May 182015
 

After the market closed on May 15, 2015, Berkshire Hathaway (NYSE: BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending March 31, 2015.  This report revealed numerous changes to Berkshire’s portfolio.  The largest were:

(1) Warren Buffett added about $400 million (3%) to his holding in International Business Machines (NYSE:IBM) ($13.8 billion)

(2) Warren Buffett added about $350 million (1.5%) to his holding in Wells Fargo (NYSE: WFC) ($26 billion).

(3) Todd Combs added about $300 million (50%) to his position in Precision Castparts (NYSE: PCP) ($900 million)

(4) Todd Combs sold about $200 million (60%) of his holding in National Oilwell Varco (NYSE: NOV) ($100 million).

(5) Warren Buffett added about $150 million (5%) to his holding in US Bancorp (NYSE: USB) ($3.7 billion)

So how did these stocks perform on their first day of trading (May 18, 2015) after release of Berkshire’s 13F filing?

(1) IBM declined by 0.12% ($173.06 – $0.20).  (Warren Buffett had previously mentioned this increased investment during an interview on CNBC on May 4.  IBM rose 0.2% on May 4.)

(2) WFC rose by 0.41% ($55.75 +$0.23).

(3) PCP rose by 1.64% ($219.02 +$3.53).

(4) NOV declined by 0.18% ($51.18 – $0.09).

(5) USB rose by 0.61% ($44.20 + $0.27).

These price changes occurred in a slightly positive market on May 18, with the S&P 500 rising 0.30% and the Dow Jones Industrial Average closing higher by 0.14%.

With the exception of IBM (with news of Berkshire’s additional investment being released on May 4), each of the largest additional investments outperformed the market on May 18, while the one major reduction in Berkshire’s portfolio resulted in a decline of that stock.  PCP produced the largest outperformance with a gain of 1.64%.

Thus, the “Berkshire Hathaway Effect” of investors closely following Berkshire’s transactions appears to be taking place. It is important to note that one of Mr. Buffett’s portfolio managers, Todd Combs, is believed to have purchased the additional shares in PCP, and to have sold the shares in NOV.

 Posted by at 6:48 pm
May 172015
 

After the market closed on May 15, 2015, Berkshire Hathaway (NYSE: BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending March 31, 2015.  This report revealed numerous changes to Berkshire’s portfolio.  The largest were:

(1) Warren Buffett added about $400 million (3%) to his holding in International Business Machines (NYSE:IBM) ($13.8 billion)

(2) Warren Buffett added about $350 million (1.5%) to his holding in Wells Fargo (NYSE: WFC) ($26 billion).

(3) Todd Combs added about $300 million (50%) to his position in Precision Castparts (NYSE: PCP) ($900 million)

(4) Todd Combs sold about $200 million (60%) of his holding in National Oilwell Varco (NYSE: NOV) ($100 million).

(5) Warren Buffett added about $150 million (5%) to his holding in US Bancorp (NYSE: USB) ($3.7 billion)

Berkshire also had minor additions to stakes in Deere (NYSE: DE), Phillips 66 (NYSE: PSX), and Twenty First Century Fox (NASDAQ: FOXA).

There were also minor reductions in Bank of New York Mellon (NYSE: BK), Charter Communications (NYSE: CHTR), Liberty Global (NASDAQ: LBTYA), MasterCard (NYSE: MA), Viacom (NASDAQ: VIAB), Visa (NYSE: V), and Wabco (NYSE: WBC)

There were no positions that were either initiated or eliminated.

