’t heed his own warnings, then went out and bought not one airline, but four? After all these mishaps and losses, who would want to bet a single share of Berkshire Hathaway stock that Warren Buffett is going to return to his former glory?
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>>> Warren Buffett Sold Phillips 66 -- Here's Why I'm Holding (and May Buy More)
Berkshire Hathaway sold its remaining stake in Phillips 66. I don't plan to follow Buffett's move.
Motley Fool
Jason Hall
May 20, 2020
https://www.fool.com/investing/2020/05/20/warren-buffett-sold-phillips-66-heres-why-im-holdi.aspx
This quarter's Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) 13-F filing with the Securities and Exchange Commission -- the document that discloses the company's massive stock portfolio holdings at the end of the prior quarter -- surprised a lot of investors. We already knew that Buffett sold Berkshire's stake in the major airlines, but we didn't know what the Oracle of Omaha bagged with his elephant gun. Turns out, not much of anything: Berkshire was by far a net seller in the quarter.
One of the stocks that Buffett unloaded in the quarter was Phillips 66 (NYSE:PSX). Not only is Phillips 66 a personal holding, but it's also the oil stock I've touted the most as being worth buying in the coronavirus crash. And despite Buffett's decision to move on from my favorite oil stock, I'm not changing my view. To the contrary: It's still on my radar as a company I'm interested in buying more of.
From the biggest shareholder to a steady seller
Warren Buffett seems to have an occasional infatuation with Phillips 66 that started before it was even a stand-alone company. In 2008, Buffett invested billions in ConocoPhillips (NYSE:COP), but at the time it was an integrated oil and gas company, not the independent producer we know it as today, resulting from the 2012 spinoff of Phillips 66 as a separate company.
Berkshire sold off all of ConocoPhillips soon after the spinoff, but kept most of the 27 million shares of Phillips 66 it got. Buffett regularly touted Phillips 66's management team as being one of the best in the business, lauding its wonderful job managing capital. It does so in two ways Buffett loves seeing from companies he invests in: buying back shares, and paying (and increasing) a great dividend.
Buffett's love affair with the company peaked in the summer of 2016, when Berkshire owned 15% of Phillips 66. The heat of summer's passion faded, and Berkshire became a net seller of the company's stock almost every quarter, finally unloading its shares completely by the end of this past March.
Reading the tea leaves
Without getting too deeply into trying to read Buffett's mind, we can see that the Berkshire portfolio has substantially reduced its exposure to the energy industry over the past few years. I think it's likely that this is intentional. As a sector, the oil and gas industry has been a terrible investment over the past decade, and it's reasonable to conclude that Buffett, along with portfolio managers Todd Combs and Ted Weschler, have found other, more compelling investment ideas outside the oil patch.
The bottom line is that with the exception of Phillips 66, Buffett's biggest oil investments have not done well. Even the sweetheart deal with Occidental Petroleum (NYSE:OXY) could be a loser if that company ends up filing for bankruptcy.
Either way, that's a lot of guessing at reasons why Buffett is selling that may or may not be correct. Moreover, it really doesn't matter why. Buffett and the other Berkshire managers aren't managing your stock portfolio.
How Phillips 66 has done since Buffett started selling
Berkshire sold the last of its Phillips 66 shares last quarter, but it was the portfolio-management equivalent of washing the dregs out of your teacup. The company sold 227,436 shares to bring its holding to zero; at one point, Berkshire had owned more than 80 million Phillips 66 shares.
Since Berkshire started selling, Phillips 66 has been a solid investment. The coronavirus crash has cratered its stock price and erased a massive portion of its gains, but at the peak in late 2019, Phillips 66 investors had enjoyed more than 60% in total returns since Buffett started selling. That was actually a little better than the market as a whole, as illustrated by the SPDR S&P 500 ETF Trust (NYSEMKT:SPY):
That past performance doesn't make Phillips 66 a buy, but it's a reminder that it's steadily been one of the best investments in oil and gas. That solid performance is a product both of the parts of the oil and gas business it operates in that give it some durable advantages, and of how well its management team has proven able to navigate oil markets.
Why it's a buy today
As a starting point, Phillips 66 isn't an oil producer. That part of the business stayed with ConocoPhillips when the two split, and that's proven a big benefit. Oil prices have spent the past eight years going through extreme volatility, with two massive price crashes that have hit the stand-alone producer far more than the integrated midstream, refining, and petrochemicals producer.
To the contrary, while low prices have weighed on ConocoPhillips, Phillips 66's advanced refineries have unlocked more profits when U.S. oil is cheaper than overseas crude. It's not only been a better investment than the producer, it's outperformed the market:
Next, Phillips 66 also counts on natural gas for its fastest-growing businesses in the midstream and chemicals segments. Natural gas demand hasn't been hit nearly as hard as oil, because it's used more for electricity production and as a feedstock to make things like plastics -- think bleach and hand-sanitizer bottles -- and fertilizers. So while the refining and fuel marketing segments will struggle for much of 2020, this weakness will be partly offset by its other segments.
The business is holding up well enough, along with a rock-solid balance sheet, that the board of directors made the call just last week to maintain the quarterly dividend, while other oil giants have had to cut their payouts.
Lastly, the oil crash has turned Phillips 66 into an absolute bargain. Shares have recovered from the bottom, but are still down more than 30% this year. Considering the company's ability to weather the current environment, and that its segments should prove some of the quickest to profit from the eventual recovery in oil demand, it's absolutely worth buying now -- even if Buffett and Berkshire have moved on.
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>>> Wow! Buffett Sold 19 Stocks in the First Quarter
Despite a mountain of cash, the Oracle of Omaha and his team were busy sellers during the record-breaking market sell-off.
Motley Fool
Sean Williams
May 21, 2020
https://www.fool.com/investing/2020/05/21/wow-buffett-sold-19-stocks-in-the-first-quarter.aspx
Despite a record first-quarter loss for Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), there's little denying that Warren Buffett is one of the greatest investors of our time. He's created close to $400 billion in value for Berkshire's shareholders over many decades, and he's handily outperformed the S&P 500 (inclusive of dividends) by more than 2,700,000% since 1964.
As a general rule, when Warren Buffett buys or sells a stock, Wall Street and retail investors tend to pay close attention. That's why the filing of Form 13F with the Securities and Exchange Commission last Friday, May 15, was so anticipated.
The Oracle of Omaha has been a busy bee in 2020
Form 13F provides a snapshot of what asset managers with more than $100 million under management owned as of the end of the previous quarter (in this case, March 31, 2020). Put another way, it's a means of seeing what the brightest minds on Wall Street were up to during the fastest bear market correction in history.
For Buffett, who was sitting on a near-record $128 billion in cash to enter 2020, the expectation was that he would be an active buyer with the market in a serious downdraft. However, Berkshire Hathaway's 13F showed quite the opposite, with a total of 19 stocks (yes, nineteen) either being pared down or completely sold out of during the first quarter.
Keep in mind the Oracle of Omaha has been a busy bee in the weeks subsequent to the end of the first quarter. We've seen some modest bank stock selling, along with Buffett completely exiting positions in all four major airlines. But since none of these transactions occurred prior to the March 31 cutoff, they're not being accounted for in the latest 13F filing. We'll see this activity accounted for when Berkshire releases its second-quarter snapshot in mid-August.
Buffett sold a lot of stocks in the first quarter
What did Buffett sell, exactly? Here's the full rundown, listed in descending order by total shares sold:
Goldman Sachs (NYSE:GS): 10,084,571 shares sold
Sirius XM: 3,857,000
JPMorgan Chase: 1,800,499
Synchrony Financial: 675,000
American Airlines Group: 591,000
Liberty Global: 481,000
DaVita: 470,000
Teva Pharmaceutical Industries: 460,000
General Motors: 319,000
Travelers Companies (NYSE:TRV): 312,379
Liberty Sirius XM Group: 240,000
Phillips 66 (NYSE:PSX): 227,436
Axalta Coating Systems: 194,000
Verisign: 137,132
Liberty Latin America: 84,062
Suncor Energy: 70,000
Southwest Airlines: 6,500
Biogen: 5,425
Amazon: 4,000
This selling activity is not the hallmark of a passive investor
The first thing that stands out about a vast majority of this selling is that it's very weird and not what we're used to seeing from a historically passive investor.
Don't get me wrong, some of this selling was deliberate, as I'll touch on in a moment. But as an example, it's unusual to see Buffett's company selling 5,425 shares of Biogen and 70,000 shares of Suncor Energy after adding both names to the portfolio during the sequential fourth quarter. Berkshire Hathaway typically builds up new positions over many quarters, so to see token pare-downs during a period where valuations appeared to be improving significantly, and following their initial addition in Q4 2019, is rather odd.
One possible explanation for these multiple small sales is that Buffett may not have been behind many of them. Rather, we might be seeing the effects of Todd Combs and Ted Weschler exerting more direct control over Berkshire's investment portfolio. Combs and Weschler are Buffett's famed "investing lieutenants" who control a percentage of the company's investable assets.
Though it gets tougher each year to identify exactly what stocks Buffett specifically added to his company's investment holdings, this selling activity is not his hallmark.
Some stock sales were clearly deliberate
However, some of this selling was deliberate and expected. For instance, Berkshire Hathaway has been telegraphing for about two years now that it would be parting ways with integrated oil and gas giant Phillips 66, and it wound up doing exactly that during the first quarter. As a reminder, Buffett invested $10 billion into Occidental Petroleum last year to aid with Occidental's purchase of Anadarko. With Buffett seemingly choosing a new horse in the oil industry, it all but sealed Phillips 66's fate in Berkshire's portfolio.
Likewise, Buffett and his team said goodbye to insurance giant Travelers. After selling nearly all of Berkshire's stake in the company during the fourth quarter, the writing was on the wall that Travelers would be getting the boot. Though Travelers remains profitable, lower yields will likely hurt its interest-earning capacity on its float (i.e., the difference between premium collected and claims paid) for the foreseeable future.
Another move that appeared deliberate was the significant paring down in Goldman Sachs. In just two quarters, Berkshire has gone from owning in excess of 18 million shares to just 1.92 million. It's no secret that Goldman Sachs is a cyclical financial services company that tends to do its best when the U.S. and global economy are firing on all cylinders.
With the outlook for mergers and acquisitions fairly bleak at the moment, Buffett and his team may simply view other opportunities in the financial sector as more attractive.
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>>> Opinion: Dud stock picks, bad industry bets, vast underperformance — it’s the end of the Warren Buffett era
MarketWatch
May 16, 2020
By Howard Gold
https://www.marketwatch.com/story/dud-stock-picks-bad-industry-bets-vast-underperformance-its-the-end-of-the-warren-buffett-era-2020-05-14?siteid=bigcharts&dist=bigcharts
The chairman of Berkshire Hathaway seems to prefer the S&P 500 to his own company’s stock
Who is the Greatest of All Time? Michael or LeBron? Willie or the Babe? Aretha or Ol’ Blue Eyes?
When it comes to investing, Warren Buffett, chairman of Berkshire Hathaway BRK.B, -0.98%, is unquestionably the greatest who ever lived, posting an extraordinary record over more than five decades. From 1965 through 2018, Berkshire racked up a 20.5% compound annual return, more than double that of the S&P 500 SPX, +0.39%, including dividends.
Buffett also is a beloved multibillionaire in an age when the superrich are vilified. His homespun wisdom and Midwestern humility have made him the most sacred of all cows to a business media hungry for wit and personality. His paeans to free-market capitalism, along with his Democratic politics, haven’t hurt him with that group, either.
Read:Warren Buffett’s ‘outdated view’: One longtime fan is considering dumping his entire Berkshire stake
But now, after profoundly underperforming the S&P 500 throughout the entire 11-year bull market, it’s fair to ask whether Buffett is still, well, Buffett. Even at the company’s virtual annual meeting, held in Omaha on May 2, some questions by shareholders, curated by CNBC’s Becky Quick, struck this listener as unusually sharp.
At times, Buffett seemed uncomfortable amid PowerPoint slides and the absence of his longtime friend and business partner, Charlie Munger, who didn’t make the trip. His bullish comments about America seemed oddly discordant while a pandemic ravages our economy.
Meanwhile, intimations of mortality hung over the proceedings. Munger is 96 and Buffett turns 90 in August. The two, Buffett said, “are not going any place voluntarily, but we probably will go someplace involuntarily before that long.” Then he quickly added, “Charlie’s in good health, incidentally. I’m in good health.”
Questions put to Buffett
No wonder shareholders asked about how Berkshire will fare without Buffett and Munger at the helm.
The right question, however, is how Berkshire is doing with them. Consider:
• From March 9, 2009, the last bear market low, through Feb. 19, 2020, the recent bull market peak, Berkshire‘s Class B shares surged 396%. Sounds impressive, but Berkshire trailed the SPDR S&P 500 ETF Trust SPY, +0.46% and Vanguard Total Stock Market Index ETF VTI, +0.60% by more than 100 percentage points, after dividends were reinvested. (So far in 2020, Berkshire stock has lost nearly 25%, lagging those index ETFs by more than 10 percentage points.)
• As of March 31, Berkshire had more than $130 billion in cash, earning almost nothing. Yet even amid the coronavirus crash, Buffett and Munger haven’t spent any of it on the big deals that made them famous. Buffett attributed that to the Federal Reserve’s multitrillion-dollar intervention, which dwarfed whatever Berkshire could do.
• Berkshire won’t spend any cash to pay a dividend, while it’s happy to collect dividends from the companies it owns. Even a modest dividend yield would have helped Berkshire shareholders narrow the gap with the S&P 500 over the past 11 years.
• Berkshire’s operating businesses are doing well and throw off tons of cash. But this mishmash of insurance, consumer products, energy, utilities and railroads just doesn’t have the growth that forward-looking investors now demand. As oil prices are likely to stay depressed for some time, the energy business’ prospects are particularly grim.
• Several recent investments, like Kraft Heinz KHC, +1.38%, Occidental Petroleum OXY, +0.43% and airline stocks (which Berkshire sold in April) have been duds, and it’s hard to imagine what would propel those stocks higher. Apple AAPL, -0.59%, the largest of Berkshire’s equity investments, is among the few technology stocks in an investment portfolio so full of blue-chip banking names it could almost be a financial sector ETF.
I emailed those questions to Berkshire but got no response by deadline.
Index fund versus Berkshire stock
Buffett himself acknowledged how tough it will be for Berkshire to beat the S&P 500 from here on. “Berkshire is about as sound as any single investment can be,” he told the annual meeting, “but I would not want to bet my life on whether we beat the S&P 500 over the next 10 years.”
“In my view, for most people, the best thing to do is to own the S&P 500 index fund,” he said, echoing past statements.
“I would make no promise to anybody that we will do better than the S&P 500. But what I will promise them is that I’ve got 99% of my money in Berkshire.”
But not apparently his heirs’ money. “I haven’t changed my will and it directs that my widow would have 90% of the funds in index funds,” he said.
Follow the money — the future money. Warren Buffett is saying, almost in so many words, that an S&P 500 index fund is a better investment now than Berkshire Hathaway’s stock. There simply aren’t many new tricks this 90-year-old can learn, especially when growth investing, indexing and trillions of dollars of Fed buying power have stolen much of Berkshire’s thunder.
More than anyone else, he must know he’s had a marvelous run but that the curtain is coming down on the Buffett era. These days, even on Broadway, the show won’t go on.
<<<
>>> Tracking Warren Buffett's Berkshire Hathaway Portfolio - Q1 2020 Update
Seeking Alpha
May 17, 2020
John Vincent
Long only, value, special situations, fund holdings
https://seekingalpha.com/article/4348288-tracking-warren-buffetts-berkshire-hathaway-portfolio-q1-2020-update
Summary
Berkshire Hathaway's 13F stock portfolio value decreased from ~$242B to ~$176B this quarter.
Their largest three holdings are at ~57% of the entire portfolio.
Berkshire Hathaway reduced Goldman Sachs stake to a minutely small position during the quarter. They also sold their large stake in the big-four airlines last month.
This article is part of a series that provides an ongoing analysis of the changes made to Berkshire Hathaway’s 13F stock portfolio on a quarterly basis. It is based on Warren Buffett’s regulatory 13F Form filed on 05/15/2020. Please visit our Tracking 10 Years Of Berkshire Hathaway's Investment Portfolio article series for an idea on how his holdings have progressed over the years and our previous update for the moves in Q4 2019.
During Q1 2020, Berkshire Hathaway’s (BRK.A) (BRK.B) 13F stock portfolio value decreased ~28% from $242B to $176B. The top five positions account for more than two-thirds of the portfolio: Apple Inc., Bank of America, Coca Cola, American Express, and Wells Fargo. There are 47 individual stock positions many of which are minutely small compared to the overall size of the portfolio.
Warren Buffett’s writings (pdfs) are a treasure trove of information and are a very good source for anyone starting out on individual investing.
Note: In Q1 2020, Berkshire Hathaway repurchased ~5.5M Class B Equivalent Shares for a total outlay of ~$1.2B. The average price paid was ~$215. Book Value as of Q1 2020 was ~$153 per share. So, the repurchase happened at ~140% of Book Value. The Class B shares currently trade at ~$169.
New Stakes:
None.
Stake Disposals:
Phillips 66 (PSX) and Travelers Companies (TRV): These two minutely small stakes were disposed during the quarter.
Stake Increases:
Delta Air Lines (DAL): DAL was a very small 0.19% position in Q3 2016. The stake saw a whopping ~850% increase in Q4 2016 at prices between $39 and $52. There was a ~20% increase in Q2 2018 at prices between $49 and $56 and that was followed with a ~8% increase in Q1 2019 at ~$49.50. This quarter also saw a marginal increase. The stock currently trades at $19.19.
Note: The entire ~11% of the business stake was disposed at ~$22 last month. This is compared to their overall cost-basis of ~$44 - lost around half their investment over a holding period of just over three years.
PNC Financial (PNC): The 0.50% PNC stake was established in Q3 2018 at prices between $134 and $146 and increased by just over one-third next quarter at prices between $110 and $140. The stock is now at $97.25. Q1 2019 also saw a ~5% stake increase and that was followed with a similar increase this quarter.
