Month: August 2024

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Lessons From Warren Buffett

Lessons from Warren Buffett: The Importance of Intrinsic Value

A cornerstone of Warren Buffett’s strategy for identifying a worthwhile company, whether for full acquisition or just a minority stake, lies in determining its intrinsic value. For Buffett, intrinsic value is centered on the business’s future cash flow, akin to the interest paid on a bond. However, unlike bonds, stocks do not have their “interest rate” clearly printed.

At the 1997 Berkshire Hathaway Annual Meeting, Buffett explained, “If we could see what a business’s future cash inflows or outflows to and from the owners would be over the next hundred years, or until the business ceases to exist, and then discount that back at the appropriate interest rate, we would have a number for intrinsic value.”

Buffett likened this process to evaluating a bond with numerous future coupons. The value of a bond with 5% coupons differs from one with 7% coupons, just as different businesses have varying future “coupons.” The challenge for investors is estimating these future coupons, as they are not printed on the stock. This estimation is crucial for determining the intrinsic value and making informed investment decisions.

Buffett’s full explanation on determining intrinsic value

See the complete Lessons From Warren Buffett series

© 2024 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.

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Jazwares

Jazwares Shines in Berkshire Hathaway’s Consumer Products Group

(BRK.A), (BRK.B)

In 2024, Berkshire Hathaway’s Jazwares, a leading global toy company, has emerged as a standout performer within Berkshire’s consumer products group. Jazwares reported a remarkable 20.3% revenue increase in the first half of the year. Acquired through Berkshire’s October 2022 takeover of Alleghany Corp., Jazwares is the creative powerhouse behind Squishmallows, the world’s number one toy.

The consumer products group encompasses a diverse range of businesses, including recreational vehicles (Forest River), apparel and footwear (Fruit of the Loom, Garan, Fechheimer, H.H. Brown Shoe Group, and Brooks Sports), high-performance batteries (Duracell), custom picture framing (Larson-Juhl), and jewelry (Richline).

The group’s revenues grew by $137 million (3.9%) in the second quarter and $278 million (4.0%) in the first six months of 2024 compared to the same periods in 2023. This growth was driven primarily by higher revenues from Forest River, Jazwares, and Brooks Sports.

© 2024 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 a 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.

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Precision Castparts

Berkshire ‘s Precision Castparts Sees Robust Growth in Aerospace Sector for First Half of 2024

(BRK.A), (BRK.B)

Precision Castparts Corporation (PCC), a subsidiary of Berkshire Hathaway, reported robust financial results for the first half of fiscal year 2024, driven by strong demand for its aerospace products.

PCC’s revenues reached $2.7 billion in the second quarter and $5.2 billion in the first six months of 2024, marking increases of 15.0% and 12.6%, respectively, compared to 2023. This growth was primarily due to higher demand for aerospace products and, to a lesser extent, power generation products.

Long-term industry forecasts predict continued growth and strong demand for air travel and aerospace products.

PCC’s pre-tax earnings saw a significant rise of 27.5% in the second quarter and 22.4% in the first six months of 2024 compared to the previous year, driven by increased sales and improved manufacturing and operating efficiencies. Future revenue and earnings growth will depend on PCC’s ability to scale production to meet the anticipated rise in aerospace product demand.

PCC is a global, diversified manufacturer of complex metal components and products, serving the aerospace, power, and general industrial markets. Its Airframe Products division is a leading manufacturer of engineered fasteners, fastening systems, metal components, and assemblies for various sectors, including aerospace, transportation, and power generation.

© 2024 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 a 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.

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BNSF

BNSF Railway Honored for Disability Inclusion Excellence

(BRK.A), (BRK.B)

BNSF Railway, part of Berkshire Hathaway, has earned a top score of 100 on the 2024 Disability Equality Index, marking it as a “Best Place to Work for Disability Inclusion” for the second consecutive year.

“This recognition solidifies our efforts toward becoming a more inclusive and diverse place to work,” said Dustin Almaguer, vice president of compliance and audit, and executive sponsor of BNSF’s Disability Inclusion Alliance (DIA) business resource group. “We are committed to building upon our progress so our railroad continues to be a leader in fostering a trusted environment where everyone feels included and valued for who they uniquely are.”

The Disability Equality Index, created in 2015 by Disability and the American Association of People with Disabilities (AAPD), encourages best practices in workplace disability inclusion and equality. Celebrating its 10th year, the index is a comprehensive tool for businesses aiming to positively impact the employment of people with disabilities.

BNSF’s evaluation included categories such as culture and leadership, enterprise-wide access, employment practices, community engagement, supplier diversity, and responsible procurement.

“We’re extremely proud of the 542 national and international companies that are taking a proactive role in leading progress toward disability inclusion, setting a benchmark for others to follow,” said Jill Houghton, President and CEO of Disability. “Their dedication to fostering inclusive workplaces not only attracts top talent but also drives innovation and creates sustainable performance in today’s global market.”

© 2024 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 a 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.

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Financials

Berkshire Hathaway Share Repurchases Continue in Q2 at Reduced Pace

(BRK.A), (BRK.B)

Berkshire Hathaway continued its stock buybacks in the second quarter of 2024, but at greatly reduced amount than in the first quarter of 2024.

Berkshire Hathaway, the renowned conglomerate led by Warren Buffett, used approximately $345 million of its cash to repurchase Berkshire shares during the second quarter of 2024, bringing the six-month total to $2.9 billion.

On June 30, 2024, there were 1,436,696 Class A equivalent shares outstanding, a reduction of 555 Class A equivalent shares outstanding from March 31, 2024.

Buffett has a clear and conservative approach to share repurchases. Berkshire’s repurchase program allows for the repurchase of Class A and Class B shares, but only when the stock price is below Berkshire’s intrinsic value, as determined by Buffett. There is no obligation to repurchase a minimum number of shares, nor is there a cap on the maximum amount of shares that can be repurchased. However, Buffett ensures that repurchases do not reduce Berkshire’s holdings of cash, cash equivalents, and U.S. Treasury Bills below $30 billion. This emphasis on financial strength and liquidity is paramount for Berkshire.

© 2024 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 a 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.