Berkshire’s 13F filing for the first quarter of 2015 is available at:

http://www.sec.gov/Archives/edgar/data/1067983/000095012315006438/xslForm13F_X01/form13fInfoTable.xml

 

 

 Posted by at 10:17 am
May 042015
 

Warren Buffett (WB)was interviewed for three hours on CNBC today from 6 a.m. – 9 a.m.   The highlights of this interview are:

(1) WB strongly endorsed Berkshire’s investment in IBM, which is one of its (BRK) four largest holdings. Berkshire is IBM’s largest shareholder and owns almost 80 million shares or about 8% of its shares, currently valued at over $13 billion.  WB added to his position during the first quarter of 2015.  IBM has reduced its shares outstanding from 1.6 billion 10 years ago to about 985 million today through stock buybacks.  It has also reduced its employee stock options from 250 million shares 10 years ago to just a few million today.  IBM is buying back stock at prices below what the stock is worth and therefore adding to shareholder value.  Wells Fargo and American Express are large customers of IBM as is Geico (Watson data analytics).  IBM is trusted and innovative.  Although its share of the cloud is small, it will do well in the future since this is not a winner take all business as is search.  Since IBM has no net tangible equity it is earning infinite returns.  (At the BRK annual meeting on May 2, both WB and Vice Chairman Charlie Munger (CM) endorsed their investment in IBM — CM said they “voted 2 – 0″ to invest in IBM.)  IBM CEO Ginni Rometty said IBM’s data analytics business grew 7% last year and at 12% during the first quarter.  IBM has been returning $10 – $11 billion to shareholders per year through stock buybacks and dividends.

(2) Stocks are cheap relative to bonds.  If interest rates rose to normal levels, then stock prices would be high (but not excessively high).  If interest rates stay low for 10 years, then stocks are greatly undervalued.

(3) WB vigorously defended Clayton Homes against charges made in the Seattle Times about predatory pricing.

(4) In response to NetJets pilots picketing the annual meeting on Saturday, WB mentioned that they are paid an average of $145,000 per year which is higher than their competitors and they are also treated better with 7 days on duty and 7 days off.  NetJets pilots are not leaving BRK to go to its competitors.  On the contrary, pilots from its competitors are lining up to join NetJets.  The NetJets pilots union is objecting to Berkshire’s plan to have the pilots contribute to the cost of their health insurance.

(5) WB deflected criticism about its partnership with 3G Capital leading to large layoffs at Heinz (HNZ).  WB stated that HNZ was inefficient with too many employees.  Also plants that were shut down were losing money. 3G Capital turns inefficient firms into efficient firms.  Both BRK and 3G Capital are long term investors and plan to grow the company (HNZ) and not sell it after a few years as is typically done by private equity firms.

(6) BRK is not too big too fail.  Regulators have not contacted BRK about being possibly designated  a Systemically Important Financial Institution (SIFI) which would require additional regulations and capital requirements.

(7) Both WB and CM agreed that earned income tax credits are a far better solution to income inequality than raising the minimum wage.

(8) WB is concerned about the Federal Reserve raising interest rates when European and other countries are lowering them.

(9) WB is not concerned about the amount of sugar in Coca-Cola and Heinz Ketchup.  These products have had  sales increase for over 100 years and will continue to do so.  WB said that 1/4 of his calories comes from Coca-Cola and he has never felt better.  (At the annual meeting WB said that if he had to eat broccoli he would not live as long since he would not be happy.  “People who shop at Whole Foods do not look happy”.)

(10) WB thinks the European Union will evolve and change over time.

 Posted by at 11:34 am
Apr 302015
 

I am quoted in this Wall Street Journal article (April 30, 2015) on Berkshire after Buffett:

Shareholders also say it is reassuring that some younger Berkshire executives are taking on additional responsibilities on Mr. Buffett’s watch. David Kass, a Berkshire shareholder and professor of finance at the University of Maryland, saidTed Weschler and Todd Combs, the two stock pickers Mr. Buffett hired a few years ago as part of his succession plan, have performed well for most of their time at Berkshire. The two also “have negotiated on behalf of Berkshire a lot of tax-advantaged transactions, and they are on the same page as Buffett,” he said. Mr. Combs, for instance, handled the complex deal last year involving the swapping of Procter & Gamble Co. shares owned by Berkshire for battery maker Duracell.