United Continental Holdings (UAL): A minutely small 0.18% UAL position as of Q3 2016 saw a huge ~540% increase in Q4 2016 at prices between $52.50 and $76. 2018 had seen a ~22% selling at prices between $63 and $98. It currently goes for $19.92. This quarter also saw a minor increase.
Note: The entire ~8% of the business stake was disposed at ~$28 last month. This is compared to their overall cost-basis of ~$55 - lost around half their investment over a holding period of just over three years.
Stake Decreases:
Goldman Sachs (GS): GS is now a minutely small 0.17% of the portfolio stake. It was established in Q4 2013. Berkshire received $5B worth of warrants to buy GS stock during the financial crisis (October 2008) at a strike price of $115 (43.5M shares) that was to expire October 1, 2013. Buffett exercised the right before expiry to start this long position. Recent activity follows: Q3 2018 saw a ~40% stake increase at prices between $220 and $243 while last quarter there was a ~35% selling at prices between $197 and $232. This quarter saw another ~85% selling at prices between ~$135 and ~$250. GS currently trades at ~$172. Their overall cost-basis was ~$127 per share.
JPMorgan Chase (JPM: The ~3% JPM stake was established in Q3 2018 at prices between $104 and $119 and increased by ~40% next quarter at prices between $92 and $115. There was another ~20% stake increase in Q1 2019 at prices between $97 and $107. The stock currently trades at ~$86. There was a ~3% trimming this quarter.
DaVita Inc. (DVA): DVA is a 1.65% of the portfolio position that was aggressively built over several quarters in the 2012-13 timeframe at prices between $30 and $49. The stock currently trades at ~$79 compared to Berkshire’s overall cost-basis of ~$45 per share. This quarter saw minor trimming.
Note: Berkshire’s ownership stake in DaVita is ~30%.
Verisign Inc. (VRSN): VRSN was first purchased in Q4 2012 at prices between $34 and $49.50. The position was more than doubled in Q1 2013 at prices between $38 and $48. The buying continued till Q2 2014 at prices up to $63. The stock currently trades at ~$217 and the position is at 1.31% of the portfolio (~10% of the business). This quarter saw minor trimming.
Southwest Airlines (LUV): LUV is a ~1% portfolio stake purchased in Q4 2016 at prices between $38.50 and $51 and increased by ~10% in the following quarter at prices between $49.50 and $59. Q2 2018 saw another ~20% stake increase at prices between $50 and $57. The stock is now at ~$24.
Note: The entire ~10% of the business stake was disposed at ~$30 last month. This is compared to their overall cost-basis of ~$42 - lost ~30% of their investment over a holding period of just over three years.
General Motors (GM): GM is a 0.88% of the 13F portfolio position that was first purchased in Q1 2012 at prices between $21 and $30. By Q3 2017, the position size had increased by around six-times (10M shares to 60M shares). Q4 2017 saw a reduction: ~17% selling at prices between $40.50 and $46.50. There was a ~38% stake increase in Q4 2018 at prices between $30.50 and $38.50. The stock currently trades at $22.63. Overall, Berkshire’s cost-basis on GM is ~$32. Last quarter saw a ~3% stake increase while this quarter there was marginal trimming. Berkshire controls ~5.2% of the business.
Liberty SiriusXM Group (LSXMA) (LSXMK): The tracking stock was acquired as a result of Liberty Media’s recapitalization in April 2016. Shareholders received 1 share of Liberty SiriusXM Group, 0.25 shares of Liberty Media Group and 0.1 shares of Liberty Braves Group for each share held. Berkshire held 30M shares of Liberty Media for which he received the same amount of Liberty SiriusXM Group shares. There was a ~40% stake increase in Q2 2017 at a cost-basis of ~$40 per share and the stock is currently at $31.44. This quarter saw marginal trimming.
Note: LSXMA/LSXMK is trading at a significant NAV-discount to the parent’s (SIRI) valuation.
Amazon.com (AMZN): AMZN is a 0.59% of the portfolio stake established in Q1 2019 at prices between $1500 and $1820 and increased by ~11% next quarter at prices between $1693 and $1963. The stock currently trades at ~$2410. There was marginal trimming this quarter.
Sirius XM Holdings (SIRI): The 0.37% SIRI stake was purchased in Q4 2016 at prices between $4.08 and $4.61. Q2 2017 saw selling: ~20% reduction at prices between $4.70 and $5.50. The stock is currently at $5.34. This quarter saw minor trimming.
American Airlines (AAL): AAL stake was first purchased in Q3 2016. The original purchase was at prices between $28 and $39 and doubled in Q4 2016 at prices between $36.50 and $50. The stock is now at ~$9. There was a ~3% trimming in Q2 2018 and a similar reduction next quarter. Last two quarters saw minor trimming.
Note: The entire ~10% of the business stake was disposed at ~$11 last month. This is compared to their overall cost-basis of ~$40 - lost around 75% of their investment over a holding period of just over three years.
Liberty Global PLC (LBTYA) (LBTYK): The position was established in Q4 2013 at prices between $37.50 and $44.50 (adjusted for the 03/2014 stock-split) and increased in the following two quarters at prices between $38.50 and $46. The three quarters thru Q1 2016 had also seen a combined ~30% increase at prices between $30 and $50. Q2 2016 saw a ~17% further increase at prices between $27 and $39. The stock is now at $21.36 and the stake is at 0.25% of the 13F portfolio. This quarter saw marginal trimming.
Axalta Coating Systems (AXTA): AXTA is a small 0.24% of the portfolio stake established in Q2 2015 at prices between $28 and $36 and increased by ~16% the following quarter at prices between $24.50 and $33.50. The stock currently trades at $19.70. Berkshire owns ~10% of the business. This quarter saw marginal trimming.
Teva Pharmaceuticals (TEVA): TEVA is a very small 0.22% of the portfolio stake established in Q4 2017 at prices between $11.20 and $19.33 and more than doubled next quarter at prices between $16.50 and $22. The stock currently trades at $11.21. This quarter saw marginal trimming.
Synchrony Financial (SYF): SYF is a 0.18% of the portfolio position purchased in Q2 2017 at prices between $26.50 and $34.50 and increased by ~20% the following quarter at prices between $28.50 and $31.25. The stock is now at $16.54. This quarter saw a ~3% trimming.
Note: Synchrony is the private label credit-card business split-off from GE that started trading in August 2014 at ~$23 per share.
Suncor Energy (SU): The 0.13% SU stake was purchased in Q4 2018 at prices between $26 and $40. Last quarter saw a ~40% stake increase at prices between $29 and $33. The stock is now well below those ranges at ~$16. There was marginal trimming this quarter.
Note: Suncor Energy has had a roundtrip in the portfolio. It was a 0.48% position purchased in Q2 2013 at prices between $27 and $32. That stake was disposed during Q2 & Q3 2016 at prices between $25.50 and $29.
Biogen Inc. (BIIB) and Liberty LiLAC Group (LILA) (LILAK): These two minutely small positions (less than ~0.10% of the portfolio each) saw marginal trimming this quarter.
Kept Steady:
Apple Inc. (AAPL): AAPL is currently the largest 13F portfolio stake by far at ~36%. It was established in Q1 2016 at prices between $93 and $110 and increased by ~55% the following quarter at prices between $90 and $112. Q4 2016 saw another ~275% increase at prices between $106 and $118 and that was followed with a stake doubling in January 2017 at prices between $116 and $122. There was another ~23% increase in Q4 2017 at prices between $154 and $176 and that was followed with a ~45% increase in Q1 2018 at prices between $155 and $182. Since then, the activity has been minor. The stock currently trades at ~$308.
Note: Berkshire’s overall cost-basis on Apple is ~$141 per share. They have a ~5.6% ownership stake in the business.
Bank of America (BAC): Berkshire established this large (top three) ~11% of the portfolio position through the exercise of Bank of America warrants. The warrants had a strike price of $7.14 compared to the current price of $21.44. The cost to exercise was $5B and it was funded using the $5B in 6% preferred stock they held. There was a ~30% stake increase in Q3 2018 at prices between $27.75 and $31.80 and a marginal increase next quarter. Q2 2019 also saw a ~4% stake increase.
Note: Berkshire’s overall cost-basis is ~$13 and ownership stake is 10.7%.
American Express (AXP) and Coca Cola (KO): These two very large stakes were kept steady during the last ~6 years. Buffett has said these positions will be held “permanently”. Berkshire’s cost-basis on AXP and KO are at around $8.49 and $3.25 respectively and the ownership stakes are at ~17.6% and ~9.4% respectively.
Wells Fargo & Co. (WFC): WFC is Buffett’s fifth-largest stake at 5.28% of the 13F portfolio. It is a very long-term stake. Recent activity follows: last year saw a ~25% selling at prices between $43 and $55. Berkshire’s cost-basis is at ~$24.50 and their ownership stake is 8.4%. The stock currently trades at $23.36.
Kraft Heinz Co. (KHC): KHC is currently a fairly large position at 4.59% of the portfolio. Kraft Heinz started trading in July 2015 with Berkshire owning just over 325M shares (~27% of the business). The stake came about because of two transactions with 3G capital as partner: a ~$4B net investment in 2013 for half of Heinz and a ~$5B investment for the acquisition of Kraft Foods Group in early 2015. Berkshire’s cost-basis on KHC is ~$30 per share compared to the current price of $29.20.
Moody’s Inc. (MCO): MCO is a ~3% of the 13F portfolio stake. It is a very long-term position and Buffett’s cost basis is $10.05. The stock currently trades at ~$251. Berkshire controls ~13% of the business.
US Bancorp (USB): The 2.60% USB stake has been in the portfolio since 2006. The original position was tripled during the 2007-2009 timeframe. It was then kept relatively steady till Q2 2013 when ~17M shares were purchased at prices between $32 and $36. H1 2018 had seen a ~16% increase at prices between $49 and $58 and that was followed with a ~25% increase in Q3 2018 at prices between $50 and $55. The stock is now at $30.68 and Berkshire’s cost-basis is ~$38. They control ~10% of the business. Q4 2018 and Q2 2019 also saw minor increases.
Bank of New York Mellon Corp (BK): BK is a 1.53% of the 13F portfolio stake. The bulk of the original position was purchased in Q2 2012 at prices between $19.50 and $25. Recent activity follows: 2017 saw a ~180% increase at prices between $43.50 and $55 while 2018 saw another one-third increase at prices between $44.50 and $58.50. The stock currently trades at ~$32. Berkshire’s cost-basis on BK is ~$46 per share and ownership stake is ~10%. For investors attempting to follow, BK is a good option to consider for further research.
Charter Communications (CHTR): CHTR is a 1.35% of the portfolio position. It was established during the last three quarters of 2014 at prices between $118 and $170. In Q2 2015, the position was again increased by ~42% at prices between $168 and $193 and that was followed with another ~21% increase the following quarter at prices between $167 and $195. The stock currently trades at ~$503 compared to Berkshire’s cost-basis of ~$178. The six quarters thru Q4 2018 had seen a combined ~25% selling at prices between $250 and $395 and that was followed with a ~20% reduction in Q1 2019 at prices between $285 and $366. Q2 2019 also saw a ~5% trimming.
Occidental Petroleum (OXY) and RH Inc. (RH): These were the two new positions in Q3 2019. Both were increased last quarter. The 0.32% of the portfolio OXY stake was purchased at prices between $42 and $53 and increased by ~150% last quarter at prices between $37 and $44. The stock currently trades at ~$14. The 0.15% of the portfolio RH position was established at prices between $119 and $174 and increased by ~40% last quarter at prices between $165 and $242. It is now at ~$155. Berkshire controls ~9% of the business.
Note: Berkshire also has warrants to purchase 80M shares of OXY at $62.50 per share. That came about as part of a $10B funding deal (perpetual preferred stock with 8% annual dividend) done in May last year. The dividend was paid in common stock rather than cash last month.
Store Capital (STOR): The 0.19% STOR stake was established in Q2 2017 in a private placement transaction at $20.25 per share. The stock is now at $17.15.
StoneCo Ltd. (STNE): STNE is a 0.18% position purchased in Q4 2018 at ~$21 per share compared to the current price of ~$22.
Note: Berkshire has a ~11% ownership stake in StoneCo. In October 2018, WSJ reported that Berkshire had invested ~$300M each in two Fintech’s – India’s Paytm and Brazil’s StoneCo (STNE). The Paytm investment was made in August 2018 while the STNE purchase was following its IPO in October 2018.
Restaurant Brands International (QSR): QSR is a 0.19% of the 13F portfolio position established in Q4 2014 at prices between $35 and $42. The stock currently trades at $51.42. It started trading in December 2014 following a merger/rename transaction between Tim Hortons and Burger King Worldwide.
Note: Berkshire’s stake in the business is ~4.2%.
Costco Wholesale (COST), Globe Life (GL), Johnson & Johnson (JNJ), Mondelez International (MDLZ), M&T Bank (MTB), MasterCard Inc. (MA), Kroger Company (KR), Procter & Gamble (PG), SPDR S&P 500 Index (SPY), United Parcel Service (UPS), Vanguard S&P 500 Index (VOO), and Visa Inc. (V): These are very small positions (less than ~0.5% of the portfolio each) were kept steady this quarter.
Note 1: Since November 2015, Warren Buffett is known to own ~8% of Seritage Growth Properties (SRG) at a cost-basis of $36.50 in his personal portfolio. It currently trades at $6.92. SRG is an REIT spinoff from Sears that started trading in July 2015.
Note 2: Berkshire Hathaway also has a 225M share position in BYD Company at a cost-basis of ~$1 per share (~$2 per share in terms of ADRs – BYDDY). The ADR currently trades at $11.20.
The spreadsheet below highlights changes to Berkshire Hathaway’s 13F stock holdings in Q1 2020:
<<<
>>> Eight Stocks Give Warren Buffett A Headache (They're Not Airlines)
Investor's Business Daily
MATT KRANTZ
05/14/2020
https://www.investors.com/etfs-and-funds/sectors/sp500-stocks-give-warren-buffett-big-headache-they-are-not-airlines/?src=A00220&yptr=yahoo
Warren Buffett finally bailed out on S&P 500 airline stocks. But his portfolio is still full of stocks giving him giant headaches.
Berkshire Hathaway (BRKB) this year lost $1 billion or more, and at least 20%, on eight of its 47 U.S.-listed public holdings like financials Bank of America (BAC) and Wells Fargo (WFC) plus consumer staples stock Coca-Cola (KO). This is according to an Investor's Business Daily review of Buffett's latest holdings data from S&P Global Market Intelligence and MarketSmith. Only stocks primarily listed on U.S. exchanges were included.
Big losses in the famed Buffett portfolio persist even after he unloaded massive airline losers. And it's showing the dangers of chasing after value-priced stocks — the ones Buffett tends to prefer — in this coronavirus market. Learn how to find breakaway growth-stock winners instead on Leaderboard.
Shares of Berkshire Hathaway are down 22% just this year alone, dragged down by a host of lagging stocks. The S&P 500 is only down 13% and the growth-focused Nasdaq 100 is up 2.6%. Buffett alone lost $21.8 billion this year on his 16% stake in the company. No other top individual owner has lost anywhere near that much on an S&P 500 stock this year.
No wonder Berkshire just posted the largest-ever loss by an S&P 500 company.
Warren Buffett Snared By S&P 500 'Value Trap'
Much of Buffett's pain centers around his tilt toward S&P 500 value stocks. It's ironic as "cheap" stocks are supposed to offer safety in downturns with dividends and stability. But that's not happening in the coronavirus stock market.
The Vanguard Value ETF (VTV) is down a crushing 22% this year, nearly identical with Berkshire Hathaway's drop. But growth stocks are faring much better as they are showing more resilience in the coronavirus-inflicted world. The Vanguard Growth ETF (VTV) is down just 1.2% this year.
What's hurting the value stocks group? Exactly the kinds of stocks investors want nothing to do with in a pandemic.
S&P 500 Financials: Still A Pain Point
A trio of financials are now handing Berkshire Hathaway its biggest losses.
Berkshire Hathaway is down $13.6 billion just on one stock this year: Bank Of America. The bank's brutal 41% drop this year hurts as Berkshire Hathaway owns nearly 11% of the company. Wells Fargo is down even more: 58%. That's wiped nearly $11 billion from Berkshire's portfolio. And then there's American Express (AXP), off 37%, costing the portfolio nearly $7 billion.
Now that Buffett sold his airline stocks, the financials are Buffett's biggest problem. Six of Berkshire's worst eight losses are all financials. Savvy investors can actually make money betting against banks Buffett owns, like Wells Fargo.
Berkshire Hathaway holds 17 publicly traded financials. That's more than any other sector in the portfolio, says S&P Global Market Intelligence. And Berkshire Hathaway's public holdings in financial stocks account for a third of his portfolio. In contrast, the financials sector accounts for just 13% of the S&P 500 and just 19.5% of S&P 500 value indexes.
Being heavy on S&P 500 financials is a big drag for Buffett and other value investors. The Financial Select Sector SPDR ETF (XLF) is down 33% this year. That's the second-worst loss of the 11 sectors after only the energy sector's 40% wipeout. And that's saying something.
Not Even Coke Is Giving Buffett A Smile
Consumer staples are supposed to shine in recessions. Packaged foods gain popularity when money's tight. One 69-year-old actually scored more than $100 million on Campbell Soup stock this year. The Consumer Staples Select Sector SPDR ETF (XLP) is down this year 9.4%, holding up better than the S&P 500.
But no such luck with Buffett's favorite consumer staples stock: Coca-Cola. The beverage maker is down twice that of the sector, 21%, this year. Buffett owns 9% of the company so the drop bubbles into a $4.6 billion loss this year.
And unlike other consumer staples companies seeing bumps in their business, Coke's earnings are predicted to fall 11% this year, says S&P Global Market Intelligence. No wonder it sports a low 66 IBD Composite Rating. Compare that with the 99 Composite Rating of rival beverage maker, Monster Beverage (MNST), which is a growth stock. Monster shares are up 2.5% this year.
Certainly, value stocks might return to favor — one day. Large value stocks returned an average 10.37% annually since 1928, says Index Fund Advisors. That edges slightly past the 9.77% annualized gain of the S&P 500.
