Category Archives: Warren Buffett

Berkshire Hathaway Scraps In-Person Annual Meeting

(BRK.A), (BRK.B)

They come from all over the world for what has been dubbed “Woodstock for Capitalists,” but not this year. Berkshire has issued the following statement:
Events have moved very fast since Berkshire issued its annual report on February 22.

The annual meeting will be held at 3:45 p.m. on May 2nd as scheduled. However, we will not be able to allow shareholders to physically attend the meeting, and all special events are canceled.

I very much regret this action; for many decades the annual meeting has been a high point of the year for me and my partner, Charlie Munger.

It is now clear, however, that large gatherings can pose a health threat to the participants and the greater community. We won’t ask this of our employees and we won’t expose Omaha to the possibility of becoming a “hot spot” in the current pandemic. Therefore, we will limit attendance to me, possibly Charlie, and several Berkshire employees who will deliver proxy votes.

It’s possible that one or more of the journalists that we listed on page A-2 of the 2019 annual report will be present to ask some of the questions submitted to them. We are deferring a decision on this matter, but encourage you to continue to send your questions to them.

Yahoo has confirmed that it will stream the meeting. They have provided great coverage in the past, and you can watch what takes place in Omaha from your armchair.

Charlie and I will miss you, but we will see many thousands of you next year.

Thanks for your understanding,

Warren E. Buffett

© 2020 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.

Value Investing: Don’t Buy a Pig in a Poke

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Part of an occasional series on Value Investing

Don’t buy a pig in a poke. It’s an old expression that traces its usage to the Middle Ages when unscrupulous merchants would sell what was supposedly a suckling pig to unsuspecting victims only to have them later find that their bags contained a cat or a dog.

How does that apply to Value Investing? Simple. Know your investment.

If you are a Value Investor your goal is to understand what a business is, not just what it claims to be, or what others say it is.

Before you invest, have you closely studied the stock you are buying?

What are the past 10 years of earnings? Are they consistently growing?

What is the return on equity?

What does the company do with retained earnings?

Have you read the past 10 years of annual reports?

How strong is the management team? Do they align with shareholders’ interests?

What is the company’s intrinsic value?

What is the company’s price history? Can you provide a reason why you should buy now?

If this all sounds like too much work, there’s nothing wrong with building a balanced portfolio of index funds. However, if you are the kind of investor that likes to hunt for opportunities, likes to know about the individual companies you are buying, and doesn’t want to buy a pig in a poke, then answering these questions will be essential to using a Value Investing approach.

There’s a whole financial industry designed to take the thinking out of investing. Whether it is from talking heads on TV or the Internet, or investment company recommendations, and they can be a poor substitute for your own research and your own studious analysis.

In the end, it comes down to knowing your investment, so you don’t buy a pig in a poke.

Or as Warren Buffett once said: “Any time you combine ignorance and borrowed money you can get some pretty interesting consequences.”*

*1994 Berkshire Hathaway Annual Meeting

© 2019 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.

Tracy Britt Cool Leaving Berkshire Hathaway

(BRK.A), (BRK.B)

One of Warren Buffett’s most trusted lieutenants is leaving Berkshire Hathaway. Tracy Britt Cool will be leaving the company to form her own business acquisition company.

Britt Cool plans to launch a new long-term platform to acquire and build businesses. She will use her experience from Berkshire Hathaway as a value investor and an entrepreneurial-minded operator to focus on buying and growing companies that are smaller than Berkshire Hathaway’s size threshold for acquisitions.

Britt Cool has been with Berkshire Hathaway for 10 years. In addition to serving as CEO of Pampered Chef for the last 5 years, she has held a variety of roles including Financial Assistant to the Chairman, board member of Kraft Heinz, and Chairman of several Berkshire Hathaway companies.

To support a smooth transition, Britt Cool will remain with Pampered Chef until March 2020, when Pampered Chef’s Chief Operating Officer Andrew Treanor will become CEO.

“While it has been a difficult decision to leave such an amazing and well-respected company, it has been an honor and a privilege to work with Warren Buffett, as well as many accomplished colleagues,” Britt Cool shared. “I’m proud of my time at Berkshire Hathaway and am grateful to have helped grow several Berkshire companies, including Pampered Chef. Our team has transformed Pampered Chef into a vibrant company that is growing, innovating, and enriching lives. I’m confident Andrew is the right leader to continue to drive our growth and success.”