The entire article is available at:

http://www.wsj.com/articles/after-warren-buffett-berkshire-prepares-for-a-life-without-legendary-leader-1430414729?tesla=y

 Posted by at 4:05 pm
Apr 202015
 

I am quoted in a Chicago Tribune (Kiplinger’s) article today on Warren Buffett and dividends:

This year’s annual meeting of Berkshire Hathaway shareholders on May 2 promises to be extra special as Berkshire celebrates its 50th anniversary. CEO Warren Buffett, who is 84 years old, and Vice Chairman Charlie Munger, 91, are likely to address what’s ahead for the company.

One question that could come up is whether Berkshire will ever pay a dividend. And Buffett’s answer is likely to be, “Not while I’m CEO,” says David Kass, a finance professor at the University of Maryland who follows Buffett closely. “Buffett likes receiving dividends, not paying them,” he says. However, Buffett recently hinted that Berkshire could start paying dividends in 10 to 20 years, when, presumably, he will no longer be calling the shots.”

The entire article is available at:

http://www.chicagotribune.com/business/sns-201504021200–tms–kplngmpctnkm-a20150420-20150420-story.html

This article is based on an earlier Kiplinger’s article (March 2, 2015):

“When it comes to dividends, Warren Buffett is happy to collect them but not to pay them. His holding company, Berkshire Hathaway (symbol BRK-B), has never paid out any of its profits to shareholders. But when the Oracle of Omaha looks for companies to invest in, he often focuses on businesses that repurchase shares or issue dividends, or both. “Buffett likes companies that return cash to shareholders,” says David Kass, a finance professor at the University of Maryland who owns Berkshire shares and follows Buffett’s moves closely.”

This article is available at:

http://www.kiplinger.com/article/investing/T018-C008-S003-warren-buffett-best-dividend-stocks.html

 Posted by at 11:30 am
Apr 072015
 

Berkshire Hathaway is investing $560 million to acquire 20 million shares of Axalta Coating Systems Ltd (AXTA) at $28.00 per share for an 8.7% stake from controlling shareholder Carlyle Group which currently owns 74% of the company.

Berkshire owns Lubrizol, the maker of lubricants and Benjamin Moore, which sells paint for use in buildings. Axalta’s paints and coatings are used for vehicles and pipelines, with automobile repair shops being its primary customers.

Carlyle bought AXTA from DuPont (DD) in 2013 in a $4.9 billion deal and took the company public in November, 2014 in a $1 billion offering that was priced at $19.50 a share.

 Posted by at 8:19 am
Mar 262015
 

According to Warren Buffett on CNBC, the Kraft Heinz merger will result in Berkshire Hathaway owning 320 million shares of the combined company when it is expected to close during the second half of 2015.  At Kraft’s (KRFT) closing price on March 27 of $89 per share, after a $16.50 cash dividend to current KRFT shareholders, the resulting price of $72.50 implies a valuation of about $23 billion for Berkshire’s stake in this company.  This will represent Berkshire’s second largest common stock investment, trailing only Wells Fargo ($26 billion).   Since Berkshire will own 26% of Kraft Heinz, the new company is being valued at about $90 billion.

 Posted by at 8:13 am
Mar 042015
 

Inside the Head of Warren Buffett

 Mar 02, 2015

SMITH BRAIN TRUST — Warren Buffett’s annual letter to Berkshire Hathaway shareholders, for 2015, reflects on the company’s 50 years of success and looks ahead. The Wall Street Journal called on David Kass, clinical associate professor of finance at the University of Maryland’s Robert H. Smith School of Business, to help its readers better understand the 25,000-word manuscript.

Kass, a Berkshire shareholder, also explained to CNBC Squawkbox Asia anchors Bernie Lo and Susan Li why Berkshire manager Ajit Jain is Warren Buffett’s “first choice” as his successor.  Hours later — early Monday — Buffett sat down with CNBC for a wide-ranging exclusive interview. Kass boiled the three hours down to 16 essential points for the blog ValueWalk.

