Tag: Warren Buffett

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Acquisitions Berkshire Hathaway Energy Commentary Warren Buffett

Commentary: Buffett Casts His Vote with Dominion Energy Assets Acquisition

(BRK.A), (BRK.B)

With Berkshire Hathaway’s $9.7 billion agreement to acquire Dominion Energy’s natural gas transmission and storage business, Warren Buffett has engaged in a strategy that is familiar to Buffet watchers—the choice between owning a part of a company through equities, or the acquisition of whole companies. It’s a choice that Buffett that has made for almost six decades based on which valuation he judges to be cheaper.

At this year’s annual meeting, Buffett revealed that he had bought relatively few stocks at a time when the market’s plunge had many seeing a rare buying opportunity. Buffett thought differently, and his sale of Berkshire’s entire commercial airline portfolio due to what he felt would be long term profitability issues for United, Delta, American, and Southwest, reflected that perspective.

Now, Buffett has found something he likes. It is an acquisition that makes Berkshire Hathaway a giant in natural gas distribution, vaulting it from carrying 8% of the nation’s natural gas to 18%.

The acquisition adds to one of Berkshire’s core businesses, Berkshire Hathaway Energy, which will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission; and 50% of Iroquois Gas Transmission System. Additionally, Berkshire will acquire 25% of Cove Point LNG – an LNG export, import and storage facility in Maryland.

The acquisition includes over 7,700 miles of natural gas transmission lines, with approximately 20.8 billion cubic feet per day of transportation capacity and 900 billion cubic feet of operated natural gas storage with 364 billion cubic feet of company-owned working storage capacity, and partial ownership of a liquefied natural gas export, import and storage facility.

Demand for natural gas has risen from 4,917,152 million cubic feet in 1949 to 31,014,345 million cubic feet in 2019, according to the U.S. Energy Information Administration. And with the retirement of more and more coal-fired generating plants, natural gas is a key replacement. Even with the enormous growth of wind and solar, new gas-fired plants are being constructed as backup generation for when the winds are calm and the skies are cloudy.

By making this acquisition, Buffett adds key assets to Berkshire Hathaway Energy that will guarantee a pay-off not just in the short term, but for decades to come. And that’s exactly what Buffet likes, putting money to work for decades to come.

This is not to say that Buffett won’t return to buying equities, but for now, he has voted with his dollars that the better deal in the near term is the acquisition of a whole company.

© 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 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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Acquisitions Berkshire Hathaway Energy Warren Buffett

Warren Buffett Nabs Natural Gas Assets from Dominion Energy

(BRK.A), (BRK.B)

Warren Buffett has finally used his famed “elephant gun” on a key addition to Berkshire Hathaway Energy.

Berkshire Hathaway Energy has executed a definitive agreement to acquire Dominion Energy’s natural gas transmission and storage business.

The assets include over 7,700 miles of natural gas transmission lines, with approximately 20.8 billion cubic feet per day of transportation capacity and 900 billion cubic feet of operated natural gas storage with 364 billion cubic feet of company-owned working storage capacity, and partial ownership of a liquefied natural gas export, import and storage facility.

The transaction has an enterprise value of approximately $9.7 billion.

“I admire Tom Farrell for his exceptional leadership across the energy industry as well as within Dominion Energy,” said Warren Buffett, chairman of Berkshire Hathaway. “We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business.”

As part of the transaction, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission; and 50% of Iroquois Gas Transmission System.

The agreement does not include acquisition of the Atlantic Coast Pipeline.

Additionally, the company will acquire 25% of Cove Point LNG – an LNG export, import and storage facility in Maryland. Dominion Energy will continue to own 50% of Cove Point, with Brookfield Asset Management continuing to own the remaining 25% share. Berkshire Hathaway Energy will operate the Cove Point facility once the transaction closes.

The Cove Point export terminal is one of only six LNG export facilities in the U.S.

“This premier natural gas transmission and storage business has been operated and managed in a best-in-class manner,” said Bill Fehrman, Berkshire Hathaway Energy’s president and CEO. “Acquiring this portfolio of natural gas assets considerably expands our company’s footprint in several Eastern and Western states as well as globally, increasing the market reach and diversity of Berkshire Hathaway Energy.”