But do you and Buffett want to bet on them returning anytime soon?
Warren Buffett's Costliest Mistakes This Year
Most big losses are from S&P 500 financials
Company Ticker % Of Company Owned By Berkshire Sector YTD Stock % Ch. Berkshire's YTD Loss ($ Billion) Composite Rating
Bank of America (BAC) 10.9% Financials -40.7% $13.6 42
Wells Fargo (WFC) 8.4% Financials -58.1% $10.8 6
American Express (AXP) 18.8% Financials -37.3% $7.0 62
Coca-Cola (KO) 9.3% Consumer Staples -20.6% $4.6 66
U.S. Bancorp (USB) 10.0% Financials -50.3% $4.5 21
JPMorgan Chase (JPM) 2.0% Financials -39.7% $3.3 44
Bank of New York Mellon (BK) 10.0% Financials -35.4% $1.6 61
General Motors (GM) 5.2% Consumer Discretionary -41.4% $1.11 56
<<<
>>> Warren Buffett: Berkshire has dumped its airline stocks, 'world has changed' because of coronavirus
by Alexis Keenan
Yahoo Finance
May 2, 2020
https://finance.yahoo.com/news/warren-buffett-berkshire-has-dumped-all-of-its-airline-stocks-says-world-has-changed-001242589.html
Warren Buffett has gotten Berkshire Hathaway (BRK-A, BRK-B) out of the airline business.
During a virtual address to shareholders for the company’s annual shareholders meeting Saturday, the chairman and CEO called Berkshire’s recent purchase of roughly 10% of four of the world's largest airlines — including American (AAL), United (UAL), Delta (DAL) and Southwest (LUV) — an “understandable mistake.”
But the company has sold out of its entire interest in the airlines, worth at least $4 billion. In doing so, the Oracle of Omaha admitted to a rare investment misstep, one that’s he pinned on the coronavirus crisis hammering the global economy.
“The world changed for airlines,” the influential investor said at the meeting.
“It turned out that I was wrong about that business because of something that was not in any way the fault of four excellent CEOs,” Buffett said of COVID-19’s shock to air travel — adding that there was “no joy” in managing those companies right now.
“But the companies we bought were well managed. They did a lot of things right. It’s a very, very, very difficult business because you’re dealing with millions of people every day and if something goes wrong for 1% of them, they are very unhappy,” Buffett added.
Prior to stay at home orders put in place across the U.S. on March 1, the Transportation Safety Administration reported scanning nearly 2.3 million passengers, — a number consistent with the prior year’s approximate 2 million passengers, per day.
Yet fast forward to April 3, the agency scanned 129,763 passengers, and that number continues to decline. Buffett said he doubts whether the flying public, or even himself, will be willing to travel as frequently as they had by plane before the virus outbreak.
“People have been told not to fly. I’ve been told not to fly for a while. I’m looking forward to flying. I may not fly commercial but that’s another question,” Buffett remarked.
While he expressed hope that he could be wrong, Bufftett said the airline business changed in a major way, most obviously in the level of debt the companies will need to carry in order to stay alive.
The four companies will each need to borrow $10 to 12 billion, and in some cases will need to rely on stock sales, which will take away from their upside, he said.
“I don't know whether two or three years from now that as many people will fly as many passenger miles as they did last year, “ Buffett said. “They may and they may not, but the future is much less clear to me about how the business will turn out through absolutely no fault of the airlines themselves.”
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Berkshire - >>> Everyone Needs To Calm Down About Buffett Being Quiet
Seeking Alpha
Apr. 20, 2020
https://seekingalpha.com/article/4338575-everyone-needs-to-calm-down-buffett-being-quiet
Summary
Recap what Buffett actually did during '08-'09 and expand upon the possible reasons why.
The really big move he made was actually buying the rest of Burlington Northern Santa Fe, which occurred in November '09.
Comparing BRK's balance sheet: cash as a percent of equity is twice as high now versus '08-'09.
Why I'm long BRK.B for the first time in my career: trading at the lowest P/BV and P/TBV ratios since the mid-90s.
Introduction:
Recently there has been a litany of articles asking the same essential question: why haven't we heard or seen anything from Warren Buffett investing in companies as we did back in the fall of 2008? In my mind, I always remember THE big move he made was in buying the rest of Burlington Northern Sante Fe [BNSF], announced in November of 2009. However, when I would point this out to people on FinTwit, the responses I received mostly listed off other famous moves he made during the fall of 2008 and ignored the magnitude of the BNSF deal that came later. For the first time in my investing career, I have long exposure to Berkshire Hathaway (BRK.B), so I decided to take a deeper look into comparing BRK's actions between then and now.
The Great Financial Crisis:
If you run a search for articles about the deals Buffett made during the Great Financial Crisis [GFC], then you'll turn up a number discussing his October 2008 preferred and warrants deal with Goldman Sachs (GS). You'll also find discussions mentioning his General Electric (GE) investment, also comprised of a preferred and warrants transaction. You might even find one like this referencing his investment in Swiss Re (OTCPK:SSREF) from March of 2009, which is rarer since it clearly isn't consequential to the 'Buy America' mythos that was attached to his actions, in large part due to his October 2008 Op-Ed in The New York Times. You'll even find articles declaring his preferred and warrant deal with Bank Of America (BAC), as his "Masterpiece" investment from this GFC period. That statement is interesting on its own since the BAC investment didn't even occur until the fall of 2011! Generally, though you don't see people refer to his acquisition of BNSF in anything close to the same light, and usually not at all.
Berkshire Hathaway Buys Out Burlington Northern for $26B - CBS NewsSource
One of the interesting things in researching this article is that the patterns of Buffett's style emerge clearly. Despite owning numerous businesses outright, we probably all fall victim to thinking of Buffett more as a traditional equities portfolio manager, than the leader of a financial and industrial conglomerate. Reviewing the actions he took during the GFC, I would separate these transactions into three bucket types: 1.) merger finance, 2.) distressed finance, 3.) business investment. Here's the list that I compiled with major transactions that occurred during this period:
The merger finance deals might be the most interesting because they often are sited as major moves made by Buffett during this period, but as you can see by the announcement dates, they were very early in the decline process of the market. You also see his propensity for doing preferred securities to reduce his risk profile, but it does remind me of how early on Merger Arbitrage was an important part of Buffett's investment strategy. Over time, the strategy became crowded out with more professionals employing it which narrowed the spreads. Now, Buffett has turned to financing mergers rather than just playing the price spread.
If Buffett started out the GFC period just by financing mergers, then you can clearly see in the chart above how that changed in the fall of 2008. The GS and GE deals were of the second type I mentioned, but interestingly they too occurred at a point that turned out to be early in the acceleration phase to the downside. Only the Swiss Re deal looks well timed in hindsight. What all three of those investments have in common are more than just preferred securities, either convertible to equity or attached with warrants. They are also all finance deals, and by that, I mean that these were companies that were all in trouble due to their financial leverage. In fact, I would argue that they were all effectively insolvent at this point. That's a discussion for another much longer article perhaps someday. I would add that I'd like everyone to consider not so much which firms failed, but why the few firms that survived were spared.
Buffett has been quiet so far, but right now Charlie Munger is talking about why BRK is going to wait and see. Here's a quote ascribed to Munger from this recent article:
"Warren wants to keep Berkshire safe for people who have 90% of their net worth invested in it. We're always going to be on the safe side. That doesn't mean we couldn't do something pretty aggressive or seize some opportunity. But basically we will be fairly conservative. And we'll emerge on the other side very strong."
All of those points should have been true in 2008 as well, but why did Buffett get active with three financial companies in the heart of the GFC? I like to say 'your answer here is probably your bias.' In my case, my bias is that I believed BRK itself was effectively insolvent too. Buffett's motive wasn't just about saving GS and GE, it was about saving BRK and its significant financial exposure through its GEICO unit as well. Years later Buffett himself provides the key clue in this interview in 2018:
What we all learned in that particular panic is that we're all dominoes. And we're all very close together.
Consider this concept when you think of that Op-Ed he wrote on October 16, 2008. Buffett is a master of presentation. He often has argued for higher ethical standards and board diversification in corporate America yet does little in this regard in his own backyard. Maybe I'm being too critical of him in this regard, but I personally value what people do over what they say. Bottom line, I think there's a compelling argument for why BRK made those financial investments in the heat of the GFC, and they had a lot more to do with BRK's own financial well being than just the opportunity to increase returns. If you think of it in this manner, then the reasons behind BRK's lack of action to date makes more sense. Essentially, it's not the same setup. Despite the severe economic declines we're all facing as a nation right now, the risk of a total financial system collapse is not comparable in my opinion. In pure numbers, the GDP impact will be worse in these quarters. However, back then the financial system was carrying magnitudes greater leverage than it is currently, and it was loaded with significantly inferior assets collateralized by collapsing real estate values. We were weeks away from complete societal collapse. The commercial paper market had essentially shut down. That's how grocery store shelves go empty. I have not had the same concerns this time despite the panic stocking behavior people have unfortunately succumbed too.
Comparing the GFC to our Current Period:
There were other investments than the ones I've mentioned so far in 2008. Buffett bought a stake in BYD Company Limited (OTCPK:BYDDF) in September of 2008. He also increased his exposure to USG Corporation (USG), but these were all in the 300 million type size outlays. I've tried to focus on the multi-billion dollar plus deals because that's the size that really moves the needle for a conglomerate the size of BRK. We also need to consider how BRK's balance sheet was entering the GFC and today's environment to fairly gauge their motives for the moves they have and haven't made.
In the above chart, I've added the cash, equity, and the level of industrial debt from BRK's balance sheet. When looking at those few items from the balance sheet, (yes, this is not all encompassing obviously), but in terms of the amount of cash as a percentage of total equity, BRK clearly has entered this period with considerably more of a safety net and flexibility than during the GFC. Only if we consider the level of net industrial debt/capital ratio does BRK's current standing look slightly inferior to back then. I chose to use only industrial debt versus the financial as well, because, to be honest, the complexity would require another article in itself. You can also see that the deal sizes as a percentage of cash tend to occur around similar levels.
Finally, of course, it should stand out massively that the BNSF deal was a galaxy in comparison to any of the others in terms of capital deployed. It effectively matched all of the other deals combined. He also received a lot of criticism for the deal at the time, with many suggesting he was overpaying for the railroad business. Below is a chart with the trailing EV/EBITDA multiples for the three remaining primary American freight railroad companies: CSX Corp. (CSX), Union Pacific Corp. (UNP), and Norfolk Southern Corp. (NSC). I've drawn in the approximate point of when BRK announced the acquisition. There were points in the future when the multiple went lower, but that was more to do with the growth in EBITDA than a reduction in the long term outlooks for the businesses. Point is that Buffett certainly did not pay any sort of a significant premium for this business, and now the market rewards these businesses with essentially a 50% greater multiple range.
In summary, it was the BNSF deal that deployed significantly greater capital resources than any of the other more heralded Buffett deals from that period. It was also made eight months after the low in the market of March 2009, and over a year after the financially distressed deals with GS and GE. In other words, give BRK some time before getting all upset about the lack of news. If history is a guide here, then we really shouldn't expect any business type acquisitions to be made until at least the end of this year or early 2021. That assumes that we're not making a new low in the future.
Summary & Valuation:
To conclude, I would argue that many of the deals Buffett made during the GFC were not done so for opportunity, but instead out of necessity. The real big business move was made by acquiring BNSF well after the lows had been made. Considering the greater financial flexibility that BRK has today versus then, Buffett is remaining quiet because he doesn't have to invest out of necessity. It also is nearly impossible to get valuable businesses not in distress to sell at these levels. The time to strike will likely be in the future after stocks have somewhat recovered, and everyone has a better sense of what the other side of the economic valley is going to look like.
At the start of this article, I also mentioned that for the first time ever in my investing career, I am a holder of BRK.B common stock. This is a complicated business with large exposures over various parts of the economy. I'm not going to go into a long summary of why I like this and that etc... Instead, I'd point the reader towards two key features: 1.) Yes, BRK has a lot of cash to deploy, and bluntly Buffett is often able to buy great businesses for less than other suitors. That's the benefit of just assimilating managements versus replacing them. You can often strike deals that cost shareholders less to complete in the near term. 2.) The price to book and tangible book values of BRK is at or below their respective lows since the mid-'90s.
Thus, the stock is trading cheaper on these all encompassing metrics than it did in the GFC when I have just argued that Buffett made those investments out of necessity to save his own business from financial collapse as well. If I'm not going to own it now, then I should just take the ticker off my screen.
I hope everyone is safe, healthy and happy out there.
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Pearls of wisdom from the Oracle -
"Success in investing doesn't correlate with IQ ... what you need is the temperament to control the urges that get other people into trouble in investing."
"There is nothing wrong with a 'know nothing' investor who realizes it. The problem is when you are a 'know nothing' investor but you think you know something."
"Never invest in a business you cannot understand."
"The stock market is a no-called-strike game. You don't have to swing at everything -- you can wait for your pitch."
"An investor should act as though he had a lifetime decision card with just twenty punches on it."
"Price is what you pay. Value is what you get."
"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right."
"If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."
"After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them."
"Only when the tide goes out do you discover who's been swimming naked."
"All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies."
"Cash ... is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent"
"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
"The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table."
"Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."
"This does not bother Charlie [Munger] and me. Indeed, we enjoy such price declines if we have funds available to increase our positions."
"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks."
"For 240 years it's been a terrible mistake to bet against America, and now is no time to start."
"Among the various propositions offered to you, if you invested in a very low cost index fund -- where you don't put the money in at one time, but average in over 10 years -- you'll do better than 90% of people who start investing at the same time."
https://www.msn.com/en-us/money/savingandinvesting/20-tips-from-warren-buffett-on-weathering-a-market-downturn/ss-BB12hUJq?li=BBnb7Kz&ocid=mailsignout#image=10
>>> Berkshire will shut some businesses, stay cautious in coronavirus 'typhoon,' Munger tells WSJ
Reuters
April 17, 2020
https://finance.yahoo.com/news/berkshire-shut-businesses-stay-cautious-184551618.html
Berkshire will shut some businesses, stay cautious in coronavirus
(Reuters) - Warren Buffett's Berkshire Hathaway Inc <BRKa.N> will close some smaller businesses and is positioning itself conservatively as it rides out the coronavirus pandemic, Berkshire Vice Chairman Charlie Munger said in an article published on Friday.
"We're like the captain of a ship when the worst typhoon that's ever happened comes," the 96-year-old Munger said in an interview with The Wall Street Journal.
"Warren wants to keep Berkshire safe for people who have 90% of their net worth invested in it," Munger added. "That doesn't mean we couldn’t do something pretty aggressive or seize some opportunity. But basically we will be fairly conservative. And we’ll emerge on the other side very strong."
Berkshire did not immediately respond to a request for comment to Buffett's assistant.
The Omaha, Nebraska-based conglomerate, whose market value exceeds $450 billion, has more than 90 businesses in the insurance, energy, railroad, retail and other sectors. Its larger units, such as the BNSF railroad and Geico auto insurer, normally operate in the black.
But Munger said Berkshire has "a few businesses, small ones, we won't reopen" as the pandemic eases, without identifying them.
Munger said the phone has not been "ringing off the hook" with pleas from desperate corporate executives for capital, despite Berkshire's having ended 2019 with $128 billion of cash.
That's a change from the 2008 financial crisis, when Berkshire gave its imprimatur and billions of dollars to companies as disparate as General Electric <GE.N>, Goldman Sachs <GS.N> and Harley-Davidson <HOG.N>.
Asked if another Great Depression were possible, Munger said, "Of course we're having a recession," but government efforts to limit the pain would likely help avert a "long-lasting Great Depression."
Berkshire holds its annual meeting on May 2, and is expected to release first-quarter results on or around that date.
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>>> Berkshire Hathaway to accept Occidental shares instead of cash dividends
Reuters
April 15, 2020
https://finance.yahoo.com/news/berkshire-hathaway-accept-occidental-shares-135632157.html
April 15 (Reuters) - Occidental Petroleum said on Wednesday billionaire Warren Buffett's Berkshire Hathaway Inc had agreed to accept common shares of the oil producer instead of cash dividends for preferred stock.
Berkshire last year bought $10 billion worth of Occidental's preferred shares to help finance its acquisition of Anadarko Petroleum.
Berkshire plans to sell the common shares, Occidental said in a regulatory filing.
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>>> Investors Are Wondering: Where’s Warren Buffett?
InvestorPlace
Dana Blankenhorn
April 3, 2020
https://finance.yahoo.com/news/investors-wondering-where-warren-buffett-193450240.html
WWWD? What Will Warren Do? Everyone knows legendary investor Warren Buffett of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) stock never lets a crisis go to waste. No one since J.P. Morgan has taken advantage of more crises than the 89-year-old Sage of Omaha.
We know he’s been getting ready. Berkshire Hathaway held $128 billion of cash at the end of 2019 . Most was locked in U.S. government bills and notes.
With new bills now earning less than 1%, and 10% of the workforce suddenly unemployed, this would seem to be a perfect opportunity.
Nothing So Far for BRK.B Stock
The only public move so far has been to raise even more cash. Specifically, Buffett has borrowed yen and euros. Because government paper there carries a negative interest rate, he can literally raise cash for nothing.
7 Restaurant Stocks to Buy for a Big Rebound
Berkshire’s 13F for the last quarter of 2019 shows it buying shares in Kroger (NYSE:KR) and Biogen (NASDAQ:BIIB). These companies are doing well. But Berkshire also bought shares in RH (NYSE:RH), the merchants formerly known as Restoration Hardware; General Motors (NYSE:GM); and Occidental Petroleum (NYSE:OXY), which have been hammered. To this you can also add losses in portfolio stocks, like Apple (NASDAQ:AAPL), American Airlines (NYSE:AAL), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and American Express (NYSE:AXP). Berkshire also owns a lot of Amazon.Com (NASDAQ:AMZN).
There are rumors of Buffett circling all the hardest-hit sectors — the airlines, the hotels, the casinos. These businesses, for now, are virtually out of business. But he hasn’t yet struck.
