Monthly Archives: February 2017

No Forever, Buffett Says

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In Warren Buffett’s latest annual letter to shareholders, Buffett clarified his view on what are sometimes called his “forever stocks.” These refer to Berkshire’s long-held positions in Coca-Cola and American Express, among others. These represent huge holdings where the cost basis is now so low that the annual dividends in some cases equal or come near the original cost of acquisition. Often, investors assume that Buffett’s love for these stocks means that he would never sell them. That’s not true, says Buffet, and he went out of his way this year to clarify that there is no such thing as a “forever stock.”

“Sometimes the comments of shareholders or media imply that we will own certain stocks “forever.” It is true that we own some stocks that I have no intention of selling for as far as the eye can see (and we’re talking 20/20 vision). But we have made no commitment that Berkshire will hold any of its marketable securities forever.”

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Two Important Things We Learned from Buffett’s Latest Shareholders Letter

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Warren Buffett’s annual letter to shareholders came out on Saturday morning, and as usual, it gave great insight into Buffett’s outlook on both Berkshire Hathaway, investing, and his view on the prospects for the American economy.

Here’s two important things we learned:

Buffett is Bullish on the American Economy

Through recessions, and even the recent Great Recession, Warren Buffett has remained bullish on the prospects of the American economy. Competition from China, India or the EU, has not dimmed his optimism, and looking back historically, he still believes there is no better time to have been born into the American economy than today.

“This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”

Buffett Believes that Overall, Hedge Funds Have Sold Snake Oil to Wealthy Investors and Pension Funds

Expanding on a presentation he gave at the 2016 Berkshire Hathaway Annual Meeting, Buffett again made clear that the high fees charged by Hedge fund managers made it inevitable that overall, they would underperform a simple low-fee S&P 500 index fund. He attributes the siren song that draws the wealthy and pension funds to active management is due to a mistaken belief that you get what you pay for.

“The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it. Their money, they feel, should buy them something superior compared to what the masses receive. In many aspects of life, indeed, wealth does command top-grade products or services. For that reason, the financial “elites” – wealthy individuals, pension funds, college endowments and the like – have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars. This reluctance of the rich normally prevails even though the product at issue is –on an expectancy basis – clearly the best choice. My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than $100 billion over the past decade. Figure it out: Even a 1% fee on a few trillion dollars adds up. Of course, not every investor who put money in hedge funds ten years ago lagged S&P returns. But I believe my calculation of the aggregate shortfall is conservative.”

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BYD to Build Two Latin America Factories

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China’s BYD Company plans to set up two new factories in Latin America in 2017 to expand the market penetration of its world class electric buses.

The new manufacturing facilities will produce vehicles for the local markets and add to existing plants in the US, Hungary and Brazil.

BYD’s electric bus and other new energy vehicles have a footprint in 240 cities across 50 countries.

In January 2017, the company was selected as the recommended company by the evaluation committee in Argentina for the purchase of 50 electric buses on behalf of the Ministry of Environment.

In keeping with its other Latin American expansion plans, the Mayor of the Uruguayan city of Montevideo, Eng. Daniel Martinez has become the first mayor in Latin America to have an electric vehicle as an official car. The BYD e6 was delivered to Mr Martinez with a license plate number reserved for the city’s top official – “SIM 1”.

It is a first for the city to have an electric vehicle for a senior government official, and is in line with the country’s move towards cleaner transportation and power.

Uruguay has made sizeable investments in green energy in recent years leaping 16 places to be ranked 10 in the World Economic Forum.
BYD and Berkshire Hathaway

In 2008, Berkshire Hathaway bet on BYD’s potential, purchasing 225 million shares. It’s an investment that has paid off handsomely. Berkshire’s original investment of $230 million is now worth roughly $1.77 billion.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkadia Arranges $262.5 Million in Acquisition financing for Cleveland’s Key Center

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Berkadia, Berkshire Hathaway’s joint venture with Leucadia National Corporation, has arranged $262.5 million in acquisition financing for Key Center, Cleveland’s tallest skyscraper—a 1.3 million-square-foot, Class-A office tower and the adjacent Marriott Hotel and parking structure.