Over the last five years, Pampered Chef focused on rebuilding the foundation of the business and creating new engines for growth through a renewed focus on the independent consultant base, a refreshed brand, enhanced product innovation, expanded international footprint, and significant digital channel growth. Following more than a decade of decline, the company has meaningfully grown sales and earnings over the last 5 years. It has grown into a strong and diverse business with more than 50% of Pampered Chef’s business now coming from digital sales, up from approximately 10% in 2014.

Warren E. Buffett, Chairman and CEO of Berkshire Hathaway, stated: “Five years ago I asked Tracy to redirect and re-energize Pampered Chef. Direct selling was encountering new challenges and Pampered Chef’s sales and earnings had been declining. Under Tracy’s leadership, major financial gains have been achieved. Even more important, our corps of consultants is rapidly growing and prospering. Tracy is handing Andrew a company infused with excitement and momentum.”

“As a founder, I couldn’t have asked for a better leader and partner in rebuilding Pampered Chef than Tracy. She has played a critical role leading the company’s transformation and building a strong team to continue our growth,” said Doris Christopher, Founder and Chairman of Pampered Chef. “I’m confident in Andrew’s leadership and Pampered Chef’s growth, and I’m excited for what Tracy will do next. I know she will be successful in building even more companies and will be a strong partner to founders, entrepreneurs, and management teams.”

© 2019 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.

Warren Buffett Prevails in Battle with Carl Icahn

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Famed activist investor Carl Icahn has come up short in his battle with Warren Buffett over Occidental Petroleum’s acquisition of Anadarko Petroleum.

The deal closed on August 8, which puts in place Berkshire Hathaway’s funding deal of the takeover.

At the end of April, Buffett announced that Berkshire would invest $10 billion in Occidental in exchange for preferred stock and warrants to purchase common stock. The investment enabled Occidental to top Chevron’s bid for Anadarko.

The deal infuriated Icahn, who castigated Occidental’s CEO and President Vicki Hollub, and railed that “The whole thing is a travesty.”

In exchange for $10 billion, Berkshire Hathaway received 100,000 shares of cumulative perpetual preferred stock with a liquidation value of $100,000 per share and 8% annual dividend. Berkshire can redeem the shares for cash at the option of Occidental in at least 10 years for 105% of the liquidation price, in addition to all dividends.

Berkshire also received warrants to purchase up to 80 million shares of common stock with an exercise price of $62.50 per share, with an expiration date of up to one year after Berkshire redeems its preferred stock.

In a letter to Occidental shareholders written after the announcement, Icahn expressed his displeasure, stating that “Buffett figuratively took her to the cleaners,” and that it was “like taking candy from a baby.”

That may be, but Berkshire will now be receiving 8% for as long as it holds its preferred stock, which looks mighty good in these days of falling interest rates. Berkshire will be receiving $800 million a year, and may make millions more if oil prices rise and make its warrants valuable.

© 2019 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.

Commentary: Berkshire Finally Has Smooth Driving in Texas

(BRK.A), (BRK.B)

Berkshire Hathaway, a company that does a Texas-sized amount of business in Texas, including being the home state for BNSF Railway, had an unexpected bump in the road created by its 2015 acquisition of the Van Tuyl Group.

Berkshire bought the auto dealership group for $4.1 billion after company CEO Larry Van Tuyl approached Berkshire in late-2014 and proposed the acquisition.

Unfortunately for Berkshire, Texas state law prohibited owning dealerships if you manufacture vehicles, something Berkshire does through its wholly-owned Forest River, Inc., a leading manufacturer of RVs and small buses.

Van Tuyl Group, which was rechristened Berkshire Hathaway Automotive, ran afoul of the Texas Department of Motor Vehicles when in 2017 the Department decided to look at whether Berkshire Hathaway was violating state law and might be subject to fines.

Berkshire Hathaway Automotive CEO Jeff Rachor testified before State Sen. Kelly Hancock’s committee that applying the law to auto dealerships because of owning a motorhome manufacturer was an “unintended consequence.”

Unfortunately, Texas regulators didn’t relent and Berkshire’s first push at a legislative fix, which included some glad-handing by Warren Buffet himself, came up empty when the Tea Party coalition helped kill a bill to fix the problem.

Fast forward a couple of years and cooler heads have prevailed.

This time, the bill State Sen. Hancock sponsored, SB 1415, passed, and Gov. Greg Abbott has signed it into law.

The new law, which takes effect Sept. 1, 2019, means that manufacturers are now only prohibited from owning dealerships that sell the same vehicles that they produce, which is not something that Berkshire Hathaway Automotive Group does.