“We are honored to be gaining a wonderful group of employees with a wealth of experience that will continue to provide high-quality service for our customers and partners. We look forward to welcoming them to the team,” said Greg Abel, Berkshire Hathaway’s vice chairman, non-insurance operations, and Berkshire Hathaway Energy chairman.

“We are fortunate Dominion Energy has entrusted us to preserve and build upon such a remarkable business that will allow Berkshire Hathaway Energy to add $9.7 billion in asset value to the portfolio that currently exceeds $100 billion.”

© 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.

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Commentary Warren Buffett

Commentary: Buffett Affirms Berkshire’s 3 Pillars Stand Strong

(BRK.A), (BRK.B)

Berkshire Hathaway is so diversified that it’s impossible for it not to be impacted adversely by COVID-19. Automobile retailing through its Berkshire Hathaway Automotive network of dealerships, furniture retailing (Nebraska Furniture Mart, Jordan’s, Star Furniture, RC Willey Home Furnishings), and the See’s Candies retail stores, are just a few of its companies that are facing slumping revenues.

At the Berkshire Hathaway annual meeting held on May 2, Warren Buffett noted that the swift temporary closure of See’s retail stores in late-March left it with a huge inventory of Easter candy that will go unsold.

“…we were in the midst of our Easter season and Easter is a big sales period for See’s. And I don’t know whether we were halfway through, but we weren’t halfway through in terms of the volume is going to be delivered because it comes toward the end. And essentially we were shut down and we remain shut down. The malls that we’ve got 220 or so retail stores and we’ve got a lot of, Furniture Mart sells our candy. But the Furniture Mart’s closed down. And so See’s business stopped and it’s a very seasonal business to start with. So we have a lot of seasonal workers too that come in, particularly for the Christmas season. But we have a lot Easter candy, and Easter candy is kind of specialized too. So we won’t sell it. And we produced a good bit of it.”

Getting Nervous? Don’t Be

However, amidst the bad news was a key point that Buffett emphasized. The three main pillars of Berkshire Hathaway—its insurance, freight railroad, and energy business, are all strong and will continue to generate cash.

“Our three major businesses of insurance and the BNSF railroad, railroad and our energy business, those are our three largest by some margin. They’re in a reasonably decent position,” Buffett explained. “They will spend more than their depreciation. So some of the earnings will go, along with depreciation, will go toward increasing fixed assets. But basically these businesses will produce cash even though their earnings decline somewhat.”

Berkshire’s businesses are so strong because planning for the worst case scenario is at the heart of Buffett’s philosophy. Buffett explained that they even plan for more than one disaster.

“I mean, for example, in our insurance business, we could have the world’s, or the country’s, number one hurricane that it’s ever had, but that doesn’t preclude the fact that could have the biggest earthquake a month later. So we don’t prepare ourselves for a single problem. We prepare ourselves for problems that sometimes create their own momentum. I mean 2008 and 9, you didn’t see all the problems the first day, when what really kicked it off was when the Freddie and Fannie, the GSEs went into conservatorship in early September. And then when money market funds broke the buck… There are things to trip other things, and we take a very much a worst case scenario into mind that probably is a considerably worse case than most people do.”

And if that’s not enough to reassure you, don’t forget that Berkshire has $137 billion in cash.

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway and BYD, 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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Charlie Munger Warren Buffett

Don’t Expect 5 Hours of Q&A at Berkshire Hathaway’s Virtual Annual Meeting

(BRK.A), (BRK.B)

Warren Buffett’s and Charlie Munger’s legendary five hours of Q&A at the Berkshire Hathaway annual meeting has come to an end. In fact, Munger will not even be taking questions at this year’s virtual event to be held on Saturday, having been replaced by Greg Abel, Berkshire’s Vice Chairman-Non-Insurance Operations.

Also the lengthy Q&A that in recent years has combined shareholder questions from the meeting floor, emailed questions, and questions from journalists, has been simplified and reduced.

In a statement, the company announced:

Warren Buffett, Berkshire’s CEO and Greg Abel, Berkshire’s Vice Chairman-Non-Insurance Operations will be physically present at the meeting. However, the other Berkshire directors will not be attending the meeting. In addition to the formal business to be conducted at the meeting, Mr. Buffett and Mr. Abel will respond to shareholder questions that were submitted to three journalists (Becky Quick, Carol Loomis and Andrew Ross Sorkin). Ms. Quick will ask those questions that the journalists decide are the most interesting and important. Mr. Buffett and Mr. Abel will have no prior knowledge of what questions will be asked, but they will not discuss politics or specific investment holdings.