The property is located in Cleveland’s Public Square. Senior Director Mark Vogel secured the acquisition loan, representing Berkadia’s largest conduit loan to date. The deal was completed on January 31, 2017.

Berkadia represented The Millennia Companies, which is headquartered in Cleveland. The seller was Columbia Property Trust, Inc. The 10-year senior mortgage fixed loan lead by Citibank, included Bank of America and Deutsche Bank. Apollo Global Management provided the mezzanine debt financing.

“Key Center is an iconic part of Cleveland’s skyline and represents the state of Ohio’s tallest building,” said Vogel. “The institutions involved in this transaction acted extremely aggressively. They provided a substantial portion of the required capital to facilitate the acquisition and fund future improvements related to the hotel’s redevelopment and the building’s increased occupancy. Berkadia worked diligently with the entire Millennia team, and it was truly a collaborative effort.”

Built in 1991, the integrated, mixed-use complex Key Center comprises a 57-story office tower, a 400-room Marriott Hotel and a parking structure. It also houses the headquarters of both the property’s namesake, Key Bank, and law firm BakerHostetler.

At the end of 2016, the office tower was 82 percent leased. A portion of the asset will become Millennia’s new headquarters, moving hundreds of employees from Rockside Road to Key Tower over the next year. Millennia’s lease, along with the anticipated move of Forest City Realty Trust, Inc. to Key Center, will increase the building’s occupancy up to 95 percent.

“We are already in the design phase of a $24 million renovation to the tower lobby, plaza and hotel,” said Frank Sinito, president of The Millennia Companies.

About Berkadia

Founded in 2009 as a 50/50 joint venture between Berkshire Hathaway and Leucadia National Corporation, Berkadia is a third-party commercial mortgage servicer, as well as an approved lender for Fannie Mae, Freddie Mac, and HUD/FHA.

The company is among the top Freddie Mac and Fannie Mae multifamily lenders.

Berkadia owes its origins to GMAC Commercial Mortgage Corporation, which was acquired in 2009 by Kohlberg Kravis Roberts & Co., Five Mile Capital Partners LLC, and Goldman Sachs Capital Partners. Christened Capmark Financial, the company had $10 billion of originations in 2008 and a servicing portfolio of more than $360 billion before running into bankruptcy in October 2009.

In a deal approved by the bankruptcy court, Capmark sold its mortgage loan and servicing to the newly formed Berkadia in a deal worth $515 million.

The deal brought Berkshire into the heart of the commercial loan serving business, and the company has one of the largest commercial real estate servicing portfolios.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Berkshire Rumored to Be Bidder in Australian Utility

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Berkshire Hathaway’s MidAmerican Energy Company, a subsidiary of Berkshire Hathaway Energy, is rumored to be a bidder for Australian utility Endeavour Energy.

Endeavor Energy is a government owned electricity distributor that supplies electricity to 2.4 million people in households and businesses across Sydney’s Greater West, the Blue Mountains, Southern Highlands, the Illawarra and the South Coast.

A fifty-percent interest in Endeavor is being sold in a Deutsche and UBS-run auction, and there are currently three consortiums in the bidding.

However, a fourth consortium made up of MidAmerican Energy, Colonial First State and Canadian Pension Plan Investment Board is rumored to also be interested.

Berkshire Hathaway Energy is already active in the Australian energy market. It owns CalEnergy, which is currently drilling for natural gas in Australia’s Whicher Range gas field.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Intero Real Estate Services Creates New Home Sales Division

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Intero Real Estate Services, Inc., a Berkshire Hathaway affiliate that is a wholly owned subsidiary of Berkshire’s HomeServices of America, Inc., has launched a new home sales division labeled Intero Development Group.

This newest offering from Intero fills what the company believes is a sales and marketing void for small, medium and large developers in and around the Bay Area.