Problem solved, and Warren Buffet can now breath a Texas-sized sigh of relief.

© 2019 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.

Commentary: Has the Time Finally Come for Berkshire to Cash Out of Axalta?

(BRK.A), (BRK.B)

Has the time finally come for Berkshire Hathaway to cash out of its minority position in Axalta?

Back in 2015, Berkshire Hathaway acquired roughly 10% minority stake in Axalta Coating Systems from The Carlyle Group for $560 million, or $28.00 per share. Axalta is a leading global coatings provider for vehicles and industrial applications.

Since that time it’s watched its investment flounder, as the Philadelphia-based Axalta fought off being acquired by PPG, and spurned another potential merger with Dutch coatings company Akzo Nobel.

Nippon Paint was another company that was interested in Axalta, only to have the company reject a $9.1 billion all-cash bid that it made near the end of 2017.

2017 was also a year of internal turmoil for the company. Axalta parted ways with its newly hired CEO, Terrence Hahn, after only five weeks on the job. The dismissal came after an internal investigation turned up conduct that Axalta “believes was inconsistent with company policies.”

Chief financial officer Robert Bryant took over as CEO and remains in that position today.

Apparently, Axalta was a company unwilling to be taken over by anyone.

Now, Axalta finally seems ready to enhance shareholder value, and a takeover has become more likely.

“Axalta’s Board is committed to maximizing value for all shareholders and has initiated a comprehensive review of strategic alternatives, including a potential sale of the Company, changes in capital allocation, and ongoing execution of our strategic plan,” according to Axalta director Mark Garrett.

With a sale of the company finally on its board’s agenda, could this be the time for Buffett to finally get something for his investment?

Nippon Paint, PPG, and Akzo Nobel are all among the potential players, and the market has quickly recognized that this time may finally be different for Axalta.

Axalta (AXTA) closed on Friday at $29.99, making Berkshire’s stake worth $727,677,360. And it’s now trading above its 52-week high of $30.94 in Friday’s after-hours trading.

Hopefully there’s more good news to come.

Finally.

© 2019 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.

Todd Combs and Ted Weschler’s Portfolios Continue to Grow

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Todd Combs and Ted Weschler, the former hedge fund managers that Warren Buffett hired to manage a portion of Berkshire Hathaway’s stock portfolios, have continued to see their portfolios grow.

Combs was hired in 2010, and Weschler was hired in 2011, and each was initially given a billion dollar portfolio to separately manage. Over the past five years, Buffett has increased their portfolios as he has grown confident in their abilities. The portfolios have now reached $13 billion each, according to Buffett’s recent comment on CNBC.

Warren Buffett says Berkshire stock managers Weschler, Combs have trailed the S&P 500 from CNBC.

Berkshire’s total stock holdings total a whopping $183 billion, according to its most recent 13-F filing.

As Warren Buffett’s handpicked protégés, Buffett has praised their success, noting that “They have made Berkshire billions already that we wouldn’t have otherwise made,” he said on CNBC in 2014. “They both have a fundamental combination of soundness and brilliance.”

While Buffett notes that this past year “Overall, they are a tiny bit behind the S&P, each, by almost the same margin,” Buffett acknowledged to Becky Quick on CNBC’s “Squawk Box” that they were still doing better than he was.

More than Just Portfolio Managers

In addition to portfolio management, Combs sits on the Boards of companies that Berkshire holds sizable stakes in. Combs is on the Board of JPMorgan Chase & Co., and Paytm, and he also is playing a key role in the Amazon, Berkshire Hathaway and J.P. Morgan Chase healthcare joint venture, having been charged with finding the project’s CEO.

It was also Combs’s belief in aerospace manufacturer Precision Castparts that directly led to Buffett’s $32 billion acquisition of the company.

“You have to give Todd Combs credit for the deal,” Buffett said, noting that he had never heard of the company before Combs brought it to his attention. ”Todd told me a lot about it, and over the last few years I have become familiar with it,” he added.

Another winner was Combs and Weschler’s positions in DirecTV in 2014. The satellite broadcaster’s acquisition by AT&T brought an over $3 billion windfall for Berkshire, as its 4.5 million shares were purchased at roughly half the tender price of $95 per share offered by AT&T.

When the day come that the entire Berkshire portfolio is in Todd Combs and Ted Weschler’s hands, Berkshire’s shareholders will be able to sleep well at night knowing it is well-managed.

© 2019 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.

