Category: Warren Buffett

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Charlie Munger Warren Buffett

Buffett Reveals Terms of Failed Unilever Bid

(BRK.A), (BRK.B)

Berkshire Hathaway and 3G Capital Partners’ recent unsolicited offer for Unilever may have flopped, but it hasn’t soured Warren Buffett on working with 3G on more acquisitions.

The two entities have worked together on the takeover of Kraft to form Kraft Heinz, and Berkshire provided financing for 3G’s merger of Burger King and Tim Hortons that became Restaurant Brands International. The merger made Berkshire a minority owner of the combined company.

At the annual shareholder’s meeting, Buffett detailed that both Berkshire and 3G were prepared to each put $15 billion into the Unilever transaction.

Some in the press have questioned whether 3G’s extreme cost-cutting made the deal unpalatable for Unilever.

While a shareholder questioned whether 3G’s emphasis on layoffs as part of its cost-cutting strategy was in line with Berkshire’s corporate culture, both Buffett and Charlie Munger noted that improvements in productivity have often lead to layoffs.

Munger noted that he doesn’t long for the days of elevator operators, and “We don’t want to go back to the days of subsistence farming.”

While Munger didn’t see a particular “moral fault” in 3G’s strategy, Buffett was clearly sensitive to the impact on displaced workers.

“If you look at any industry, they are trying to get more productive,” Buffett said. Still he noted that society’s improved living standard as a whole can be of little comfort to an individual that has lost their job, and he wishes there could be another way.

Buffett did term 3G’s severance packages at Kraft Heinz “more than fair.”

© 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.

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Minority Stock Positions Stock Portfolio Warren Buffett

Buffett Says Wells Fargo “Incentivized the Wrong Type of Behavior”

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Warren Buffett continued to take aim at Wells Fargo during his answers to shareholders’ questions at Berkshire Hathaway’s annual meeting.

He noted that Wells Fargo “incentivized the wrong type of behavior,” and felt that its CEO John Stumpf, was slow in responding to the scandal.

Berkshire Hathaway is Wells Fargo’s largest shareholder at just under ten percent of the company.

The stock has been one of Berkshire’s long term core holdings, and so far it has shown no sign of selling its position.

Still, Buffett emphasized that he was not pleased with the actions Stumpf took.

“If there’s a major problem, the CEO will get wind of it. At that moment, that’s the key to everything. The CEO has to act,” Buffett said. “The main problem was they didn’t act when they learned about it.”

Some 5,300 employees were eventually fired for creating over 2 million phony accounts tied to existing customers in order to meet sales goals, and Stumpf ended up resigning.

“An ounce of prevention is worth a pound of cure” Buffett said, noting the old adage. “A pound of cure is worth a ton of cure delayed,” he added.

© 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.

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Warren Buffett

Buffett Unperturbed by Berkshire’s Q1 Earnings

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While much of the media focused on Berkshire Hathaway’s lower first quarter earnings, which fell 27 percent, Warren Buffett reminded shareholders at the conglomerate’s annual meeting that Berkshire has over $90 billion in unrealized capital gains.

Berkshire reported that its net income was $4.06 billion, which translates to $2,469 per Class A share. This was down from $5.59 billion, or $3,401, for the first quarter of 2016.

As of March 31, 2017, Berkshire’s book value had increased by 3.5% since yearend 2016 to $178,073 per Class A equivalent share.

Weather related losses in its insurance businesses were one of the reasons for the earnings shortfall.

Buffett noted that taking some of those capital gains at any time would change the company’s quarterly earnings, and Buffett has always emphasized Berkshire’s intrinsic value, which is harder to quantify.

Buffett did note that Berkshire’s float, which comes from its numerous insurance operations, is up $14 billion.

There’s no doubt that the company is swimming in cash, which is now at a company record $90 billion, and Buffett appeared itchy to put some of that cash to work while keeping Berkshire safe in case of unforeseen hard times.

He noted that the $20 billion he often mentions as held as reserves is in his mind a bare minimum, and that he’s more likely to maintain a reserve closer to $24 billion.

© 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.

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Acquisitions Lubrizol Warren Buffett

Warren Buffett Wishes For Five More Lubrizols

(BRK.A), (BRK.B)

If there is any one of Berkshire Hathaway’s companies that Warren Buffett would love to find another of it would have to be Lubrizol Corporation.

Berkshire acquired the specialty chemical manufacturer in 2011 for $9.7 billion, and it has played an important role in Berkshire’s profits.

“Lubrizol is the second largest in terms of earnings so it’s a very important asset to Berkshire,” Buffett noted during a recent visit to Lubrizol’s headquarters in Wickliffe, Ohio. “Up until the acquisition of Precision Cast Parts [it was] the largest industrial operation we have.”