The new division will utilize certified education to make sure the various developments have the most professional and qualified team supporting their needs. In addition, there will be varied tiers of the program offering that will fit development projects of any size.

Leading the Intero Development Group is Broker Associate and Intero Los Gatos Assistant Manager Mike D’Ambrosio, a seasoned real estate leader who has years of experience in residential, commercial and development projects throughout the Bay Area. Mr. D’Ambrosio will oversee all aspects of the division including marketing, sales and operations.

“As we continue to grow brokerage services available from Intero, a new home sales division is a natural addition to our residential and commercial offerings,” said Tom Tognoli, Intero President & Chief Executive Officer. “With Mike and his team at the helm of Intero Development Group, we’re confident that this program will be one more success to add to our resume.”

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

BYD Tops Global EV Sales Charts

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China’s BYD Company., the Shenzhen-based new energy technology company was the highest selling manufacturer of new energy vehicles in 2016 for the second consecutive year.

According to figures compiled by EV Sales, a website that tracks the global market for new energy vehicles, BYD’s global sales of 100183 units represented a 70 percent increase from the previous year.

BYD Tang a powerful hybrid electric SUV first unveiled at the Beijing Motor Show in 2014 was the third best -selling model around the world, followed by the BYD Qin and BYD e6 which clinched the ninth and 10th place respectively.

“These results are very encouraging for us as we have invested heavily in researching and developing new energy technology for cars, buses and monorails among others,” said BYD’s Li Yunfei, Deputy General Manager of Branding and PR Division. “We believe new energy is one way we can deal with climate change and that is why we want to use our ‘Cool the Earth by 1 Degree’ campaign to increase public awareness of climate change and the many ways renewable energy can be generated, stored and used.”

Data tallied by EV Sales shows Chinese manufacturers of new energy vehicles are making advancements overseas while continuing to grow in-country.

Separately BYD was also ranked by China’s Highway and Transportation Society as last year’s top provider of electric buses that are longer than 10 meters.

BYD and Berkshire Hathaway

In 2008, Berkshire Hathaway bet on BYD’s potential, purchasing 225 million shares. It’s an investment that has paid off handsomely. Berkshire’s original investment of $230 million is now worth roughly $1.77 billion.

For More on BYD, read the Special Report: BYD, Berkshire’s Tesla.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lubrizol Signs Agreement with Finolex Industries for CPVC Pipe in India

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Berkshire Hathaway’s Lubrizol Corporation, inventors and the largest manufacturers of CPVC compound worldwide, and Finolex Industries Limited, the leading PVC pipes and fittings manufacturer in India,have announce the signing of, FlowGuard® Processor agreement for the manufacturing and sale of Finolex FlowGuard®Plus pipes and fittings in India.

In August, 2016, Lubrizol terminated its processor agreements with Astral Poly-Technik Limited for the manufacture and sale of FlowGuard®, BlazeMaster® and Corzan® branded pipes and fittings in India.

Under the new agreement, Finolex Industries will begin marketing in the last week of March 2017, and will cater to the building and construction industry.

“Lubrizol is dedicated to supplying the highest quality CPVC compounds to service the Indian hot & cold water plumbing markets,” explains Matthew Timmons, managing director, Lubrizol Advanced Materials India Pvt. Ltd. “Our partnership with Finolex Industries highlights the need and importance of quality CPVC pipes and fittings made from time-tested CPVC compounds provided by Lubrizol. Since January 2016, we have been manufacturing these world quality materials from a state-of-the art plant in Dahej, Gujarat. Our association with Finolex will further strengthen FlowGuard’s commitment to delivering reliability in India through Finolex’s wide spread network in the country.”

Timmons continues, “Since we introduced FlowGuard to the Indian market, we remained committed through our support of processors who continue to benefit from our more than 50 years of expertise in manufacturing and compounding. Additionally, with the government’s recent focus on housing for all, the infrastructure status given to real estate, loans offered at cheaper rates, introduction of the Real Estate Regulatory Act (RERA), GST & many other initiatives, the need for quality products to be used in the country is greater than ever.”