Instead he’s relaxing at his Omaha home, drinking Coca-Cola (NYSE:KO), which is down 20% this year. He is doing good works, like helping Goldman Sachs (NYSE:GS) get needed masks to Mt. Sinai Hospital in New York.
Why Wait?
One reason Buffett may continue to hold cash is that Berkshire Hathaway is mostly an insurance company.
As its recent annual report shows Berkshire owns GEICO, as well as some of the biggest insurance and re-insurance operations in the world.
It also owns utilities, railroads, and several industrial companies hit hard by the virus. Some of its businesses, like McLane Co., which distributes groceries, are essential. Others like Benjamin Moore and Shaw Industries, which make paint and carpets, aren’t. Taken together it’s a rough collection for these tough times. Berkshire stock is down by one-quarter for the year. It may need cash to keep its own units afloat.
We Need Warren
Like many companies, Berkshire-Hathaway had to cancel its annual meeting. But the world is waiting to hear from Buffett anyway. Mostly it’s waiting to see him pull the trigger on a deal.
Right now he has the cash to buy Tesla (NASDAQ:TSLA), Starbucks (NASDAQ:SBUX) or McDonald’s (NYSE:MCD). But that’s not how he does business in a panic.
Instead, he waits for the panic to hit a peak, then takes premium assets at giveaway prices. That’s what he did in the Great Recession. He advised bailing out banks and later got about 10% of Bank of America at a fabulous discount.
That’s what may be expected this time, a swoop into companies that might otherwise go out of business. Those deals, when they come, will mark the climax of the present bear market.
The Bottom Line
Warren Buffett turns 90 in August. His long-time business partner, Charlie Munger, is even older. His reported successors, insurance executive Ajit Jain and energy executive Greg Abel, are not investors.
Ted Wechsler has the title of investment manager for Berkshire. Another potential CEO is Todd Combs, who now runs GEICO. Neither has a high public profile.
While waiting to see how Buffett saves us this time, ask who will save us next time?
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>>> Warren Buffett Can Hunt Elephants From Home
by Tara Lachapelle
Bloomberg
March 31, 2020
https://www.yahoo.com/finance/news/warren-buffett-hunt-elephants-home-170030148.html
(Bloomberg Opinion) -- This is a market for Warren Buffett, and U.S. investors sure could use some of his positive vibes right now. So where is America’s biggest booster and hungriest dealmaker?
Buffett, the chairman and CEO of Berkshire Hathaway Inc., has been noticeably quiet since an explosion in coronavirus cases sent much of the populace into self-isolation and the country hurtling toward a recession. New York City, the capital of finance, is the new epicenter of the outbreak. But even 1,200 miles west in Buffett’s more airy state of Nebraska, the number of known infected residents is approaching 200, showing just how widespread it’s become.
Buffett’s age — he’ll turn 90 in August — puts him among those most at risk of severe complications from the virus. (He was also treated for early-stage prostate cancer in 2012.) It may be that he’s avoiding in-person interviews for safety reasons, as he should. Nobody wants to be the one who gave the world’s most celebrated businessman and philanthropist Covid-19 and set in motion the most momentous CEO transition of our time.
Still, with so much panic and prognosticating about the damage the pandemic might inflict on the economy, investors could use Buffett’s habitual reminder of his unwavering belief in American prosperity. In 2008, amid the last recession, and again in 2010, Buffett signed off both his annual letters to shareholders saying that he and Charlie Munger — his longtime business partner and the 96-year-old vice chairman of Berkshire — were “lucky beyond our dreams” in part for being born in the U.S.
Berkshire’s own investments are like a cross-section of the U.S. economy, with large stakes in airlines, banks, grocery stores and makers of consumer goods — even tech giants Amazon.com Inc. and Apple Inc. About $70 billion of value has been erased from its stock portfolio since mid-February (though we don’t yet know what Buffett bought and sold during the first quarter). The conglomerate also has outright ownership of one of the nation’s most expansive freight railway systems and a giant utility network, as well as businesses that sell everything from furniture and modular homes, to airplane-engine parts and various types of insurance. Shares of Berkshire itself are down 18%, headed for their worst year — like many other stocks — since 2008.
“If you stick around long enough you’ll see everything in markets, and it may have taken me to 89 years of age to throw this one into the experience,” a still chipper Buffett said on Yahoo Finance during his last televised interview. That was March 10, before the virus situation became so dire that states stretching from California to Massachusetts began issuing stay-at-home orders to buy time for hospitals running out of ventilators and other crucial equipment.
Three days later, Buffett announced he was canceling the festivities associated with Berkshire’s annual meeting to be held in Omaha in May. No investors are allowed to attend (they’ll have to stream it online). That means no shopping for See’s Candies, no posing with Buffett cardboard cut-outs, no running in the Brooks 5K and no sightings of the man himself for the tens of thousands of fans who show up each year wondering if it’s their last chance to see him up close. Buffett really has seen it all, though, which for him diminishes the frightful nature of events that to the rest of us seem so unprecedented in their gravity. When the Black Monday crash hit in October 1987, Buffett was already 57 years old. During World War II, when the news headlines couldn’t have been worse, he bought his first shares of stock as a kid — dumping them only four months later. At the 2018 Berkshire shareholder meeting, Buffett recounted the lesson he learned from that. Here’s a condensed version:
Imagine yourself back on March 11, 1942. … I’d like you to imagine that at that time you had invested $10,000 … to hold a piece of American business and never look at another stock quote. … You’d have $51 million [now] and you wouldn't have had to do anything. … All you had to do was figure that America was going to do well over time, that we would overcome the current difficulties. … It’s just remarkable to me that we have operated in this country with the greatest tailwind at our back.
In some ways, this is the market he’s been waiting for — a chance to finally scoop up durable, if temporarily beaten down, businesses on the cheap and put Berkshire’s $128 billion pile of cash to work. Likewise, private equity firms will be on the prowl, too. Financial buyers, including Berkshire, are already eyeing vulnerable targets in the travel, lodging and entertainment industries, the Wall Street Journal reported Tuesday, citing unnamed sources. Here are others that fit the mold of a Berkshire takeover target, based on criteria Buffett has spelled out in the past:
Air Products - 46 Bil
Cintas - 19 Bil
Cummins - 20 Bil
Deere - 44 Bil
Delta Airlines - 18 Bil
Emerson Electric - 29 Bil
Fastenal - 18 Bil
Illinois Tool - 45 Bil
Paccar - 22 Bil
PPG - 20 Bil
Raytheon - 39 Bil
Rockwell Automation - 17 Bil
In recent years there were too many competing acquirers willing to pay prices Buffett thought were absurd. Now, many are looking to conserve capital; others receiving assistance from the federal stimulus package may be more limited in their financial maneuvers. So where President Donald Trump opened a window to dealmaking with this more lax antitrust regulation, the virus has shut the door. Merger-and-acquisition activity is already down 24% globally this year, while in the U.S. it’s retreated 31%. The S&P 500 index now has a price-to-earnings ratio of 17, compared with more than 22 in February.
“It would be more fun if the phone would ring,” Buffett said in 2017 at the start of his M&A dry spell. It's sure to be ringing now as large corporations seek cash and the glow of the Buffett halo. Banks are quietly discouraging investment-grade borrowers from tapping their existing credit lines, according to a Bloomberg News report Monday. Berkshire played the role of a bank last year, providing $10 billion of financing to Occidental Petroleum Corp. in return for high-yielding preferred stock. As my colleague Liam Denning has noted, even though the oil crash recently forced Oxy to slash its regular dividend, Berkshire still receives its fat check.
Though it may be no mystery how Buffett views America’s ability to get through this latest crisis, it’s anyone’s guess where he’ll deploy his billions in it. Whatever the case, he should do his elephant hunting from home.
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>>> 3 Stocks Warren Buffett Is Probably Buying During the Coronavirus Market Crash
by Keith Speights
The Motley Fool
MAR 22, 2020
https://www.nasdaq.com/articles/3-stocks-warren-buffett-is-probably-buying-during-the-coronavirus-market-crash-2020-03-22
Warren Buffett's net worth has dropped by a number that's hard to fathom in just a matter of weeks. But the legendary investor isn't worried. One of Buffett's goals is "to be fearful when others are greedy and to be greedy only when others are fearful." He also once stated, "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."
There are certainly a lot of investors who are very fearful right now. But the Oracle of Omaha undoubtedly sees the current coronavirus-caused market meltdown as one of those rare opportunities where it's raining gold.
We won't know for another couple of months which stocks Buffett and his investment managers are buying for Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) portfolio. But I suspect that there are at least three stocks Warren Buffett is probably buying during the coronavirus market crash.
1. Apple
Buffett simply loves Apple (NASDAQ: AAPL). He stated in a recent interview that "it's probably the best business I know in the world." In 2018, the billionaire even said that he'd "love to own 100%" of Apple if he could.
The problem, of course, is that even a company the size of Berkshire Hathaway couldn't take too big of a bite out of Apple. But with Apple stock down nearly 30% off its highs, it's a lot cheaper now. It wouldn't be surprising at all if Buffett is taking the opportunity to scoop up more shares.
Buffett firmly believes that the coronavirus outbreak presents only a short-term risk for Apple. He remains confident about the company's prospects over the next decade, stating, "All kinds of things are going to happen to Apple over the next 10 years."
Remember that Buffett likes to buy wonderful companies at a fair price. He clearly thinks that Apple is a wonderful company. The big question is if he thinks the price is fair now. I suspect the answer to that question could be "yes."
2. Bank of America
The banking industry has been one of Buffett's favorites for a long time. Berkshire Hathaway currently owns shares of more than half a dozen bank stocks. Its biggest bank position is in Bank of America (NYSE: BAC). I think that Berkshire's stake will grow even bigger as a result of the market crash.
Shares of Bank of America have fallen more than 40% off of their highs. The stock is now a bargain, trading at less than its book value. Buffett was mentored by value investing legend Ben Graham, who relished finding stocks of high-quality companies with book values higher than their market caps.
Thanks to the major stock decline, Bank of America's dividend is also the most attractive it's been in more than a decade. Although Berkshire doesn't pay a dividend, Buffett loves them.
My hunch is that Buffett is looking at Bank of America's growth prospects as much as he is its valuation and dividend. The company was already generating stronger growth than most of its rivals. It has also invested heavily in technology to become more competitive. Sure, Bank of America will suffer for a while, but it will bounce back. And Buffett knows it.
3. Southwest Airlines
Berkshire owns stakes in three major airlines. Warren Buffett stated in a recent interview that he "won't be selling airline stocks." I think it's much more likely that he could be buying airline stocks instead -- especially Southwest Airlines (NYSE: LUV).
While all three airline stocks in Berkshire's holdings have taken a shellacking, Southwest has held up the best of the group. Its shares are down 45%. That could be enough of a drop to tempt Buffett to pick up more shares, especially with U.S. government financial assistance potentially on the way.
Of course, Buffett once called the airline industry "a death trap" for investors. But he started buying airline stocks once he saw that they were operating with increased fiscal discipline. No airline has consistently demonstrated such discipline than Southwest.
Berkshire currently has a bigger position in Delta Airlines than it does in Southwest. Don't be surprised if the next regulatory filing showing the company's holdings reveals that its stake in Southwest has caught up to the position in Delta.
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>>> Warren Buffett's 3 criteria for buying a stock
Motley Fool
by Sean Williams
2-26-20
https://www.msn.com/en-us/money/savingandinvesting/warren-buffetts-3-criteria-for-buying-a-stock/ar-BB10pHEk
Berkshire Hathaway CEO Warren Buffett is well known for his stock-picking prowess and his unwavering devotion to the buy-and-hold ethos. Following the publishing of the company's annual letter to shareholders this past weekend, we learned that, since 1964, Berkshire Hathaway's per-share market value has increased by 2,744,062%, which compares to a "meager" return for the S&P 500 of 19,784%, inclusive of dividends, over the same time span.
Having more than doubled up the S&P 500's compound annual gain over a more than five-decade stretch has earned the Oracle of Omaha quite the following, and has made his annual letter to shareholders a must-read for long-term investors.
Buffett just lifted the hood on his business-buying criteria
Berkshire's recently published shareholder letter was filled with numerous nuggets of wisdom, just like the decades of updates that have preceded it. Investors were privy to an update on Buffett's eventual succession plans, and they were treated to an explanation regarding the importance of retained earnings.
But the most surprising revelation made in the 2019 Berkshire Hathaway shareholder letter might just be the three criteria Buffett looks for when buying a business. While Buffett has always been very forthcoming with snippets of wisdom as to what he looks for before making an investment, he's never so succinctly laid out the criteria for investment before.
Let's take a closer look at the three factors one of the greatest investors wants to see in a business before buying it outright, or making a non-controlling investment.
1. They must earn good returns on the net tangible capital required in their operations
If there was one message Buffett really wanted to convey in this year's shareholder letter, it was the importance of retained earnings. Retaining operating income and putting that capital back to work often proves far more valuable in the long run, in terms of hitting growth objectives, than paying a dividend to shareholders or repurchasing a company's own stock.
When Buffett is examining businesses within his wheelhouse to acquire or take an investment stake in, he's looking for businesses that generate significant returns on their equity. In fact, Buffett notes in the "Investments" section of Berkshire's shareholder letter that, on a weighted-basis, the company's 15-largest non-controlling holdings (which excludes Kraft Heinz) are earning more than 20% on the net tangible equity capital required to run their businesses.
Even though the Oracle of Omaha has admitted that one of his investment lieutenants purchased the 537,300 shares of Amazon Berkshire owns, Amazon perfectly fits the bill of what Buffett is looking for in a business. Amazon's operating margins aren't much to speak of, in part because of the large percentage of revenue derived from its low-margin retail operations. However, its trailing-12-month return on equity is almost 22%, which is a function of aggressively reinvesting in fast-growing, high-margin cloud services (Amazon Web Services) and seeing those investments pay off in the form of higher operating cash flow and income.
2. They must be run by able and honest managers
While this should be a common-sense factor all investors look for, Buffett places especially strong emphasis on the ethics of the management team and board behind each business he's evaluating.
As you might recall, Buffett has spoken candidly about trust and reputation in previous shareholder letters. Two of the more standout Buffett quotes on the subject are as follows:
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."
"Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless."
What's particularly notable about Buffett's unwillingness to compromise when it comes to trust in management and a company's reputation is that it perfectly describes why he's probably been selling down his mammoth stake in banking giant Wells Fargo. Wells Fargo seriously breached the trust of its consumer in 2016 when it was revealed that 3.5 million unauthorized accounts were created. These accounts were part of an aggressive cross-selling strategy used in Wells Fargo's physical branches.
With Wells Fargo having excused two CEOs since this scandal was revealed, Buffett might be realizing that real damage has been done to this money-center banks' reputation for the foreseeable future. This would certainly explain why Buffett's company has sold approximately 156 million shares of its stake in Wells Fargo (in total) in recent years.
3. They must be available at a sensible price
Even though Buffett is a firm believer in stocks outperforming all other asset classes over the long term, he's still quite the stickler when it comes to valuation.
In last year's shareholder letter, Buffett noted, "Prices are sky-high for businesses possessing decent long-term prospects," which explains why his company's cash hoard remains near an all-time high at $128 billion. It also allows investors to understand why he's been a net seller of equities in recent quarters.
But defining what "a sensible price" means for Buffett isn't as easy as deciphering a company's returns on net tangible capital. It can be completely arbitrary from one investor to the next.
One of the few examples at the moment that demonstrates Buffett's affinity for "a sensible price" is the Oracle of Omaha's purchase of 2.73 million shares of General Motors during the fourth quarter. There's no questioning that the auto industry is working through a rough patch. Chinese auto sales are way down, and automakers like General Motors are laying off workers and closing plants to reduce costs. GM was also dealt a particularly difficult hand recently as it contended with the United Auto Workers' strike.
However, General Motors is also valued at a little below six times this year's consensus profit forecast from Wall Street. Even with the auto industry historically trading for a much lower earnings multiple than practically every other industry, this is still inexpensive, even for GM. Known for taking advantage of investor fear, Buffett probably saw this as an opportunity to tack onto his company's existing position in General Motors.
And that, my fellow investors, are the three criteria the greatest investor of our generation is looking for when buying a stock.
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>>> Warren Buffett Poised to Address Missed Deals With Cash Pile Growing
Bloomberg
By Katherine Chiglinsky
February 21, 2020
https://www.bloomberg.com/news/articles/2020-02-21/buffett-is-poised-to-address-missed-deals-with-cash-pile-growing?srnd=premium
Berkshire ‘getting more pessimistic’ about using money: Munger
Closely watched annual letter scheduled for release Saturday
Warren Buffett tends to rejoice when he sees a company buying back underpriced shares. At his own Berkshire Hathaway Inc., which underperformed the stock market last year by the widest margin in a decade, an increase in repurchases might not be cause for celebration.
Buffett has found little success deploying Berkshire’s growing pile of cash. Its last big takeover, a $37.2 billion deal for Precision Castparts Corp., was more than three years ago. This year, the conglomerate was outbid for a tech company. Berkshire’s struggle to find well-priced takeovers led it to open another path for putting money to work: The company loosened its buyback policy almost two years ago, but has repurchased only $4.1 billion of its shares since then.
“We’re gradually getting more pessimistic about using our money,” Berkshire Vice Chairman Charlie Munger said in an interview last week. “It’s been a long time since we bought anything.”
Buybacks haven’t made much of a dent in Berkshire’s record $128 billion mountain of money either, weighing on its stock price because, as Buffett himself says, the funds earn “only a pittance.” Berkshire investors will be scouring Buffett’s annual letter to shareholders, set for release Saturday, for clues about his strategy after a year of missed deals and shares that rose at a slower pace than the S&P 500 Index -- their worst underperformance since 2009.
Berkshire shares underperformed the S&P 500 last year
“They just aren’t buying back a lot of stock, they aren’t putting a lot of money to work in public securities, they’re not buying portfolio companies outright,” Jim Shanahan, an analyst at Edward Jones, said in an interview. “The cash balance continues to grow.”
No Elephants
While 2019 wasn’t the year for an “elephant-sized acquisition,” Buffett was hunting. Berkshire reportedly passed on Tiffany & Co. but did make an offer for Tech Data Corp., ultimately losing out to private equity firm Apollo Global Management Inc.