Lubrizol’s growth, which since being acquired by Berkshire has included the acquisition of Particle Science, the opening of a chlorinated polyvinyl chloride (CPVC) compounding plant in Dahej, India, and assuming the Indian government’s stake in Lubrizol India Pvt Ltd., and more.

“It’s a terrific business and it’s big, and only gets bigger,” Buffet said.

With Berkshire size matters, as small acquisitions don’t make much difference in the profits of a company the size that Berkshire has grown to. Over the past decade, Berkshire has added not only Lubrizol, but also BNSF Railway, Precision Castparts, battery-maker Duracell, and a hefty chunk of Kraft Heinz to its portfolio.

While individual Berkshire companies can grow through smaller acquisitions in the millions, tens of millions, or even hundreds of millions, those size acquisitions don’t make sense for Berkshire if they are stand-alone entities. Berkshire has to add companies with billions in market cap in order to make a difference.

Companies of Lubrizol’s size are in the range that Buffett looks for with his famed “elephant gun.”

“It’s a huge advantage to be large too in terms of moving the needle on $400 billion of market cap.” Buffett noted, referring to Berkshire’s overall size.

Buffett’s a willing buyer, but companies such as Lubrizol are not on every corner.

“I wish we had five more and they’re hard, they are very hard to find,” Buffet said. “They take decades and decades to build.”

Buffett’s reputation as a long term owner of companies who keeps key management in place is one the things that makes becoming a Berkshire company attractive. The other is no longer having to be a slave to quarterly earnings reports. Just ask the folks at BNSF Railway how much easier it is to allocate capital now that they have been freed of that burden.

“We want Berkshire to be a wonderful collection of businesses over time, because we’re not going to sell them. It isn’t like we are going to keep culling the herd.”

If you can find Buffett another Lubrizol he’s certainly ready to thank you.

“Find me another Lubrizol, I’ll send flowers to your wife on her birthday,” Buffett adds. And he means it.

© 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.

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Acquisitions Coca-Cola Commentary Warren Buffett

Commentary: Could Pepsi become a Berkshire Brand?

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It‘s no secret that Warren Buffett is partial to Coca-Cola, after all he not only drinks 5 Cokes a day, but Berkshire Hathaway owns 400 million shares of Coca-Cola stock valued at roughly $16.5 billion.

“I’m one quarter Coca-Cola,” Warren Buffett has joked.

However, with Berkshire and 3G Capital having been rebuffed in their $143 billion bid for Unilever Plc, one important analyst thinks PepsiCo, Inc. might be a logical target for the expansion of Kraft Heinz.

Pablo Zuanic, the Senior Analyst covering the Food, Beverage, and Household/Personal Care sectors for Susquehanna Financial Group, thinks Pepsi might quench Berkshire and 3G’s thirst for acquisitions.

Zuanic’s bona fides as an analyst have seen him recognized by Institutional Investor as the #1 Latin American Food & Beverage analyst for two consecutive years, the #4 US Food Analyst, and the #3 US Food Analyst in their Alpha Poll of Hedge Funds.

PepsiCo, Inc., which has a market capitalization of almost $161 billion, not only has one of the most popular soft drink brands in the world, but also owns snack-maker Frito-Lay and juice company Tropicana.

Zuanic recently raised his Pepsi price target from $118 to $132 on speculation that Kraft Heinz could team with Anheuser-Busch for the bid. The stock is currently just over $112 a share.

It seems logical that a bid for PepsiCo would see the beverages added to Anheuser-Busch, and the snack foods added to Kraft Heinz.

Zuanic notes that in his opinion Pepsi shares trade at a substantial discount when compared to Coca-Cola.

“PEP shares have lost visibility and now trade at a 25% discount to KO on apples-to-apples comps.” writes Zuanic.

While a Berkshire and 3G Capital bid for Pepsi might be a possibility, don’t expect to hear Buffett say “I’m one quarter Pepsi,” anytime soon.

© 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.

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Commentary Minority Stock Positions Stock Portfolio Warren Buffett

Commentary: Warren Buffett Keeps Getting Valentines from Phillips 66

(BRK.A), (BRK.B)

“How do I love thee? Let me count the ways,” wrote poet Elizabeth Barrett Browning. The same could be said by Warren Buffet when it comes to an energy sector company that is clearly dear to his heart.

If there is one company in the oil and gas sector that Warren Buffett especially loves, it is Houston-based Phillips 66, an energy manufacturing and logistics company with a portfolio of integrated businesses: Midstream, Chemicals, Refining, and Marketing and Specialties.

Back in early 2014, Berkshire swapped a large portion of its previous Phillips 66 position for the company’s chemical business unit, which was added to Berkshire’s specialty chemical maker Lubrizol.

“We were able to do that on a tax-advantage basis. We didn’t trade them because we didn’t like the stock,” Warren Buffett said at the time on CNBC’s Squawk Alley.