Commentary: Here’s One Big Thing to Like in Buffett’s Annual Letter

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Warren Buffett may be frustrated that he can’t find any “elephants” to acquire, but he did give hope to Berkshire investors that there is one elephant-sized company that he would love to own more of, Berkshire Hathaway.

In his just released Annual Letter to Shareholders, Buffett stated “it is likely that – over time – Berkshire will be a significant repurchaser of its shares…”

While Buffett made no mention of paying a dividend, which is something he has been negative on in the past, he is clearly willing to put more of Berkshire’s $112 billion in cash into stock buybacks if the price is right.

It’s a process that’s already begun.

In the 3rd quarter of 2018, Berkshire bought back $928 million of its stock, which brought the 2018 total to more than $1.3 billion.

Now, with no big acquisition moves on the horizon, Buffett seems to be warming even more to the idea.

Remember, he stated that in future buybacks Berkshire would be a “significant repurchaser.”

Does this indicate that future buybacks could be substantially larger than what we saw last year?

It all comes down to price, and whether in Buffett’s opinion Berkshire is trading below its intrinsic value.

“If the market prices a departing partner’s interest at, say, 90¢ on the dollar, continuing shareholders reap an increase in per-share intrinsic value with every repurchase by the company,” Buffett explained.

“Assuming that we buy at a discount to Berkshire’s intrinsic value – which certainly will be our intention – repurchases will benefit both those shareholders leaving the company and those who stay,” Buffett said.

Ever cautious, Buffett is only interested in buybacks if they create value for shareholders, noting that “Blindly buying an overpriced stock is value destructive, a fact lost on many promotional or ever-optimistic CEOs.”

In his letter, Buffett also highlighted how over the years stock repurchases of some of the minority stakes Berkshire holds have given it an increasing share of those companies without spending a dime.

He pointed out that “Berkshire’s holdings of American Express have remained unchanged over the past eight years. Meanwhile, our ownership increased from 12.6% to 17.9% because of repurchases made by the company. Last year, Berkshire’s portion of the $6.9 billion earned by American Express was $1.2 billion, about 96% of the $1.3 billion we paid for our stake in the company. When earnings increase and shares outstanding decrease, owners – over time – usually do well.”

And over time, as Berkshire increases its own buybacks, hopefully shareholders will do well too.

© 2019 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 Hathaway Exits Home Capital Position

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Berkshire Hathaway is substantially exiting its position in Canadian alternative lender Home Capital Group following the completion of the company’s Substantial Issuer Bid process.

In 2017, Berkshire invested in the company and provided financing that helped stabilize the lender, however, shareholders thwarted its plans for more extensive ownership.

“We are delighted to see Home Capital back on its feet with healthy liquidity and a solid capital position,” Warren Buffett said in a statement. “In June of 2017, when some were questioning Home’s staying power, Berkshire agreed to lend the Company $2 billion. The team at Home was a pleasure to deal with and have worked to thoughtfully strengthen Home over the last 18 months. As part of the loan commitment Berkshire also committed to provide $400 million of equity financing to Home – $153 million with the funding of the credit line and an additional $247 million contingent upon shareholder approval; shareholders did not approve the additional investment and, as a result (coupled with a full repayment of Berkshire’s credit line) Berkshire’s investment in Home is now not of a size to justify our ongoing involvement. Although we have decided to substantially exit from our investment, we will continue to cheer from the sidelines for our friends at Home.”

© 2018 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 Hathaway Powers Ahead with Rising Profits, Stock Buy-Back

(BRK.A), (BRK.B)

Berkshire Hathaway’s operating profits soared in the third quarter of 2018, as quarterly operating profit was almost double from 2017.

For the 9 months of 2018 the net earnings attributable to Berkshire shareholders reached $29.413 as compared to $12.389 billion for the first 9 months of 2017.

Insurance underwriting income was one of the drivers of the growth, generating $441 million in the third quarter, versus a loss of $1.4 billion in the year-ago period.

The company also posted strong revenues in its railroad, utilities and energy, and its other businesses.

Berkshire’s enormous minority positions in a slew of leading corporations, including Apple, Southwest Airlines, General Motors, Bank of America, American Express, and Wells Fargo, grew by almost $12 billion.

Berkshire also reported that its insurance float had grown to $118 billion, an increase of $2 billion over the end of the second quarter.

The conglomerate also revealed that Warren Buffett had Berkshire repurchase over $928 Million in Berkshire Stock.

The move was the first buy-back since 2012 and confirms Buffett’s position that the shares are undervalued.

© 2018 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.