The Omaha, Nebraska-based conglomerate also spent the last few months of the year plowing money into stocks new to its portfolio, taking stakes in Kroger Co. and Biogen Inc. Even that did little to chip away at Berkshire’s cash hoard, and it was still a net seller of stocks in the fourth quarter.
Read more: Buffett’s Berkshire adds Biogen, Kroger stakes
Buffett’s letter will be released alongside Berkshire’s annual report, which will include quarterly results for his sprawling company. Operating earnings probably rose in the last three months of 2019 from a year earlier, according to Meyer Shields, an analyst at Keefe, Bruyette & Woods. Berkshire’s net-income figure now factors in swings in the $220 billion stock portfolio, volatility that Buffett has cautioned investors to ignore.
As for acquisitions, Buffett for years has stressed patience, with prices for good businesses becoming “sky-high.” Last year, the S&P 500 Index notched its biggest gain since 2013. Waiting for markets to turn might be the wisest course for Buffett, according to Shields.
‘Do Nothing’
“The right thing to do is to do nothing if the potential acquisitions are overpriced,” Shields said in an interview.
As to whether the challenging environment for acquisitions could mean more Berkshire share buybacks in the future, Munger provided no guidance in last week’s interview, following the annual meeting of his Daily Journal Corp. in Los Angeles.
“Who can tell?” he said.
What Bloomberg Intelligence Says
“Fireworks on the corporate front in conjunction with Berkshire’s announcement of 4Q earnings are unlikely, in our view. Berkshire didn’t make any major acquisitions in the past three months, and share repurchases were probably modest in the quarter.”
--Matthew Palazola, senior analyst
While the Oracle of Omaha may address the frustrations of dealmaking and investing in 2019, Buffett often uses the letter as a platform to delve into a wider range of issues too, including the economy, politics and investment fees.
Here are some other topics that might come up in the letter:
Kraft Heinz
Over the past year, a massive writedown, management changes and a regulatory probe at the packaged-food giant caused turmoil for Berkshire, its biggest shareholder. More recently, Kraft Heinz was downgraded to junk by some credit-rating companies, which has weighed on its stock.
Following a delay related to the problems at Kraft Heinz, Berkshire’s portion of its earnings are once again included in the conglomerate’s results. Buffett’s company carried its Kraft Heinz stake at a value of $13.8 billion on its balance sheet at the end of September, almost $4.7 billion more than the market price at the time. The conglomerate said it’ll continue to monitor the investment for impairment, but didn’t think it was required then.
“I have thought they have needed to write down the value of the asset for several quarters now,” Cathy Seifert, an analyst at CFRA Research, said in an interview. “I am surprised and dismayed that the carrying value has not been reconciled to reality.”
Geico
Buffett’s company famously keeps a relatively tight corporate staff, with just 26 employees in the office, so any reshuffling of duties tends to attract investor attention. Late last year, Berkshire named Todd Combs, who helps Buffett oversee investments, to run auto insurer Geico, in addition to his role managing at least $14 billion in stocks. While Buffett’s deputy worked at Progressive Corp. years ago, most of his career has been spent managing investments.
“That was a really surprising appointment,” said Shanahan of Edward Jones. “He just doesn’t have that kind of experience -- not only running a large organization, but running an insurance company.”
Combs knows a lot about auto insurance so the appointment made sense, according to Munger. The auto insurer will increasingly need to figure out how to navigate changing technology, such as artificial intelligence for underwriting, Munger said.
Geico has also been facing pressure from rivals including Progressive, which sparked a question from a shareholder at last year’s annual meeting about how Geico stacked up to its competitor. Ajit Jain, vice chairman of insurance operations at Berkshire, said Geico has “significant” advantages in terms of controlling expenses, but that Progressive is better at managing losses.
“Geico is very aware of this disadvantage on the loss ratio that they are suffering, and they’re very focused on trying to bridge that gap as quickly as they can,” Jain said at the time.
Geico ended up tweaking its strategy last year, building out capabilities long championed by Progressive and Allstate Corp. Geico introduced a telematics offering, which connects cars and phone apps to track drivers’ habits.
Succession
Buffett’s letter always spurs questions about succession for the 89-year-old CEO and his 96-year-old business partner Munger. In 2018, Berkshire appointed two key lieutenants, Jain and Greg Abel, to its board, promotions that Buffett said at the time were movements toward succession.
Buffett hasn’t publicly named his successor, a fact that ramps up speculation around any public announcements. Many investors have been focusing on Abel, whose mandate includes overseeing all of Berkshire’s non-insurance businesses. Those responsibilities put him in charge of companies from the sprawling energy empire he led for years to retailers Dairy Queen and See’s Candies and apparel brands Fruit of the Loom and Brooks Sports.
Politics
Buffett has been carefully navigating the increasingly bifurcated U.S. political climate in recent years. While he campaigned for Hillary Clinton in 2016, he has yet to endorse a candidate in this year’s presidential race, though he has expressed support for Michael Bloomberg, who’s seeking the Democratic nomination. (Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)
Buffett’s 2019 letter contained a carefully worded section on how U.S. prosperity has been achieved in a bipartisan manner. He might take a similar approach this year.
“He may say something thinly veiled within the context of the American system and preserving the American system of capitalism,” CFRA’s Seifert said. “He runs a very large, globally interconnected company. It’s probably not a bad idea for him to be measured in what he says.”
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>>> Warren Buffett just lost $1 billion in 2 days after Kraft Heinz disappointed again
MSN Money
2-14-20
Theron Mohamed
https://www.msn.com/en-us/money/topstocks/warren-buffett-just-lost-dollar1-billion-in-2-days-after-kraft-heinz-disappointed-again/ar-BB100wu3?li=BBnb7Kz&ocid=mailsignout
Warren Buffett lost more than $1 billion this week after Kraft Heinz stock plummeted 11% in two days.
The famed investor's Berkshire Hathaway conglomerate owns about 27% of the food giant, according to Bloomberg data. The value of its stake plunged to $8.7 billion from $9.8 billion between Thursday and Friday, after a one-two punch of disappointing earnings and a credit-rating cut pummeled Kraft Heinz shares.
On Thursday, the maker of Heinz ketchup and Kraft macaroni and cheese revealed a 5% drop in fourth-quarter net sales and a 14% slump in adjusted earnings per share. CEO Miguel Patricio said the performance was "disappointing" in a press release.
On Friday, Fitch cut Kraft Heinz's credit rating to BBB- from BB+, downgrading its bonds to non-investment grade or "junk," Bloomberg reported. The credit-rating agency cited the company's large debt pile, dwindling profits, and negative outlook.
Kraft Heinz stock has nosedived almost 75% from its peak in February 2017, underscoring the magnitude of Buffett's mistake.
The so-called "Oracle of Omaha" partnered with private-equity group 3G Capital to buy Heinz for about $28 billion on Valentine's Day in 2013. The pair then cofinanced Heinz's $50 billion mega-merger with Kraft Foods in 2015. Kraft-Heinz's market capitalization is currently less than $33 billion.
"We try to buy good businesses at a decent price, and we made a mistake on the Kraft part of Kraft Heinz," Buffett said at Berkshire's annual meeting last year. "We paid too much money."
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>>> The 3 Most Expensive Stocks Warren Buffett Owns
Compared to the usual Berkshire Hathaway purchases, these stocks' P/E ratios are on the high side, but there are good reasons why the famous value investor isn't bothered by that.
Motley Fool
1-17-20
by Billy Duberstein
https://www.fool.com/investing/2020/01/17/the-3-most-expensive-stocks-warren-buffett-owns.aspx
Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) CEO Warren Buffett is known as one of the founding fathers of value investing, but that doesn't mean the Oracle of Omaha eschews the growth aspects of a business. After all, as far back as his 1989 letter to shareholders, Buffett wrote, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Many value investors have been burned by bargain-hunting over the past decade, as growth stocks have absolutely trounced value stocks since the Great Recession. This could be due to a number of factors, but most notably, technological disruption is wreaking havoc on many legacy businesses in just about every industry. That's why companies riding today's tech tailwinds are making new highs, while those being disrupted have seen their shares stagnate (or worse) despite seemingly "cheap" valuations.
Therefore, instead of looking at the cheapest stocks in Buffett's portfolio for inspiration, investors may want to look at the most expensive stocks Berkshire owns. Likely, these are the most competitively advantaged businesses with the most superior growth prospects.
Based on price-to-earnings ratio -- one of the most common and useful valuation metrics -- the three most expensive stocks in the Berkshire Hathaway portfolio are Charter Communications (NASDAQ:CHTR), Amazon.com (NASDAQ:AMZN), and StoneCo (NASDAQ:STNE). Here's why each is still a solid buy today.
Charter Communications
P/E ratio: 93.2
Forward P/E ratio: 38.8
Charter Communications is the second-largest cable operator in the U.S., behind only Comcast. Though it's on this list, its high P/E ratio is a tad deceptive, as the company's use of massive amounts of high-interest debt in its capital structure makes its earnings appear low. Its free-cash-flow profile is robust and accelerating, which explains why the stock has been on an absolute tear over the past year, up roughly 75%.
How has Charter done so well, even with such a high P/E ratio and heavy debt load? A few reasons. The company took on that massive debt burden in 2016 to finance two huge acquisitions: Time Warner Cable and Bright House Networks. Once those deals were completed, Charter then had to spend heavily on "insourcing" its customer service operations, transitioning dozens of siloed back-office operations onto one platform, and investing in DOCSIS 3.1 digital upgrades across its entire footprint -- technology that has given the cable industry a distinct advantage over satellite competitors. In addition, Charter teamed up with Comcast to offer mobile phone plans. That looks like a successful innovation for the company, but it's one that required a fair amount of start-up capital.
All of this heavy spending took place during a period in which investors grew more nervous about the cord-cutting trend, and the combination of factors drove a big sell-off in Charter's stock back in early 2018.
However, in 2019, a number of positives occurred. Charter reached the end of its spending cycle, and was able to cut its capital expenditures to roughly $7 billion from over $9 billion in the previous year. Meanwhile, the company continued to add broadband customers at a rapid clip, and its video customer losses have been relatively modest compared to those suffered by satellite TV operators. Broadband is also the much, much more profitable product, and as Charter added more broadband subscribers over its fixed network, profit margins and free cash flow surged.
While the stock is far more expensive than it was just a short time ago, there are still lots of reasons to like Charter. It has a large economic moat in that it has only one competitor in most of its geographic markets, and cable's digital technology appears to have an edge over satellite for modern communications. In addition, the company's mobile business has the potential to grow a lot in the coming years. Finally, Charter is recession-resistant, which should appeal to investors fearful that the U.S. economy's 11-year expansion is due to end.
Amazon
P/E ratio: 82.5
Forward P/E ratio: 68.2
For most investors, Amazon needs no introduction. Considering its dominance in e-commerce, you likely buy things from it often, and, given that Amazon Prime now has more than 100 million subscribers, you're likely among those benefiting from the loyalty program's many benefits, including one-day shipping. If you own a smart speaker, chances are its Amazon's Alexa, which owns some 70% of the smart home devices market.
At the same time, if you work for a company, whether it's a start-up or one of the world's largest enterprises, some of your employer's digital workload is likely carried by Amazon Web Services, the pioneer and market share leader in cloud computing.
Not only has Amazon innovated its way into dominating the e-commerce, smart speaker, and cloud computing markets, it's also rapidly expanding into two more massive markets: shipping for third-party sellers, and healthcare.
Finally, it's also making waves in the highly profitable digital advertising business -- not only growing digital ads on its e-commerce site, but also reaping the benefits of ad-supported over-the-top streaming services distributed via its Fire TV sticks. According to eMarketer's projections, Amazon's digital ad revenues reached nearly $10 billion in 2019, up 33% compared with 2018.
It should be noted that it wasn't Buffett who himself who had Berkshire Hathaway buy Amazon stock during the first half of 2019, but rather one of his two younger lieutenants. At the Berkshire Hathaway annual meeting in May, Buffett was asked about the purchase, as Amazon's stock seemed expensive for a value-investing shop like Berkshire. Buffett responded:
... The idea that value is somehow connected to book value or low price/earnings ratios or anything -- as Charlie has said, all investing is value investing. I mean, you're putting out some money now to get more later on. And you're making a calculation as to the probabilities of getting that money and when you'll get it and what interest rates will be in between. And all the same calculation goes into it, whether you're buying some bank at 70% of book value, or you're buying Amazon at some very high multiple of reported earnings. Amazon -- the people making the decision on Amazon are absolutely as much value investors as I was when I was looking around for all these things selling below working capital, years ago. So, that has not changed....
Obviously, whoever chose to add Amazon to Berkshire's portfolio thinks that its cash flow potential is being masked by its massive, moat-widening investments. He's not the only one.
StoneCo
P/E Ratio: 68.2
Forward P/E ratio: 40.6
The decision on StoneCo, too, was made by one of Buffett's lieutenants, and the stock is unique for Berkshire: Not only does it appear to be an expensive growth stock, but it's also a Brazilian company. Founded in 2000, StoneCo has a similar model to Square, offering point-of-sale terminals and digital checkout services for merchants, but in a country where 85% of transactions are still done in cash.
That means that the War on Cash has quite a long way to go in Brazil. In addition, leading payments companies all over the world have shown that its quite a "sticky" business model: Once a company adopts a payments provider, it's a big headache to switch.
StoneCo had a great 2019, with the stock surging 116.3%. Despite a setback in April when Itau Unibanco announced a rival product, StoneCo rallied in the back half of the year on strong growth, seemingly putting those competitive concerns to rest. Last quarter, revenue surged 71% in U.S. dollars, with margin expansion leading to a whopping 212% growth in adjusted net income. Importantly, the company was able not only to grow gross merchandise volume but also increase its take rate -- the fees it charges its merchants. Pricing power is another sign of a wide competitive moat, so it's not so surprising that StoneCo has found its way into Berkshire's portfolio.
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>>> StoneCo Ltd. (STNE) provides financial technology solutions that empower merchants and integrated partners to conduct electronic commerce across in-store, online, and mobile channels in Brazil. It distributes its solutions, principally through proprietary Stone Hubs, which offer hyper-local sales and services; and technology and solutions to digital merchants through sales and technical personnel and software vendors. As of December 31, 2018, the company served approximately 267,000 clients, which included digital, and brick-and-mortar merchants, primarily small-and-medium-sized businesses; and 108 integrated partners, such as global payment service providers, digital marketplaces, and integrated software vendors. The company was founded in 2000 and is headquartered in São Paulo, Brazil.
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>>> Warren Buffett’s 2020 New Year’s Resolution
After another unremarkable year for Berkshire Hathaway, the billionaire may be determined to find his elephant.
Bloomberg
By Tara Lachapelle
December 23, 2019
https://www.bloomberg.com/opinion/articles/2019-12-23/warren-buffett-s-new-year-s-resolution?srnd=premium
2019 wasn’t Buffett’s worst year, but it was surely one of his dullest.
He’s making a list and checking it twice, but can’t find a takeover target that’s nice.
Warren Buffett is the jolly man of the stock market. However, the chairman and CEO of Berkshire Hathaway Inc. has also been a bit of a Scrooge this year, as he continues to pass up acquisitions and instead hoard his money. The billionaire has long been seeking a really big deal on which to spend some of his company’s $128 billion of cash, except everything is overpriced in his view. To make matters more frustrating, Berkshire’s own shares are lagging behind the broader U.S. market by the most since 2009.
While 2019 wasn’t Buffett’s worst year, it was surely one of his dullest. With Berkshire’s cash pile reaching new heights, Buffett has said that just the thought of taking over another company — he’s acquired nearly 200 during his career — causes his heart “to beat faster.” Instead, this chart of Berkshire’s stock performance looks like it’s almost flat-lining:
Feeling Faint
Gains in Berkshire Hathaway's share price were less pronounced the last couple of years
Berkshire shares are on track to end the year up a modest 11%, trailing the S&P 500 index by 20 percentage points. That’s even as the company posted record operating profit in the latest quarter.
Buffett, who turned 89 in August, is the fourth-richest person in the world, and it’s hard for the fourth-richest person in the world to have too bad of a year. But for one of the most celebrated investors and dealmakers of all time, who also enjoys basking in the spotlight, the deal dry spell isn’t much fun. Without any new acquisitions to rave about, even Buffett’s highly anticipated annual letters — the release of which investors treat like tickets dropping for a Beyonce concert — lately have been shorter than usual and have lacked his characteristic bawdy metaphors. (That’s not to say a retreat from the dirty-grandpa humor isn’t welcomed by this writer.)
Berkshire’s last large takeover — the kind he dubs “elephants” — was Precision Castparts, an aerospace-parts supplier, for $37 billion; it was completed nearly four years ago. This year, Berkshire merely provided $10 billion of high-interest financing to help another company, Occidental Petroleum Corp., make an acquisition; that barely put a dent in Berkshire’s cash. It was then outbid in November for software distributor Tech Data Corp. in what would have been a $5 billion deal. 1 Berkshire had considered selling debt in Europe, which might have been a precursor to a significant acquisition overseas, but that never panned out. At the end of the day, the company’s splashiest investment of the year was an $861 million stake in Amazon.com Inc. The closest thing Buffett found to an elephant might just be this stuffed animal, an item sold at RH, a small home-furnishings retailer in which Berkshire recently bought a stake.
Though it was a boring year, 2019 marks the end of what was perhaps Berkshire’s most transformative decade. It became the owner of one of America’s most expansive railroad systems, BNSF, while recognizable brands including Duracell and Kraft Heinz (for better or worse) also joined the Berkshire family. At the start of the decade, consumer stocks such as Coca-Cola Co. and Procter & Gamble Co. accounted for the biggest share of Berkshire’s stock-market holdings. Now, Apple Inc. and some banks and credit-card companies together comprise almost three-quarters of its portfolio. Buffett also took meaningful steps toward succession planning by promoting Greg Abel and Ajit Jain to oversee all Berkshire’s operations and thus raising their public profiles.