Lubrizol introduced the resilient CPVC material into India nearly two decades ago. Since then, India’s plumbers, engineers, builders and consultants have been reassured by the only material of its kind to be designed and approved to meet all global standards.

Prakash Chhabria, executive chairman of Finolex Industries Limited expressed his views on the special occasion, saying, “We are committed to strengthening the plumbing industry through our association with Lubrizol falls in line with the culture of Finolex Industries in providing quality products ‘Made in India’ for the Indian market. We are confident about Lubrizol’s global expertise in compounding and appreciate the work done by them in changing the plumbing industry from metal-based to CPVC–based piping. With FlowGuard’s raw material and support, our track record of providing superior products for Indian market gets strengthened. We look forward to a successful partnership.”
industry and we are honored they have chosen to take advantage of our industry-leading cold chain network, expanded fresh foods program and award-winning category management expertise. We are proud to partner with such a strong leader within our industry and look forward to building the foundation for a long lasting and mutually successful relationship.”

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized

Grandscape to Add Massive 16-Screen Movie Complex

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The old saying is that everything’s bigger in Texas, and that sure applies to Berkshire Hathaway’s Grandscape commercial real estate development.

Grandscape, Berkshire giant mixed-use real estate development in The Colony, Texas, continues to fill out its tenants and will add an 85,000+ sf, 16-screen movie venue. The entertainment center is projected to open in the spring of 2019.

The movie complex will be owned and operated by Galaxy Theatres, LLC, a fully integrated movie theatre company. Galaxy Theatres is privately owned, and is in the top 10% ranked by size of its industry according to the National Theatre Association. It currently has theatres in California, Nevada, Texas and Washington.

Located in the Dallas/Fort Worth area, Grandscape is being developed by Berkshire’s Nebraska Furniture Mart, and is home to its 1.86 million square foot store, which opened in 2015.

When fully developed, Grandscape will cover 400+ acres with 3.9 million square feet of retail, entertainment, dining, hospitality, office and attractions.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Johns Manville Has Leadership Changes in Two Businesses

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Berkshire Hathaway’s Johns Manville, a global building and specialty products manufacturer and a Berkshire Hathaway company, announced leadership changes in two of its businesses. Bob Wamboldt, currently Senior Vice President and General Manager of Roofing Systems, will become Senior Vice President and General Manager of Insulation Systems, and Joe Smith will become Senior Vice President and General Manager of Roofing Systems.

Wamboldt will succeed Fred Stephan, who is leaving Johns Manville for another opportunity.

“Johns Manville is a leader and innovator in the many global markets we serve,” said Mary Rhinehart, Chairman, President and CEO. “We are confident Bob and Joe will continue making JM the supplier of choice for our customers, and we are thankful for the service Fred has given JM over the past 12 years.”

Wamboldt joined Johns Manville in 2003 and has held senior leadership positions in the company’s Engineered Products business and in Roofing Systems. He began as Strategic Accounts Manager and later worked as Vice President and General Manager of Engineered Products North America and as Leader for the North American Fibers business in the Engineered Products Group. He has led the Roofing Systems business since 2011. Before joining JM, Wamboldt worked 16 years at PPG with key roles in their Fiber Glass and Coatings divisions. He earned a degree in Chemistry from Lehigh University and is a certified Six Sigma Black Belt.

Smith will assume Wamboldt’s current role in the Roofing Systems business. He has been General Manager of Building Insulation since 2012 and has played important roles at JM for more than 28 years. He began his tenure as a roofing sales representative, and in 1998 he moved to Denver as a marketing manager in JM’s Roofing Systems Business. For the next 14 years, he worked in a variety of marketing, product management and roofing services positions. He earned a bachelor’s degree in Management and a master’s degree in Business Administration from St. Leo University.

About Johns Manville

Acquired by Berkshire Hathaway in 2001, Johns Manville has annual sales of approximately $2.6 billion, and employs approximately 7,000 people.

The company has 44 manufacturing facilities in North America, Europe and China.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.