“I had always intended on coming back in, assuming that the price was right.”

By mid-2015, Buffett was back in and Berkshire revealed that it had accumulated 58 million shares of stock.

That position Has Only Grown

Buffett’s love of Phillips 66 has continued unabated, as he added to the position throughout 2016.

As of its last filing, Berkshire Hathaway now owns $6.4 billion of Phillips 66 stock, which works out to around 15.67% of the company. Berkshire is the largest institutional owner.

Why does Buffett love Phillips 66?

First of all, the company’s diversified businesses make it a leader in refining (it owns 13 refineries), marketing (it sells fuel In the U.S. under the Phillips 66, Conoco and 76 brands), and Midstream operations. Its Midstream operations gathers, processes, transports and markets natural gas, and transports, fractionates and markets natural gas liquids in the United States. Phillips 66 also manufactures and markets petrochemicals and plastics worldwide.

Phillips 66’s diversified businesses has given it relative stability in the face of recent slumps on crude oil prices, and the stock remained strong between 2014 and 2017.

With a current dividend yield of 3.22%, the stock has been pouring cash into Berkshire, much of it through positions held by its insurance company National Indemnity.

Rising Dividends

Buffett’s love of Phillips 66 is likely to continue. Back in 2015, the company’s dividend yielded between 1.9% and 2.7%. With most of the quarters paying dividends of 56 cents a share. Since May 2016, the dividends have moved up and it has paid 63 cents a quarter for the past four quarters.

A strong stock price and a fat dividend. What’s Warren Buffett not to love?

© 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.

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Minority Stock Positions Stock Portfolio Warren Buffett

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.

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Warren Buffett

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.

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Fruit of the Loom Warren Buffett

Fruit of the Loom Names Melissa Burgess-Taylor New Chairman & CEO

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Berkshire Hathaway’s Fruit of the Loom has announced the appointment of Melissa Burgess-Taylor as the company’s new Chairman and Chief Executive Officer.

Ms. Burgess-Taylor is currently the Senior Vice President of Brand Management and Sales for Fruit of the Loom and Vanity Fair Brands. She has been with the company more than 17 years focusing on the interests of Fruit of the Loom employees and customers while delivering meaningful results.

Warren Buffett, Chairman and CEO of Berkshire Hathaway, addressed the Fruit of the Loom leadership team today following the unexpected passing of Rick Medlin last week.

“Rick lived and breathed Fruit of the Loom, and he was an inspirational leader to everyone associated with the company. He will be greatly missed. His contributions were significant and his legacy will continue through the success of Fruit of the Loom and the employees.” Mr. Buffett continued, “I am excited to have Melissa take on this important role as CEO. Already an accomplished Fruit of the Loom leader, she is passionate, smart, and cares deeply about Fruit of the Loom customers and employees. She understands the importance of building a great brand, and she’ll add tremendous value to Fruit of the Loom going forward.”

“I’ve been fortunate to be a member of the Fruit of the Loom family and this great company for many years. We have succeeded due to our people, our strong brands and the powerful relationships we have with our customers,” stated Ms. Burgess-Taylor. “I am grateful for Mr. Medlin’s strong leadership and mentorship, and I am deeply committed to continuing to move us forward.”

Ms. Burgess-Taylor has held various leadership roles within the organization. In her current role, she leads Marketing, Merchandising, Sales, Brand Communications and Creative Services for Fruit of the Loom, Vanity Fair, Lily of France, Vassarette and Curvation brands. Prior to joining Fruit of the Loom, Ms. Burgess-Taylor held roles with Hanes Brands and Mercantile Department Stores. She received a Bachelor of Science degree in marketing with a minor in textiles and clothing from Western Kentucky University in Bowling Green, Ky., and currently resides in Bowling Green with her husband and two children.

© 2016 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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Berkshire Hathaway Reinsurance Group Insurance Warren Buffett

Warren Buffett’s Greatest Insurance Investment

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What was Warren Buffett’s greatest insurance investment? Was it the purchase of GEICO? How about National Indemnity?

According to Buffett, it was none of those. It was the hiring of Ajit Jain.

In an interview with Best’s Review, Warren Buffett says he made one of his best investments when he chose Ajit Jain to run his reinsurance business nearly 30 years ago. Jain, who is considered one of the front-runners to succeed Buffett as the head of Berkshire Hathaway, is one of the insurance leaders profiled in the July issue.

Jain was hired by Buffett in 1986, and at the time he was 35-years-old and had little experience in the reinsurance business.

Today, Jain is one of Buffett’s most trusted managers, having built Berkshire Hathaway Reinsurance Group into a reinsurance insurance powerhouse with $44 billion in float.

In April, he was given additional duties overseeing Gen Re after CEO Tad Montross retired.

Sounds like a good investment indeed.

© 2016 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.