Switching Up Stock Picks
Berkshire Hathaway's portfolio looks very different than it did at the start of the decade, with a sudden interest in tech
Buffett and Berkshire Vice Chairman Charlie Munger — who turns 96 on New Year’s Day — were asked during the last shareholder meeting in May whether their successors will have to transition the company from an acquisition-and-investment vehicle into an entity focused instead on returning capital through stock buybacks and dividends. “That’s certainly a possibility,” maybe even during his time, Buffett said. “But we will have to see how that works out over many years, because certain years huge opportunities present themselves and other years are totally dry holes.” Berkshire spent about $2.8 billion repurchasing class A and B shares in the first nine months of 2019, up from $0 in 2017.
Follow the Money
A snapshot of Berkshire Hathaway's cash flows for the first nine months of 2019:
U.S. stocks haven’t been getting any cheaper for Buffett. That said, some see his hoarding of cash partly as an insurance policy in case his health deteriorates, so that there’s added financial flexibility for the next CEO. But knowing Buffett, he’ll want to go out with a bang. Finding one last elephant should be his New Year’s resolution.
Buffett was also close to doing a “very large” transaction around this time last year, but it fell apart, as did attempted deals involving Unilever Plc and Oncor Electric Delivery Co. in 2017.
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>>> Tech Data Corporation (TECD) operates as an IT distribution and solutions company. The company offers endpoint portfolio solutions, including personal computer systems, mobile phones and accessories, printers, peripherals, supplies, endpoint technology software, and consumer electronics. It also provides advanced portfolio solutions, such as data center technologies comprising storage, networking, servers, advanced technology software, and converged and hyper-converged infrastructure, as well as specialized solutions. The company serves value-added resellers, direct marketers, retailers, corporate resellers, and managed service providers. It sells its products to customers in approximately 100 countries in North America, South America, Europe, the Middle East, Africa, and the Asia-Pacific region. The company was founded in 1974 and is headquartered in Clearwater, Florida.
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>>> Buffett Outbid by Private Equity in Berkshire’s Deal Hunt
By Katherine Chiglinsky
November 29, 2019
https://www.bloomberg.com/news/articles/2019-11-29/warren-buffett-was-the-competing-bidder-for-tech-data-cnbc-says?srnd=premium
Apollo topped Berkshire bid for Tech Data Corp., CNBC says
Buffett’s deal efforts have been hurt by ‘sky-high’ prices
Warren Buffett has frequently touted his Berkshire Hathaway Inc. as a home for businesses away from what he said was the debt-fueled, quick-turnover appetite of private equity firms. But the Berkshire name wasn’t enough for Tech Data Corp.
Berkshire made a $140-a-share bid for the distributor of technology products that was topped by a $145 offer from Apollo Global Management Inc., CNBC reported. The offer was another effort by the billionaire investor to put a chunk of his record $128 billion cash pile to use and signals that while Buffett is still on the prowl, he may not be willing to outbid private equity firms flush with money.
Buffett has been stymied on the acquisition front in recent years, causing the billionaire investor to express frustration about the “sky-high” prices for decent businesses. He said earlier this year that he was working on a large deal in the fourth quarter of 2018 but it eventually fell through. The lack of deals has also pressured Buffett’s ability to maintain the stock returns that helped make him famous. Berkshire’s stock is on track for its worst underperformance since 2009.
Berkshire’s interest forced Apollo to raise its bid to one that values Tech Data at about $6 billion, including debt. Tech Data helps bring products to market for firms such as Microsoft Corp. and Apple Inc., which is Berkshire’s largest public stock investment as it has a roughly $56 billion stake in the iPhone maker.
“He’s just not going to throw the money out and earn a rate of return below what his minimum target is,” David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business. “He is Buffett because he’s patient.”
Auction Process
The biggest private-equity firms are on a tear. Apollo’s Leon Black said earlier this month that the firm is on track to almost double its assets under management to $600 billion in five years. Apollo’s higher bid, announced Wednesday after the market closed, sent shares of Tech Data surging 12% to $144.89 at 10:46 a.m. in New York.
Tech Data, which was using Bank of America Corp. as its financial adviser, was engaged in a “go-shop” process. Buffett has typically avoided auctions where sellers seek the most money they can get, calling them a waste of time and a situation where he can’t win.
A Tech Data buyout by Berkshire would have pushed the Omaha, Nebraska-based conglomerate further into the technology realm, an area that Buffett avoided for decades. It also would have added another family-built business to Berkshire’s mix of retailers, insurers and energy companies. Edward Raymund founded the company and his son Steven Raymund ran the firm for about two decades before becoming chairman. Steven Raymund stepped down in 2017.
A potential acquisition by Berkshire would have just been a drop in the bucket for Buffett’s firm. The transaction value of $6 billion is just 4.7% of Buffett’s total cash pile.
For Berkshire, the Tech Data saga likely ends here. Buffett isn’t planning to make a higher bid, according to CNBC. His appetite for a large buyout may continue.
“We continue, nevertheless, to hope for an elephant-sized acquisition,” Buffett said in his annual shareholder letter released earlier this year.
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>>> Berkshire Takes on Short Sellers With Bet on Furniture Retailer
Bloomberg
By Jarrell Dillard, Katherine Chiglinsky, and Anisha Sircar
November 23, 2019
https://www.bloomberg.com/news/articles/2019-11-23/berkshire-takes-on-short-sellers-with-bet-on-furniture-retailer?srnd=premium
RH is the most shorted stock among home-furnishing retailers
The shares have gained more than 500% since the start of 2017
Home furnishings are displayed in a Restoration Hardware Holdings Inc. store in New York, U.S..
Berkshire Hathaway Inc.’s new wager on furniture retailer RH has Warren Buffett’s company in a place it rarely finds itself: invested in a heavily shorted stock.
RH is the most popular short in the home-furnishing retail sector with 37% of the shares available to trade on loan to bears, according to data from financial analytics firm S3 Partners. The disclosure last week that Berkshire bought 1.2 million shares in the third quarter sent RH soaring to a fresh record. The rally hasn’t shaken the faith of short sellers, who profit when the price of a stock falls. Short interest in RH has barely changed since Berkshire revealed its purchase.
The retailer formerly known as Restoration Hardware has a couple of traits that undoubtedly appealed to Berkshire. For one, Buffett likes to stick to areas he knows best when selecting stocks. Berkshire counts at least four furniture retailers among its portfolio of companies, including Nebraska Furniture Mart which has a sprawling 80-acre campus in Buffett’s hometown of Omaha, Nebraska.
“They have a certain limited circle of competence and within that circle of competence is furniture stores,” said David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business.
Berkshire’s Bet
RH, known for luxe decor like sofas that can cost more than $5,000, also has an appetite to repurchase its own stock. The billionaire investor and his business partner, Charlie Munger, “rejoice” when managers buy back stock and boost Berkshire’s stake, Buffett said in his annual shareholder letter this year. Since 2017, RH has repurchased about 60% of its previously outstanding stock, it said in September.
The relatively small size of Berkshire’s stake in RH, which totaled $206 million at the end of the third quarter compared to Berkshire’s $56 billion bet on Apple Inc., likely indicates it was made by one of Buffett’s two investing deputies, Todd Combs or Ted Weschler, according to Kass. Berkshire didn’t respond to messages seeking comment on which investment manager purchased the stake.
Whoever made the RH bet likely perceived the stock as under-priced at the time of purchase, even if it was high on an absolute basis, according to Kass. And Berkshire hasn’t shied away from buying stocks at relatively high levels. One of the deputies has spent the past year snapping up Amazon.com Inc. shares, which now trade around $1,745 and more than 80 times estimated profits.
“Maybe they saw a certain growth opportunity here that other analysts are missing,” said Kass. “Much of their investment career is to try to find those rare under-priced opportunities where they expect to outperform the market.”
Bear Case
Short sellers are no doubt attracted to the rapid advance of RH shares. The Tracy, California-based company has gained more than six-fold since 2017 as Chief Executive Officer Gary Friedman managed to re-ignite revenue growth by drawing more customers to its brick-and-mortar stores at a time when consumer purchases are increasingly being made online.
The retailer's shares have gained more than 500% since 2017
That strategy is probably at the heart of the RH short thesis as Friedman has “gone against the grain with building big stores,” said John Baugh, an analyst at Stifel Nicolaus & Co., who has a buy rating on the stock.
Baugh thinks RH’s push to become more of a destination is the right move, one that will continue to drive traffic with high-end furniture that people feel the need to see in person and touch. While 9 of the 22 analysts tracked by Bloomberg that cover RH have buy ratings, the majority are neutral.
Anthony Chukumba, a Loop Capital Markets analyst, downgraded the stock to hold from buy on Thursday on concerns about valuation. He sees the upside potential and downside risks as fairly balanced at current levels. Still, Chukumba remains positive on RH’s fundamental performance, which he said has been aided by the introduction of a customer membership program.
Hennessy Investment Funds, which owns more than $18 million in RH shares, expects Friedman’s strategy to continue to improve financial results.
RH’s “earnings trajectory has been very good,” said portfolio manager Ryan Kelley. “I think they still have a lot more they can do to fortify their position.”
For Berkshire, so far the bet has been a good one, assuming it hasn’t sold the stock. Even if Berkshire bought at the highest point in the third quarter, RH shares have gained 13% since then.
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>>> Why Buffett Is Betting $10 Billion on Occidental in the Anadarko Bidding War
Investopedia
BY MARK KOLAKOWSKI
Updated Jun 25, 2019
https://www.investopedia.com/why-buffett-is-betting-usd10-billion-on-occidental-in-anadarko-bidding-war-4685821
Warren Buffett has jumped into the takeover battle for Anadarko Petroleum Corp. (APC), the giant energy company with a market cap of more than $36 billion targeted by rivals Chevron Corp. (CVX) and Occidental Petroleum Corp. (OXY). In an unexpected twist to Occidental's latest takeover bid for Anadarko, Buffett's Berkshire Hathaway Inc. (BRK.A), announced that it would facilitate the acquisition by injecting $10 billion into Occidental. Berkshire's investment is contingent on Occidental becoming the winning bidder over Chevron.
Buffett previously has expressed his "hope for an elephant-sized acquisition" in his most recent annual letter to Berkshire shareholders. With cash of $112 billion at the end of 2018, the proposed infusion into Occidental would be far less than "elephant-sized" for Berkshire, but it would give Berkshire more exposure to the oil sector, where prices have risen. "We are thrilled to have Berkshire Hathaway's financial support of this exciting opportunity," Occidental CEO Vicki Holub stated in a press release on Tuesday. On Sunday, a corporate jet owned by Occidental was in Omaha, the headquarters city of Berkshire, Bloomberg reports.
Buffett's Planned Investment In Occidental
Worth $10 billion
Berkshire receives 100,000 shares of cumulative perpetual preferred stock. Each preferred share issued by Occidental has a value of $100,000. The preferred stock issued by Occidental pays an 8% dividend. Berkshire also gets warrant to buy up to 80 million OXY shares at $62.50. Investment is contingent on Occidental being winning bidder
More Details on the Deal
Occidental has a stock and cash bid of $76 per share for Anadarko, which closed trading on April 29 at $72.93 per share, per Yahoo Finance. The bid by Occidental effectively values Anadarko at $38.1 billion. Chevron's latest offer, meanwhile, is $33 billion, per CNBC.
“We have long believed that Occidental is uniquely positioned to generate compelling value from Anadarko’s highly complementary asset portfolio," Occidental CEO Holub said in further comments in today's press release. The statement also noted that Anadarko's board on Monday concluded that Occidental's offer amounted to a "superior proposal" for the company.
Occidental has a market cap of about $43.9 billion, versus $230 billion for Chevron. Given this huge disparity in size, enlisting the aid of a deep-pocketed ally such as Berkshire, which has a market cap of $530 billion, probably is essential for Occidental to become the winning bidder. Buffett and his team at Berkshire apparently believe that Occidental can achieve significant operational synergies by adding Anadarko's properties.
Adding to the plot, Berkshire owns the largest interstate natural gas pipeline company in the U.S., Northern Natural Gas. It is widely expected that, after acquiring Anadarko, Occidental would divest between $10 billion and $15 billion of assets. This may include a stake held by Anadarko in pipeline company Western Midstream Partners LP (WES), per research by Tudor Pickering Holt & Co. cited by Bloomberg.
As outlined above, Berkshire would earn a lush payout from the deal: preferred stock dividends of $800 million annually in return for its $10 billion investment in Occidental. Despite Buffett's announcement, Occidental shares fell initially. Some analysts have downgraded Occidental in the wake of its bid, concerned that the size of the deal would pose significant risks.
Berkshire's Equity Portfolio
Buffett's Berkshire's holds a large portfolio of publicly-traded stocks worth about $209.6 billion, per CNBC, but Berkshire has no major energy stocks among its top 10 holdings. The top six positions, worth $146.1 billion in total, are: Apple Inc. (AAPL), $50.1 billion, Bank of America Corp. (BAC), $27.5 billion, Wells Fargo & Co. (WFC), $20.6 billion, The Coca-Cola Co. (KO), $19.5 billion, American Express Co. (AXP), $17.6 billion, and Kraft Heinz Co. (KHC), $10.8 billion.
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>>> Warren Buffett's Berkshire Hathaway buys stake in Restoration Hardware
By Paul R. La Monica
CNN Business
November 15, 2019
https://www.cnn.com/2019/11/15/investing/warren-buffett-berkshire-hathaway-rh-restoration-hardware/index.html
New York (CNN Business)Warren Buffett must really like comfy sofas and beds. The Oracle of Omaha's Berkshire Hathaway bought more than 1.2 million shares of high-end furniture retailer RH -- aka Restoration Hardware -- in the third quarter. It's a new position for Berkshire.
Shares of RH (RH) surged nearly 6% Friday morning on the news, adding to the stock's already sizable gains this year. RH is now up more than 50% in 2019.
The investment makes sense considering that Berkshire Hathaway (BRKB) also owns the Nebraska Furniture Mart, RC Willey Home Furnishings, Jordan's Furniture and Star Furniture retail chains. So it's clear that Buffett is a fan of the home furnishings business.
According to trade publication Furniture Today, Berkshire's furniture unit is the seventh-largest in the United States, with estimated sales of $2.1 billion in 2018. RH is a bit bigger, generating sales of $2.5 billion last year.
RH is also decidedly more luxe than many of Berkshire's furnishing subsidiaries. The RH website features links to Ski House and Beach House collections as well as requests for a consultation with the company's in-house interior design team.
But RH wasn't the only newbie in Berkshire's portfolio. The company also bought a nearly 7.5 million share stake in oil giant Occidental Petroleum (OXY). Berkshire had provided financing to Occidental for its takeover for rival Anadarko last year. Occidental outbid Chevron (CVX). Occidental rose more than 3% Friday.
Billionaire Carl Icahn, who also owns a stake in Occidental, has criticized that company's management team for spending so much on Anadarko -- especially since Oxy cut a deal with Buffett that was very advantageous for Berkshire.
Berkshire Hathaway also trimmed some of its positions in a few of its top holdings. It sold shares in Apple (AAPL), although the iPhone maker remains Berkshire's largest investment. Berkshire also sold a piece of its stake in troubled bank Wells Fargo (WFC).
But Berkshire didn't touch most of its other large positions, such as Coca-Cola (KO), American Express (AXP) and Bank of America (BAC). In fact, Berkshire recently applied to the Federal Reserve for approval to boost its ownership stake in BofA above the legal threshold of 10%. Berkshire issued a similar application to the Fed regarding its Wells Fargo position but dropped the request in 2017.
Berkshire also didn't do anything with its massive stake in struggling food conglomerate Kraft Heinz (KHC). That stock tumbled Thursday after Goldman Sachs (GS) -- which Berkshire also owns a stake in -- downgraded Kraft Heinz to a sell.
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>>> Hedge Funds Struggle to Replicate Warren Buffett’s Reinsurance Success
It’s not that easy to be like Berkshire Hathaway.
Bloomberg
By Katherine Chaglinsky
September 27, 2019
https://www.bloomberg.com/news/articles/2019-09-27/why-it-s-not-that-easy-to-be-like-warren-buffett?srnd=premium
Berkshire Hathaway Inc.’s Warren Buffett issued a warning about eight years ago: Reinsurance isn’t easy. Still, hedge fund managers—including David Einhorn of Greenlight Capital and Daniel Loeb of Third Point—have borrowed a bit from Buffett’s playbook and gone into reinsurance, which provides coverage for other insurers.
Buffett had an advantage. He owned insurance companies within his conglomerate and could invest their “float”—the premiums they take in but don’t have to pay out in claims right away. The hedge funds’ approach is different. Their managers have set up separate, publicly traded reinsurance companies that invest in the hedge funds. Investors can use the reinsurance stocks as a way to get a taste of the investments of the hedge funds, which then get more money to use and earn fees on.
The trick is to do well in writing insurance policies and investing the portfolio. Einhorn’s Greenlight Capital Re Ltd. and Loeb’s Third Point Reinsurance Ltd. have had trouble with both at times. The companies’ shares are trading below their initial public offerings. “Investors have really soured on this model because it doesn’t seem to work,” says Meyer Shields, an analyst at Keefe, Bruyette & Woods Inc. “It’s not like it couldn’t work. It just hasn’t.”
Greenlight Re is at a crossroads: Facing criticism from an insurance ratings agency about its underwriting, it announced in May it was reviewing its business. Einhorn said in August that the company had to search for the “best strategic direction,” but liquidation wasn’t his first option. Third Point Re hasn’t posted an annual underwriting profit since at least its 2013 IPO.
The insurance business got crowded. In 2013 the “floodgates” of capital opened and altered the market, says Shields. As new players joined in, it got harder to charge high premiums. Natural disasters in 2017 forced insurers to pay out a record $138 billion, according to Munich Re.
Investment markets haven’t always been kind, either. Greenlight Re’s portfolio declined 30.3% last year, and Third Point Re’s investments managed by the hedge fund fell 10.8%. This year, Greenlight Re’s investments are up 7.8% through the end of August, and Third Point Re’s hedge fund holdings recorded an estimated net return of 11.4%. As Greenlight Re seeks a new path, it says it will stash a majority of its investments in cash and short-term Treasuries. Third Point Re ended up shifting some bets into fixed-income assets. Greenlight Re and the Greenlight hedge fund declined to comment.