The 2020 Annual Shareholders Meeting on Saturday May 2, 2020 will formally begin at 3:45 p.m. central time. As previously announced, we will not be able to allow shareholders to physically attend the meeting. However, the meeting will be streamed live on the Internet by Yahoo with a pre-meeting show beginning at 3:00 p.m. central time and can be accessed at https://finance.yahoo.com/brklivestream.

© 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.

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Charlie Munger Value Investing Warren Buffett

Value Investing: Overcome Your Fear, Don’t Be Doomed to Mediocre Returns

Part of an occasional series on Value Investing

Fear. It’s the one word that summarizes the emotion that grips investors when times are bad, really bad. Fear is the emotion that takes rational, prudent decision-making out of the investing process. It’s the whipsaw to the euphoria and overconfidence that comes when times are good, portfolios are fat, and almost every investment opportunity looks like a good one.

Warren Buffett famously said that his investment strategy was founded on seeing fear in the marketplace as a tremendous buying opportunity.

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful,” Buffett wrote in his 1986 Letter to Shareholders.

Berkshire Hathaway’s vice chairman, and noted investor, Charlie Munger, has long expounded that periodic steep market declines are inevitable, and that unwillingness to withstand them is the road to poor performance.

In a 2009 interview with the BBC, Munger said:

“This is the third time that Warren (Buffett) and I have seen our holdings of Berkshire go down, top tick to bottom tick, by 50%. I think it’s in the nature of long-term shareholding, of the normal vicissitudes in worldly outcomes and markets that the long-term holder has his quoted value of his stock go down by say 50%. In fact you could argue that if you are not willing to react with equanimity to a market price decline of 50% 2-3 times a century, you are not fit to be a common shareholder and you deserve the mediocre result that you are going to get, compared to the people who do have the temperament who can be more philosophical about these market fluctuations.”

Diversification: Your Tool For Overcoming Fear

So, how can you overcome fear? It’s wired into us. It’s not intellectual, it’s emotional. It’s the flight part of fight-or-flight response. Overcoming fear is easier said than done, but here is a suggestion.

Trust the power of diversification. If you are buying index funds, such as S&P 500 index funds, know that the entire U.S. economy is not going away. It’s already survived the Great Depression, Great Recession, and a host of lesser known financial crises that run all the way back to the Credit Crisis of 1772. As, Charlie Munger pointed out, you have to expect that steep price declines will happen a number of times during your lifetime.

Warren Buffett has always believed in the power and resilience of the U.S. economy. He points out that in his own lifetime it has survived World War II and a host of other challenges, including over a decade of inflation in the 1970s and early-1980s, when mortgage rates peaked at over 18%, and has come back stronger.

“Anything can happen to stock prices tomorrow. Occasionally, there will be major drops in the market, perhaps of 50% magnitude or even greater,” Buffett said in an interview on CNBC in February. He urged investors, even small investors to see price declines for the opportunity that they are.

Remember it’s buy low and sell high, not the other way around.

The resiliency and long term strength of the U.S. economy, in other words the power of businesses as a whole to meet needs and solve problems, enabled the Dow Jones Industrial Average to not only survive a loss of 90%, but to rise from its Great Depression doldrums of a low of 41.22 to the record high 29,551.42 set on Feb. 12, 2020.

As shocking as a DJIA number in the 40s seems to us today, it’s not the Dow’s all-time low, which was 28.48 on August 8, 1896. Thus, you don’t need a century of lifespan to prosper investing in the stock market. An investor that prudently bought at 28.48 in 1896 was still up roughly 45% when the DJIA hit its depression era low.

Given enough time, the strength of the economy has proven time and time again the value of investing in equities.

“Most people are savers, they should want the market to go down. They should want to buy at a lower price,” Buffet notes.

So, get a hold of your fear and turn it into the courage to see the opportunity that is right in front of you.

© 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.

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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.

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Warren Buffett

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.

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Minority Stock Positions Stock Portfolio Warren Buffett

Warren Buffett Prevails in Battle with Carl Icahn

(BRK.A), (BRK.B)

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.

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Commentary Warren Buffett

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

(BRK.A), (BRK.B)

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.

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Warren Buffett

Berkshire Hathaway Exits Home Capital Position

(BRK.A), (BRK.B)

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.