In an SEC Filing today (Proxy Statement for Annual Meeting of Shareholders), Berkshire Hathaway revealed that Vice Chairmen Ajit Jain and Greg Abel each received $18 million in compensation in 2018. In previous years, prior to their promotion to Vice Chairmen, their compensation had not been revealed.
In an SEC Form 4 filing, Berkshire Hathaway revealed that it added $250 million to its $3 billion stake in Delta Airlines last week at about $49 per share. It currently owns a 10% stake in Delta Airlines.
Today is the 10th Anniversary of the stock market bottom of March 9, 2009. From October 9, 2007 through March 9, 2009 (17 months), the Dow Jones Industrial Average declined by 55%, with the S&P 500 declining by a similar percentage. The Great Recession officially began in December, 2007 and ended in June, 2009. Over the past 10 years, both the S&P 500 and Dow Jones Industrial Average have quadrupled.
Although the S&P 500 (with dividends included) declined by 37.0% in 2008, it rose by 26.5% in 2009, 32.4% in 2013 and 21.8% in 2017. This index rose in each year from 2009 through 2017, but declined by 4.4% in 2018.
Over the 54 year period of 1965-2018, the S&P 500 (with dividends included) rose in 80% of the years, while declining in the other 20%. (The 54 years were comprised of 43 up years and only 11 down years for the S&P 500 with dividends included.) During this time period, the S&P 500 (with dividends included) achieved a compounded annual gain of 9.7%.
Warren Buffett was interviewed on CNBC today from 6 – 9 a.m. ET. The 10 highlights were:
(1) Berkshire overpaid for Kraft Heinz which is losing pricing power and market share to private label brands such as Kirkland (Costco). Berkshire is not planning to either buy or sell shares in Kraft Heinz.
(2) Ajit Jain and Greg Abel each received $18 million as compensation in 2018. Todd Combs and Ted Weschler each manage $13 billion, are slightly underperforming the S&P 500, but assist with acquisitions and are outperforming Buffett.
(3) If 30 year U.S. Treasury bonds continue to yield only 3% for the next 10 years, then stocks are undervalued.
(4) He prefers lower prices for Apple so they can buy back more shares with their $130 billion in cash.
(5) Berkshire’s average cost of Apple = $141 per share and would buy additional shares only at lower prices than the current price of $174.
(6) Banks and financials are good businesses selling at attractive prices. He praised Bank of America and JP Morgan Chase.
(7) The inequality gap is widening and needs to be addressed, but we should not do anything to the goose laying golden eggs.
(8) He would support Mike Bloomberg for President. Howard Schultz should not run as an independent since he would more likely take votes from the Democrat since his views are closer to that party. We should have just two major candidates for President (Democratic and Republican parties).
(9) The decision to buy and sell Oracle was Buffett’s since he felt he did not understand the business and cloud well enough.
(10) He is not big fan of IPO’s.
These are 5 quotes from Warren Buffett’s Letter to Shareholders:
(1) “2019 will likely see us again expanding our holdings of marketable equities. We continue, nevertheless, to hope for an elephant-sized acquisition. Even at our ages of 88 and 95 – I’m the young one – that prospect is what causes my heart and Charlie’s to beat faster.”
(2) “Certain shareholders will simply decide it’s time for them or their families to become net consumers rather than continuing to build capital. Charlie (95) and I (88) have no current interest in joining that group. Perhaps we will become big spenders in our old age.”
(3) “Most of our major holdings use a portion of their retained earnings to repurchase their shares. We very much like that: If Charlie and I think an investee’s stock is underpriced, we rejoice when management employs some of its earnings to increase Berkshire’s ownership percentage.”
(4) “Rational people don’t risk what they have and need for what they don’t have and don’t need.”
(5) “Berkshire’s value is maximized by being a single entity. This arrangement allows us to seamlessly and objectively allocate major amounts of capital, eliminate enterprise risk, avoid insularity, fund assets at exceptionally low cost, occasionally take advantage of tax efficiencies and minimize overhead. At Berkshire, the whole is greater – considerably greater – than the sum of the parts.”
Five highlights were:
(1) Berkshire Hathaway’s 2018 operating earnings rose by 71% vs. 2017.
(2) Berkshire Hathaway’s shares outperformed the S&P 500 (with dividends included) by 7.2% in 2018 and by 21% over the past 5 years.
(3) Berkshire repurchased only $400 million of its shares during the fourth quarter of 2018 vs. $928 million during the third quarter.
(4) Berkshire’s cash position increased to a record $112 billion at year end 2018.
(5) Buffett states that in 2019 Berkshire is far more likely to invest in the public market (minority stakes in companies) than in the over-priced private market (acquire entire companies).
On February 22, 2019, Kraft Heinz declined by 27% as a result of an SEC subpoena into its accounting, a $15.4 billion writedown, lower than expected earnings, a 36% cut in its dividend, and a weak outlook. Berkshire Hathaway owns 26.7% of Kraft Heinz.
From The New York Times:
After the market closed on February 14, Berkshire Hathaway released its SEC-13F filing for the quarter ending December 31, 2018.
The largest changes were as follows:
(1) Red Hat ($700 million) (Note: Likely merger arbitrage – IBM to acquire Red Hat in late 2019 at $190 per share in cash.)
(2) Suncor Energy ($300 million) (Note: Berkshire had a position during the third quarter of 2016.)
(3) StoneCo ($300 million) (Note: Previously reported in October, 2018, purchase by Todd Combs.)
Additions to existing positions:
(1) JP Morgan Chase ($1.5 billion = 40% increase) (Note: Likely purchase by Warren Buffett, Todd Combs is on Board of Directors.)
(2) General Motors ($600 million = 38% increase) (Note: Likely purchase by Ted Weschler.)
(3) Travelers ($300 million = 68% increase)
(4) PNC Financial ($250 million = 36% increase)
(1) Oracle ($2 billion) (Warren Buffett acknowledged this transaction on February 25 on CNBC.)
(1) Apple ($600 million = 1% decrease)
(2) Phillips 66 ($350 million = 23% decrease)
(Note: Berkshire reduced its stake in Apple by about 1%. According to Reuters, “One of the managers (Todd Combs or Ted Weschler) other than Warren Buffett had a position in Apple and sold part of it in order to make an unrelated purchase,” Buffett’s assistant Debbie Bosanek said in an email. “None of the shares under Warren’s direction have ever been sold.”)
Berkshire Hathaway Vice Chairman Charlie Munger (age 95) will be interviewed on CNBC on Friday, February 15 at 7:00 a.m. On February 14, he will be answering shareholder questions at the Daily Journal annual meeting in Los Angeles. Also, on February 14, Berkshire Hathaway will be releasing its SEC 13F filing after the close of the market at 4:00 p.m. Eastern Time which will reveal Berkshire’s investment portfolio as of December 31, 2018.
After the market closes on Thursday, February 14, Berkshire Hathaway will release its SEC 13F filing for the fourth quarter of 2018. Since the S&P 500 (total return) declined by 13.5% during the fourth quarter, it is very likely that Warren Buffett invested a substantial portion of Berkshire’s cash position of over $100 billion. In addition, portfolio managers Todd Combs and Ted Weschler may have made changes to their investments. During the third quarter, Berkshire invested about $14 billion, primarily in financial stocks, with its largest addition being $6 billion in Bank of America as well as an initial stake of $4 billion in JP Morgan Chase.
Since Berkshire’s largest stock holding, Apple, declined by about 40% during the fourth quarter, did Warren Buffett view this as a buying opportunity and add to this investment? Apple represented 25% ($56 billion) of Berkshire’s portfolio as of September 30, 2018.