Loeb isn’t giving up. He says he’d like to see Third Point Re, which has a market capitalization of about $918 million, become a $5 billion to $10 billion company in the next 5 to 10 years. “I’m fully prepared to put more capital into this business to make strategic acquisitions,” he says. The original plan was to seek relative stability while getting upside from Loeb’s investment bets. Now the company is working to shift its underwriting strategy to higher-margin types of policies.
Hedge fund reinsurers aren’t alone in being scarred by the business. In 2011, Buffett admitted Berkshire didn’t really succeed until the arrival of Ajit Jain, now vice chairman for insurance operations. How long did it take Berkshire to find its footing? Fifteen years, Buffett said.
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>>> Warren Buffett sends a silent warning to investors
Motley Fool
8-7-19
by Sean Williams
https://www.msn.com/en-us/money/markets/warren-buffett-sends-a-silent-warning-to-investors/ar-AAFt2gc?li=BBnb7Kz&ocid=mailsignout#page=2
Warren Buffett is arguably the greatest investor of our time. With around $10,000 to his name in the mid-1950s, the Oracle of Omaha, as he's now known, has grown his net worth to more than $84 billion. And, mind you, this is a modest figure, given the tens of billions of dollars Buffett has generously given to charity over the years. If not for his ongoing philanthropic contributions, he might very well dethrone Amazon CEO Jeff Bezos as the richest man on Earth.
Buffett, who has helmed conglomerate Berkshire Hathaway as its CEO for almost 50 years, is an interesting case. Whereas every method under the sun has been seemingly tested to beat the stock market and get rich, Buffett has done so by simply focusing on value, buying solid companies, and hanging onto them for very long periods. Coca-Cola and Wells Fargo, for example, have been staples of the Berkshire Hathaway investment portfolio for more than 30 years. And with the book value of Berkshire Hathaway gaining 1,091,899% since 1965 (through Dec. 31, 2018), who's to argue with his performance?
When Buffett speaks, Wall Street listens
Not surprisingly, this has created quite the following for the Oracle of Omaha. Every year, when Berkshire Hathaway hosts its annual stockholder meeting, tens of thousands of shareholders, enthusiasts, and press alike, descend on Omaha, Nebraska, to hear Buffett's latest musings on stocks, the economy, and Berkshire's performance. Aside from Berkshire's more than $212 billion investment portfolio, the conglomerate also owns more than five dozen businesses in an array of sectors and industries, with a core focus on finance.
Suffice it to say Buffett is an investing icon -- and he's often known for his bullish stance on the economy and long-term outlook for businesses. Here's just a small snippet of some commonly quoted Buffett blurbs:
"If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."
"Someone's sitting in the shade today because someone planted a tree a long time ago."
"When we own portion of outstanding businesses with outstanding managements, our favorite holding period is forever."
This confidence in the U.S. economy, and in the stock market gaining value over the long run, has defined Buffett's approach to value investing for decades.
However, Buffett's words and his actions have been at odds for a while, and it just might be a silent warning that investors should take note of.
Buffett's inaction is a warning to investors
Last weekend, Berkshire Hathaway released its second-quarter operating results, which featured, among other highlights, a record $122.4 billion in accumulated cash and cash equivalents. While cash is king, this isn't the case for an investment company like Berkshire Hathaway that aims to put its capital to work in companies that it views as lucratively valued. Whether it's making direct investments in businesses, or acquiring them outright, as Berkshire has done dozens of times before, this cash pile, in Buffett's own previous words, would be better off closer to $30 billion.
So why has Berkshire's cash level risen to an all-time record? The simple answer is that Buffett and his team haven't made a needle-moving purchase since acquiring Precision Castparts about 3.5 years ago. Buffett has made clear that the only acquisitions he's interested in are those that'll move the needle for megacap company Berkshire Hathaway.
While this is perfectly sound reasoning for not having pulled the trigger on any major deals, it's also a silent warning to investors that Buffett and his team don't see any intriguing values at the moment. Another way of rephrasing this statement: Stock market valuations aren't attractive.
And it's not just Buffett's growing cash hoard that's been doing the talking. Berkshire Hathaway was a net-seller of equities during the first quarter, and according to Investor's Business Daily was an even steeper net-seller of stocks during the second quarter. That's exceptionally uncharacteristic of Buffett, who is known for his long-term approach to investing.
Furthermore, Berkshire Hathaway also decreased its share buybacks during the second quarter, despite previous rumblings that it could get more aggressive on the buyback front. The company repurchased $400 million shares of its own stock in Q2, down from $1.7 billion worth of shares in the sequential first quarter.
In other words, all of Buffett's actions would appear to suggest that the Oracle of Omaha doesn't view the stock market as all that attractive right now. Of course, that's nothing Buffett would ever come out and say. But his actions are speaking much louder than his words at the moment, and investors would be wise to take note.
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>>> Buffett Steers Clear of Buying Stocks; Berkshire’s Cash Pile Hits a Record
Bloomberg
By Katherine Chiglinsky
August 3, 2019
https://www.bloomberg.com/news/articles/2019-08-03/buffett-s-cash-pile-hits-record-as-berkshire-holds-122-billion?srnd=premium
Berkshire was a net seller of equities and slowed repurchases
Operating earnings drop 11% while stock gains boost net income
The world’s most famous value investor isn’t seeing much value in stocks at record highs.
Warren Buffett’s Berkshire Hathaway Inc. sold $1 billion more worth of stocks than it bought last quarter, its biggest net selling since the end of 2017. Buffett had been an active buyer of equities every quarter last year, including almost $13 billion in the third quarter alone.
Buffett hasn’t had a major acquisition in several years and has even pulled back on one of his newer ways to deploy cash, slowing down repurchases of Berkshire’s own stock in the second quarter. The result was that the company’s cash pile -- a major focus for investors in recent years -- surged to a record $122 billion.
“It would be hard to look at the cash balance and their uses of cash in recent quarters and not be disappointed that they haven’t bought any companies, they haven’t bought much stock, and they haven’t bought back a lot of their own stock,” Jim Shanahan, an analyst at Edward Jones, said in a phone interview Saturday.
Selling Stocks
The growing cash pile is a reflection of the strength of the operating businesses that Buffett has assembled under one roof, and allows the investor flexibility to move quickly when big deals emerge. But Buffett has acknowledged that having more than $100 billion earn little return for several years weighs on the company’s growth.
Buffett, 88, earned his legendary status by consistently outperforming the broader market, but Berkshire’s total return has trailed the S&P 500 over the last five, 10 and 15 years. That’s raised questions of whether Berkshire has grown too large to generate excess returns, and whether the cash would be better off returned to shareholders than left for his eventual successor to pursue a major deal.
Buffett has tried to get ahead of those concerns, spending his last few annual meetings and letters to shareholders extolling the value of keeping Berkshire together as a conglomerate and maintaining the company’s status as the first call for unique opportunities.
Some of the cash pile is set to be put to work soon. Berkshire agreed to inject $10 billion of preferred equity in Occidental Petroleum Corp. to help finance an acquisition of Anadarko Petroleum Corp., a deal that will be completed if Anadarko shareholders approve the merger later this month.
Last year, Buffett said prices for deals were too high for his liking, so he turned to building a huge stake in Apple Inc., spending more than $15 billion on the tech giant’s shares. He also bulked up on banks and airlines, but the stakes in many of those companies are now near the 10% ownership threshold that he’s said he prefers not to cross.
Berkshire’s $400 million of buybacks in the quarter was down from $1.7 billion in the first three months of the year. That total fell short of the $1.5 billion expected by Barclays Plc analysts. Berkshire’s board changed its buyback policy last year as another way to deploy the mammoth cash pile, but Buffett has kept buybacks relatively limited, only repurchasing a total of $3.4 billion since the policy tweak. JPMorgan Chase & Co., the closest financial firm to Berkshire in market value, has bought back about $20 billion in that time.
The stock market’s march higher is limiting Buffett’s opportunities, but it has pushed his stock portfolio above $200 billion in value and driven higher earnings. New accounting rules cause unrealized gains to be included in profit, so the company’s $7.9 billion in investment gains drove net income to a 17% jump.
Stocks Surge
A gain in Berkshire's equity portfolio lifted net income to $14.1 billion
There are other tangible benefits to the company of higher markets, beyond the gains on its stock portfolio. Berkshire had almost $1 billion in gains in the first half of 2019 on put options it wrote on several equity indexes more than a decade ago, almost half of which expire this year.
Still, investors aren’t rewarding Berkshire for its stock bets paying off. While the S&P 500 has surged 17% this year, Berkshire’s Class A shares are exactly unchanged.
More highlights from the results:
Berkshire’s operating earnings fell 11% to $6.14 billion during the second quarter as underwriting income at Berkshire’s insurers fell by almost 63% to $353 million. Auto insurer Geico reported higher losses and expenses, partly due to advertising and employee costs. The life and health business at Berkshire’s namesake reinsurance group changed a contract with a major U.S. reinsurer, which reduced the earned premiums it raked in.
Buffett’s railroad eked out profit gains in the quarter, bolstered by shipments of industrial products. That could help bat down concerns about its ability to weather a slowdown in the sector.
Kraft Heinz Co. was once again missing from Berkshire’s results. Kraft Heinz, which is set to report results on Aug. 8, installed a new chief executive officer and finally issued its delayed 10-K filing in June as it worked to clean up from a $15.4 billion writedown. The restatements in June caused a $34 million hit for Berkshire, it said Saturday.
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>>> 6 Warren Buffett Holdings Near 52-Week Lows
GuruFocus.com
May 24, 2019
- By James Li
https://finance.yahoo.com/news/6-warren-buffett-holdings-near-220722501.html
Even though the U.S. stock market remains significantly overvalued ahead of the Memorial Day holiday, six of Berkshire Hathaway Inc.'s (NYSE:BRK.A)(NYSE:BRK.B) holdings are still trading near 52-week lows: The Kraft Heinz Co. (KHC), DaVita Inc. (DVA), Teva Pharmaceutical Industries Ltd. (TEVA), Sirius XM Holdings Inc. (SIRI), American Airlines Group Inc. (AAL) and Bank of New York Mellon Corp. (BK).
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>>> Why Warren Buffett Is Big on Big Banks
By Andrew Bary
Nov. 23, 2018
https://www.barrons.com/articles/why-warren-buffett-is-big-on-big-banks-1543019299
Berkshire Hathaway CEO Warren Buffett is famous for having a good eye for value. These days, he has been looking hard at big U.S. banks.
Berkshire Hathaway (ticker: BRK.A) bought more than $13 billion of bank stocks in the third quarter, highlighted by a new, $4 billion holding in JPMorgan Chase (JPM) and an almost $6 billion purchase of Bank of America (BAC), the first major open-market buy by Berkshire.
Buffett’s company now holds stakes in seven of the country’s top 10 banks: Wells Fargo (WFC), U.S. Bancorp (USB), Goldman Sachs Group (GS), PNC Financial Services Group (PNC), and Bank of New York Mellon (BK), as well as JPMorgan and Bank of America. ( Citigroup (C), Morgan Stanley (MS), and Capital One Financial (COF) are the ones left out.)
“Buffett’s investments offer validation for what we see as the value in the group,” says Mike Mayo, a banking analyst with Wells Fargo. “Banks are less cyclical than they have been in decades and have more resilient earnings streams because of improved financial discipline and risk control.” He sees earnings growth of 50% or more for JPMorgan, Citigroup, and Bank of America over the next four years.
Buffett's Financial Exposure
How the major financial company holdings of Berkshire Hathaway stack up.
Company / Ticker
Shares Owned (mil)
Value (bil)
Shares Added* (mil)
Value of Shares Added** (mil)
Stake in Company
Bank of America / BAC 877 $23.9 198 $5,840 8.9%
Wells Fargo / WFC 442 23.1 -10 -507 9.4
American Express / AXP 152 16.1 0 0 17.7
U.S. Bancorp / USB 125 6.7 24 1,280 7.7
Bank of New York Mellon / BK 78 3.9 13 665 7.9
JPMorgan Chase / JPM 36 3.8 36 4,024 1.1
Goldman Sachs Group / GS 18 3.5 5 1,143 4.9
PNC Financial Services Group / PNC 6 0.8 6 829 1.3
TOTAL 82.0 13,274
Showing 1 to 9 of 9 entries
*Shares added in third quarter. **As of Sept. 30.
Investors don’t share Mayo’s—or Buffett’s—enthusiasm. Bank stocks have been weak on concerns about the global economy and slowing loan growth. The KBW index of 24 bank stocks is down 8% this year. Wells Fargo, led by CEO Timothy Sloan, and Citigroup are off about 15%. Goldman, the worst performer in the Dow Jones Industrial Average, is down 25%.
Buffett, who didn’t respond to a request for comment, may see what Mayo and other bulls do: a group that has lagged behind the market despite strong earnings growth and the most generous capital returns of any major industry.
Earnings at large banks are expected to rise about 40% this year. With income rising and stock prices generally lower, bank valuations have contracted. Large banks now have an average forward price/earnings ratio of just 10.2, against a forward P/E of 12.6 at the start of the year, based on 22 institutions covered by Barclays analyst Jason Goldberg.
“Investors can get good earnings growth and good capital returns at a discounted valuation relative to the overall market,” Goldberg says. “Just because we’re late in the cycle doesn’t mean we’re at the end of it.” He sees 9% growth in bank earnings per share in 2019.
John McDonald of Bernstein estimates that mid- and large-cap banks will return about 100% of their earnings to holders in dividends and buybacks in the year ending in June 2019, up from 60% in 2015.
Investors can play the group through any of the stocks favored by Buffett or via ETFs like Invesco KBW Bank (KBWB) or the broader Financial Select Sector SPDR (XLF); seven of its top 10 stocks are banks. Berkshire is the top holding.
A decade after the financial crisis, billionaire investor Warren Buffett explains what was behind the 2008 mayhem, what we can do to limit the damage and opportunities missed last time.
Mayo’s view is that a tougher regulatory regime may help keep banks out of any major trouble. “Bank investors should be sending holiday cards to regulators,” he says. “They’ve facilitated additional risk discipline in the industry.”
And while loan growth is slowing, it’s still rising in the low-single digits. The yield curve—the gap between long and short rates—has been narrowing, but banks are still reporting wider net interest margins.
With the seven big banks, a longstanding investment in American Express , and some smaller bank stakes, Berkshire’s financial-stock exposure is about $85 billion. That’s more than 40% of Berkshire’s total equity holdings of $200 billion—against a 14% weighting for the group in the S&P 500.
Buffett and his two investment lieutenants, Todd Combs and Ted Weschler, plowed money into stocks in the first three quarters of 2018, buying a net $24 billion of equities, versus $4 billion in the same period of 2017. The big stock purchases come as Buffett has failed to land a sizable acquisition.
The most intriguing stock purchase was JPMorgan. Buffett is a longtime fan of the bank’s CEO, Jamie Dimon, and Combs sits on the bank’s board. Buffett has said that he owned the stock personally and finally doubled down with Berkshire’s money.
With Berkshire owning just 1% of JPMorgan, there is plenty of room to build that stake. At $106.50 per share, it’s little changed this year and one of the best performers among major bank stocks. JPMorgan trades at a premium to much of the group with a 2018 P/E of 11.5, but below the market multiple of 16, and it has a dividend yield of 3%.
Goldberg has an Overweight rating and a $135 price target. He’s also a fan of Citigroup, which at $61.50 is the only major bank trading below tangible book value. His Citi rating is Overweight with a $93 price target. Goldman, at $189, trades just above its tangible book of $186 a share.
Barron’s recently wrote favorably on Bank of America, headed by CEO Brian Moynihan. Its strong deposit franchise and U.S.-focused consumer business give it one of the better earnings-growth outlooks among its peers. A bullish Mayo see the potential for $4 earnings per share in 2022, up more than 50% from this year’s expected $2.55. The stock trades at $27 and yields 2%.
Buffett isn’t always right, but he loves bank stocks. And that’s a pretty good endorsement.
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>>> Why Warren Buffett's record-breaking cash stockpile should have investors very worried
Joe Ciolli
Aug. 7, 2018
https://www.businessinsider.com/warren-buffett-berkshire-hathaway-cash-balance-should-worry-investors-2018-8
Warren Buffett's Berkshire Hathaway had $111 billion of cash on its balance sheet at the end of last quarter, the most in the company's history.
This is an ominous sign for the health of the market and suggests that Berkshire Hathaway views it as overvalued and overly expensive.
As merger and acquisition (M&A) activity has roared, Warren Buffett and his investing colleagues at Berkshire Hathaway have stayed on the sidelines.
That means they missed out on an M&A bonanza that saw a record-breaking $2 trillion in deals through mid-May. But it also means Berkshire Hathaway has set a record of its own: It now has the biggest cash balance in the firm's storied history.
While that can be construed as good news for Buffett & Co. — since they have a veritable war chest of capital ready for deployment — it carries far starker implications for the overall market.
That's because Berkshire Hathaway's reluctance to buy anything can be viewed as a signal that just about everything is too expensive. And considering Buffett is one of the most successful investors in history, his market behavior should watched closely.
Berkshire Hathaway's cash balance has hit record levels as stock prices have done the same.
That said, it's not exactly breaking news that Buffett thinks few bargains exist. He said as much in his annual letter back in February, saying the lack of attractive pricing "proved a barrier to virtually all deals we reviewed in 2017."
More notable is that Buffett has stood pat since then as stocks have continued their grind higher. Valuations have only gotten more stretched over that period, suggesting that an already tenuous situation has worsened.
Russ Mould, an investment director at AJ Bell, has taken notice. He's wary of the speculative deal fervor he sees accompanying record stock prices.
"M&A tends to peak when animal spirits are running high and often when executives feel their own shares are expensive enough to make them a valuable acquisition currency," Mould wrote in a client note. "Warren Buffett is still having difficulty in finding value in US — and perhaps global — stocks."
Mould points out — and indicates in the chart above — that Berkshire Hathaway's cash balance has been an effective proxy for market levels over history. As you can see, Buffett held comparatively high levels of cash in the periods preceding the two most recent market crashes, in 1999 and 2007.