For WSJ, Kass and other experts each expanded on a different passage from Buffett’s letter. Kass tackled the following from Berkshire Hathaway’s chairman: “So what do Charlie and I find so attractive about Berkshire’s conglomerate structure? To put the case simply: If the conglomerate form is used judiciously, it is an ideal structure for maximizing long-term capital growth”

Kass’ response: “Conglomerates — companies with diverse unrelated businesses — can provide the optimal mechanism for efficiently allocating capital, which is the principal role for a CEO. Berkshire’s conglomerate structure permits Warren Buffett, for example, to reallocate surplus cash flow from one business, such as insurance, to another business, such as the railroad, where additional capital may be needed for plant and equipment to improve its performance.

“If Berkshire was not able to reallocate its capital internally among its various businesses, it might have to raise external capital through either debt or equity financing and incur additional investment banking related costs associated with these transactions. It would incur additional interest payments for debt or dilute the ownership stake of its stockholders by issuing equity. In addition, Berkshire moves its funds internally in a tax — efficient manner by not incurring capital gains taxes when moving its funds from one business to another. By eliminating transaction costs and taxes, Berkshire is able to maximize its long-term capital growth. Furthermore, it is this freeing up of excess cash flow from Berkshire’s 80 businesses that provides the source of funds for Berkshire to acquire or invest in other companies which has been a major source of its growth.”

The entire WSJ piece is here.

Kass also commented for Omaha World Herald coverage related to Buffett’s letter:

Kass, with faculty colleague Elinda Kiss, will accompany Smith finance students –- for the sixth consecutive year — to Berkshire Hathaway’s shareholder meeting on May 2 in Omaha.

– See more at: http://www.rhsmith.umd.edu/news/inside-head-warren-buffett

 

 Posted by at 8:23 am
Mar 022015
 

Warren Buffett was interviewed on CNBC on March 2, 2015 from 6 a.m. – 9 a.m. eastern time.  These are some of the highlights:

(1) Warren Buffett added to his IBM position in the fourth quarter of 2014 even though its current price of $161 is below his average cost of $170 (purchased in 2011).  He prefers that the price goes down so he can buy more at the lower price.  IBM,as well, buys back more shares (for a fixed dollar amount) at the lower price.

(2) Buffett sold Exxon Mobil (XOM) in the fourth quarter of 2014 because he had “other uses for the money” (other stocks or deals).

(3) Both Buffett and one of his portfolio managers (Fortune Magazine: Todd Combs) invested in Deere (DE), which will have a few tough years ahead but will do fine over 10 years.

(4) Investors should not buy stocks because he (or anyone else) does.  They should do their own research or buy low cost index funds starting early in life and add over time.

(5) BNSF (railroad) had poor on-time performance in 2014, but improved in the fourth quarter.  It is making large capital investments to improve its future performance.

(6) Warren Buffett, Todd Combs, and Ted Weschler evaluate how businesses will do over the next 5, 10, and 20 years.  They have lunch once a week and learn from each other.

(7) The economy is improving, with real growth at 2% and population growth at 1%.  Housing’s recovery is slower than he expected, but automobile sales are growing faster.

(8) Recommends the earned income tax credit to reduce income inequality.  The market sets wages (WalMart’s wage increase)

(9) Expects Hillary Clinton to run and win.  Criticized Elizabeth Warren for being angry at people whom she has to work with to get things done.

(10) Thinks Senators Hatch and Wyden can agree on corporate tax reform.

(11) CEO Mary Barra is doing a good job at General Motors.

(12) David Winters should not be criticizing compensation at Coca-Cola when he receives 1 1/2% for consistent underperformance over 5 years or longer.

(13) The Euro Zone should not have a common currency with different governments and fiscal policies.

(14) Banks are doing a good job in the United States and represent a smaller percentage of the economy in the U.S. than elsewhere.

(15) We should have passed the Keystone Pipeline.

(16) The best days for America lie ahead.

 

 

 Posted by at 10:08 am