So the question for investors now becomes whether to follow Buffett to the sideline or to stay invested in a market that is, by many measures, overextended. After all, the longer they wait, the higher the likelihood they'll be left holding the bag when things go south.
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>>> This Favorite Warren Buffett Metric Tells Us a Stock Market Crash Could Be Coming
Matthew Frankel
8-1-18
Motley Fool
http://www.msn.com/en-us/money/markets/this-favorite-warren-buffett-metric-tells-us-a-stock-market-crash-could-be-coming/ar-BBL7KZy?li=BBnb7Kz&ocid=mailsignout
Without question, Warren Buffett and the rest of Berkshire Hathaway's (NYSE: BRK-A)(NYSE: BRK-B) investment team incorporate many different metrics when evaluating prospective companies to acquire and stocks to buy. However, Buffett himself has mentioned one specific metric as the best indicator of stock valuations, and it has appropriately been nicknamed the "Buffett Indicator" in the investing community. Here's what the Buffett Indicator is, and why it may be signaling that the stock market is a bit overheated.
The Buffett Indicator
This is a metric that Buffett uses to get an overall feel for the valuation of U.S. stocks. In fact, he described it as "the best single measure of where valuations stand at any given moment" in a 2001 interview with Fortune Magazine.
It's a fairly simple metric to calculate, too. Just divide the total market capitalization of all U.S. stocks by the latest gross domestic product (GDP).
Is it reliable?
To be clear, no stock market metrics are 100% reliable at predicting corrections, crashes, rallies, or stagnant stock markets. After all, if this were the case, wouldn't everyone know exactly when to buy, sell, and hold in order to maximize their profits?
That being said, the Buffett Indicator, while it's not a flawless indicator, does tend to peak during hot stock markets and bottom during weak markets. And as a general rule, if the indicator falls below 80%-90% or so, it has historically signaled that stocks are cheap. On the other hand, levels significantly higher than 100% can indicate stocks are expensive.
For context, the Buffett indicator peaked at about 145% right before the dot-com bubble burst and reached nearly 110% before the financial crisis.
There are two big caveats to realize. First, just because the Buffett Indicator signals that stocks are cheap doesn't mean that they won't get even cheaper. As you'll see in the chart in the next section, the Buffett Indicator didn't bottom out during the financial crisis until it was briefly below 50%. Conversely, just because the Buffett Indicator looks expensive (like it does now) doesn't mean that stocks can't continue to muscle higher.
In a nutshell, the Buffett indicator can tell you the valuation of the stock market in a historical context right now. It doesn't predict tops or bottoms.
What's the Buffett Indicator saying now?
Where does the Buffett Indicator stand now? It may surprise you to learn that, at nearly 149%, the total market cap to GDP ratio has never been higher. It's even higher than the 145% peak we saw during the dot-com bubble.
There are some good reasons for high valuations, such as the new, lower corporate tax rate, the generally business-friendly administration, a prolonged period of historically low interest rates, low unemployment, high consumer confidence, and soaring corporate earnings, just to name a few. I'd even go so far as to say that the fact that the Buffett Indicator doesn't take some of these things into account is perhaps its biggest flaw. For example, if you look at the stock market during a high-interest period and a low-interest period, examining stock valuations isn't exactly an apples-to-apples comparison.
Having said that, it does seem like Buffett himself is paying attention and agrees that the market is generally expensive. After all, the lack of attractive investment opportunities has resulted in Berkshire Hathaway accumulating nearly $110 billion of cash and equivalents on its balance sheet. Plus, Buffett has specifically cited valuation when discussing the absence of major acquisitions lately.
Should investors worry?
To sum it up, while the Buffett Indicator is certainly a great snapshot of stock valuations, it's not a stand-alone metric that you should use to determine when to buy or sell. When asked about the Buffett Indicator and another favorite metric at Berkshire's 2017 annual meeting, Buffett said that, "It's just not quite as simple as having one or two formulas and then saying the market is undervalued or overvalued."
With that in mind, the fact is that the Buffett Indicator is at its highest point in history -- meaning that stocks have never been valued as high as they are now in terms of market cap to GDP. While this indicator doesn't necessarily mean that the tides will turn anytime in the near future, it may be a smart idea to start thinking a little defensively.
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>>> 7 ways to invest more like Warren Buffett
8-31-18
Motley Fool
by Keith Speights
https://www.msn.com/en-us/money/savingandinvesting/7-ways-to-invest-more-like-warren-buffett/ss-BBKPRi1?li=BBnb7Kz&ocid=mailsignout#image=1
What it takes to be a 'superinvestor'
Warren Buffett once wrote about the “superinvestors of Graham-and Doddsville,” referring to the successful investors who followed the investing approach taught by famed economists Benjamin Graham and David Dodd. Buffett himself became a “superinvestor” by following this approach, but he also added his own tweaks along the way.
1. Think like an owner
Perhaps the most important way to invest more like Warren Buffett is to think like an owner. That means viewing a stock as a part of a business -- not just a slip of paper with a dollar value. Before buying a given stock, ask yourself, “If I could own a business, would this be it?” That's the best way to decide whether a stock is a worthy investment.
Buffett’s Berkshire Hathaway (BRK-A and BRK-B) often buys a business outright instead of buying only a stake in the company. But the mindset of thinking like an owner is the same whether Berkshire buys a percentage of shares or the entire business.
2. Understand the business
A key part of thinking like an owner is to first understand the business of any stock you buy. Warren Buffett sticks to buying stocks inside his “circle of competence.” This principle doesn’t mean, however, that you can’t buy a stock in an industry where you’re not an expert. It simply requires that you take the time to learn about the company’s business strategy, strengths, weaknesses, opportunities, and threats.
3. Find companies with moats
Medieval castles were encircled with water-filled moats to help fend off attackers. Warren Buffett likes to buy stocks of companies that have the equivalent of these moats -- competitive advantages that protect them from competitors. One example of a competitive advantage is operating at lower costs than competitors. Buffett’s Berkshire Hathaway owns the stocks of several companies in this category, including Costco (COST), Southwest Airlines (LUV), and Walmart (WMT).
4. Buy at a fair price
Warren Buffett started out as a value investor looking only for bargain buys. Over time he modified his views somewhat, saying, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” But price is still very important. Buffett’s famous “Rule No. 1” of investing is to “never lose money.” Rule No. 2 is “never forget Rule No. 1.” The best way to keep both rules is to not pay too much for a stock when you buy it.
5. Take advantage of great buying opportunities
One of the best Warren Buffett quotes of all time is: “When it rains gold, put out the bucket, not the thimble.” In other words, take advantage of great opportunities to buy stocks. The best opportunities of all are when fear causes the valuations of great businesses to become very attractive. As Buffett said, “Be fearful when others are greedy and greedy when others are fearful.”
6. Think long-term
It’s become a cliché, but the key to successful investing really is to have a long-term perspective. Warren Buffett put it this way: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” The greatest advantage an individual investor has is time. If you’re patient -- like Buffett has been and still is -- you can beat the market over the long run.
7. Sell when the business loses its edge
Although Buffett always thinks long-term when he buys a stock, he also knows that some businesses don’t perform as well as he hopes they will. For example, he sold IBM stock after acknowledging that he underestimated the technology giant’s competition. The key is to admit your mistakes as quickly as possible and cut your losses. If you discover that the business doesn’t have the competitive advantages you initially thought it had, sell the stock.
<<<
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#N/A | ATVI | 52,717,075 | 6.7% | #N/A | ||
#N/A | ALLY | 29,800,000 | 9.9% | #N/A | ||
Amazon.com, Inc. | AMZN | 10,666,000 | 0.1% | $105.45 | $1,124,729,700 | #N/A |
American Express Company | AXP | 151,610,700 | 20.4% | $161.34 | $24,460,870,338 | #N/A |
#N/A | AON | 4,396,000 | 2.1% | #N/A | ||
#N/A | AAPL | 915,560,382 | 5.8% | #N/A | ||
#N/A | BAC | 1,032,852,006 | 12.9% | #N/A | ||
#N/A | BK | 25,069,867 | 3.2% | #N/A | ||
BYD Co. Ltd | BYDDF | 119,730,142 | 10.9% | #N/A | ||
#N/A | CE | 9,710,183 | 8.8% | #N/A | ||
#N/A | CHTR | 3,828,941 | 2.3% | #N/A | ||
#N/A | CVX | 167,353,771 | 8.8% | #N/A | ||
#N/A | C | 55,244,797 | 2.8% | #N/A | ||
#N/A | KO | 400,000,000 | 9.2% | #N/A | ||
#N/A | DVA | 36,095,570 | 39.8% | #N/A | ||
#N/A | DEO | 227,750 | 0.0% | #N/A | ||
Floor & Decor Holdings Inc | FND | 4,780,000 | 4.5% | $99.34 | $474,845,200 | #N/A |
#N/A | GM | 50,000,000 | 3.6% | #N/A | ||
#N/A | GL | 6,353,727 | 6.6% | #N/A | ||
#N/A | HPQ | 120,952,818 | 12.3% | #N/A | ||
Itochu Corporation | ITOCF | 98,380,800 | 6.2% | #N/A | ||
#N/A | JEF | 433,558 | 0.2% | #N/A | ||
#N/A | JNJ | 327,100 | 0.0% | #N/A | ||
#N/A | KHC | 325,634,818 | 26.5% | #N/A | ||
#N/A | KR | 50,000,000 | 7.0% | #N/A | ||
#N/A | LILA | 2,630,792 | 5.9% | #N/A | ||
#N/A | LILAK | 1,284,020 | 0.7% | #N/A | ||
#N/A | FWONK | 7,722,451 | 3.7% | #N/A | ||
#N/A | LSXMA | 20,207,680 | 20.6% | #N/A | ||
#N/A | LSXMK | 43,208,291 | 19.8% | #N/A | ||
#N/A | LPX | 7,044,909 | 9.8% | #N/A | ||
#N/A | MKL | 471,661 | 3.5% | #N/A | ||
#N/A | MMC | 404,911 | 0.1% | #N/A | ||
#N/A | MA | 3,986,648 | 0.4% | #N/A | ||
#N/A | MCK | 2,855,514 | 2.1% | #N/A | ||
#N/A | MDLZ | 578,000 | 0.0% | #N/A | ||
#N/A | MCO | 24,669,778 | 13.4% | #N/A | ||
#N/A | NU | 107,118,784 | 2.3% | #N/A | ||
#N/A | OXY | 211,707,119 | 23.6% | #N/A | ||
#N/A | PARA | 93,637,189 | 15.3% | #N/A | ||
#N/A | PG | 315,400 | 0.0% | #N/A | ||
#N/A | RH | 2,360,000 | 10.7% | #N/A | ||
#N/A | SNOW | 6,125,376 | 1.9% | #N/A | ||
#N/A | SPY | 39,400 | 0.0% | #N/A | ||
StoneCo Ltd | STNE | 10,695,448 | 3.3% | $12.32 | $131,767,919 | #N/A |
#N/A | TSM | 8,292,724 | 0.2% | #N/A | ||
#N/A | TMUS | 5,242,000 | 0.4% | #N/A | ||
#N/A | UPS | 59,400 | 0.0% | #N/A | ||
#N/A | USB | 8,098,178 | 0.5% | #N/A | ||
#N/A | VOO | 43,000 | 0.0% | #N/A | ||
#N/A | VRSN | 12,815,613 | 12.3% | #N/A | ||
#N/A | V | 8,297,460 | 0.2% | #N/A | ||
TOTAL | #N/A |
Symbol | Holdings | Stake | Mkt. price | Value | Pct of portfolio | |
---|---|---|---|---|---|---|
Activision Blizzard, Inc. | ATVI | 74,187,400 | 9.5% | $80.49 | $5,971,343,826 | 1.7% |
Ally Financial Inc | ALLY | 8,969,420 | 2.9% | $32.58 | $292,223,704 | 0.1% |
Amazon.com, Inc. | AMZN | 10,666,000 | 0.1% | $140.80 | $1,501,772,800 | 0.4% |
American Express Company | AXP | 151,610,700 | 20.2% | $157.51 | $23,880,201,357 | 6.7% |
Aon PLC | AON | 4,396,000 | 2.1% | $287.53 | $1,263,981,880 | 0.4% |
Apple Inc | AAPL | 911,347,617 | 5.7% | $165.35 | $150,691,328,471 | 42.5% |
Bank of America Corp | BAC | 1,032,852,006 | 12.9% | $33.96 | $35,075,654,124 | 9.9% |
Bank of New York Mellon Corp | BK | 74,346,864 | 9.2% | $43.50 | $3,234,088,584 | 0.9% |
BYD Co. Ltd | BYDDF | 225,000,000 | 7.7% | $36.75 | $8,268,750,000 | 2.3% |
Celanese Corporation | CE | 7,880,998 | 7.3% | $110.85 | $873,608,628 | 0.2% |
Charter Communications Inc | CHTR | 3,828,941 | 2.4% | $462.98 | $1,772,723,104 | 0.5% |
Chevron Corporation | CVX | 159,178,117 | 8.1% | $153.64 | $24,456,125,896 | 6.9% |
Citigroup Inc | C | 55,244,797 | 2.9% | $51.66 | $2,853,946,213 | 0.8% |
Coca-Cola Co | KO | 400,000,000 | 9.2% | $63.38 | $25,352,000,000 | 7.2% |
Davita Inc | DVA | 36,095,570 | 39.5% | $85.68 | $3,092,668,438 | 0.9% |
Diageo plc | DEO | 227,750 | 0.0% | $188.37 | $42,901,268 | 0.0% |
Floor & Decor Holdings Inc | FND | 4,780,000 | 4.5% | $92.92 | $444,157,600 | 0.1% |
General Motors Company | GM | 62,045,847 | 4.3% | $36.06 | $2,237,373,243 | 0.6% |
Globe Life Inc | GL | 6,353,727 | 6.4% | $97.88 | $621,902,799 | 0.2% |
HP Inc | HPQ | 121,092,418 | 11.7% | $33.58 | $4,066,283,396 | 1.1% |
Itochu Corporation | ITOCF | 81,304,200 | 5.6% | $27.37 | $2,225,295,954 | 0.6% |
Johnson & Johnson | JNJ | 327,100 | 0.0% | $171.11 | $55,970,081 | 0.0% |
Kraft Heinz Co | KHC | 325,634,818 | 26.6% | $37.57 | $12,234,100,112 | 3.5% |
Kroger Co | KR | 57,985,263 | 8.1% | $47.25 | $2,739,803,677 | 0.8% |
Liberty Latin America Ltd Class A | LILA | 2,630,792 | 5.6% | $7.24 | $19,046,934 | 0.0% |
Liberty Latin America Ltd Class C | LILAK | 1,284,020 | 0.7% | $7.16 | $9,193,583 | 0.0% |
Liberty Media Formula One Series C | FWONK | 7,722,451 | 3.8% | $62.89 | $485,664,943 | 0.1% |
Liberty Sirius XM Group Series A | LSXMA | 20,207,680 | 20.4% | $41.08 | $830,131,494 | 0.2% |
Liberty Sirius XM Group Series C | LSXMK | 43,208,291 | 19.6% | $40.96 | $1,769,811,599 | 0.5% |
Markel Corporation | MKL | 424,343 | 3.1% | $1,167.94 | $495,607,163 | 0.1% |
Marsh & McLennan Companies, Inc. | MMC | 404,911 | 0.1% | $165.60 | $67,053,262 | 0.0% |
Mastercard Inc | MA | 3,986,648 | 0.4% | $357.51 | $1,425,266,526 | 0.4% |
McKesson Corporation | MCK | 2,921,975 | 2.0% | $346.69 | $1,013,019,513 | 0.3% |
MONDELEZ INTERNATIONAL INC Common Stock | MDLZ | 578,000 | 0.0% | $63.77 | $36,859,060 | 0.0% |
Moody’s Corporation | MCO | 24,669,778 | 13.4% | $311.07 | $7,674,027,842 | 2.2% |
Nu Holdings Ltd | NU | 107,118,784 | 2.3% | $4.49 | $480,963,340 | 0.1% |
Occidental Petroleum Corporation | OXY | 181,684,791 | 19.5% | $59.01 | $10,721,219,517 | 3.0% |
Paramount Global Class B | PARA | 68,947,760 | 11.3% | $24.26 | $1,672,672,658 | 0.5% |
Procter & Gamble Co | PG | 315,400 | 0.0% | $144.72 | $45,644,688 | 0.0% |
RH | RH | 2,170,000 | 8.8% | $286.87 | $622,507,900 | 0.2% |
Royalty Pharma plc | RPRX | 1,496,372 | 0.2% | $42.45 | $63,520,991 | 0.0% |
Snowflake Inc | SNOW | 6,125,376 | 1.9% | $165.53 | $1,013,933,489 | 0.3% |
SPDR S&P 500 ETF Trust | SPY | 39,400 | 0.0% | $413.47 | $16,290,718 | 0.0% |
StoneCo Ltd | STNE | 10,695,448 | 3.3% | $11.07 | $118,398,609 | 0.0% |
Store Capital Corp (acquired) | STOR | 14,754,811 | 5.3% | $27.90 | $411,659,227 | 0.1% |
T-Mobile Us Inc | TMUS | 5,242,000 | 0.4% | $144.56 | $757,783,520 | 0.2% |
United Parcel Service, Inc. | UPS | 59,400 | 0.0% | $196.76 | $11,687,544 | 0.0% |
US Bancorp | USB | 144,046,330 | 9.7% | $47.39 | $6,826,355,579 | 1.9% |
Vanguard 500 Index Fund ETF | VOO | 43,000 | 0.0% | $379.98 | $16,339,140 | 0.0% |
Verisign, Inc. | VRSN | 12,815,613 | 11.9% | $198.70 | $2,546,462,303 | 0.7% |
Verizon Communications Inc. | VZ | 1,380,111 | 0.0% | $44.95 | $62,035,989 | 0.0% |
Visa Inc | V | 8,297,460 | 0.4% | $215.87 | $1,791,172,690 | 0.5% |
TOTAL | $354,252,534,978 | 100.0% | ||||
Berkshire Cash as of 31 Mar 22: $106.3 billion |
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