Aug 302015

Today is Warren Buffett’s 85th birthday.  It is also the 5th anniversary of the launching of this blog on August 30, 2010, on the occasion of Warren Buffett’s 80th birthday.  I hope the 170 posts on this blog over the past five years have been of interest to those who have taken the time to read them.

 Posted by at 8:19 am
Aug 292015

In an SEC Form 4 filing after the market closed on Friday, August 28, 2015, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) disclosed a $4.5 billion stake in Phillips 66 (NYSE:PSX).  Berkshire now holds 58 million shares of PSX, representing almost 11% of its outstanding shares.  Approximately 3 million of these shares were purchased during August 26 – 28, 2015 at prices ranging from $71 to $77 per share.  PSX closed Friday at $77.23.  Berkshire held a 7.5 million share position in PSX as of March 31, 2015, but apparently received confidential treatment on its investment in PSX as of June 30, 2015.  Previously, Warren Buffett, Ted Weschler and/or Todd Combs, had invested in PSX.  Since Berkshire’s additional investment in PSX this week resulted in an ownership stake of 10%, it was required by the SEC to disclose its stake.

PSX is the largest U.S. oil refiner.  Since the price of oil fell by half last year, gasoline demand in the U.S. has surged to an 8-year high as the price per gallon has fallen below $3.  Many non-refining businesses within PSX, such as its midstream unit, are substantial and stand to benefit if currently beaten-down oil and natural-gas prices rebound.



 Posted by at 12:49 am
Aug 242015


Aug 24, 2015

World Class Faculty & Research


SMITH BRAIN TRUST — This week’s market selloff has made a lot of people itchy to trade stocks. They want to sell before things get worse or, alternatively, maybe pick up some bargains. David Kass, professor of the practice at the University of Maryland’s Robert H. Smith School of Business, explains why you should resist the impulse to guess where the market is headed.

Q. People who own stocks are watching the markets tumble and want to do something. Should they resist that urge?

A. The natural desire to follow the crowd — herd instinct — can be very detrimental to investment performance over the long run. For example, during the panic selling that occurred at the market open Monday, shares of many of the finest companies in the world were marked down substantially. The supply of shares being sold overwhelmed the demand from buyers. Shares of Apple (AAPL) traded as low as $92.00 soon after the market opened, a discount of 17 percent from Friday’s close of $105.76. The shares subsequently recovered a few hours later, with its price exceeding its previous close. Similarly, J.P. Morgan Chase (JPM), which closed at $63.60 on Friday, traded as low as $50.07 on Monday morning, a discount of 22 percent, before recovering virtually all of its decline. Finally, Kraft Heinz (KHZ) traded as low as $61.42 Monday morning, a 15 percent decline below its previous day’s close of $72.27, before fully recovering.

Short-term traders and market timers are more likely to have their investment decisions dictated by their emotions of fear or greed than sound judgment and analysis performed over time with long-run goals in mind. A buy-and-hold strategy is less likely to be influenced by the behavior of others.

Q. More generally — apart from unusual episodes like the ones that ended last week and began this one — is it possible to monitor the market carefully to buy low and sell high? 

A. It is extremely difficult to outperform the market over the long run by employing market-timing strategies. Predicting the movement of individual stocks or sectors over the short run is subject to risks resulting from both internal and external shocks. Unexpected events having either a positive or negative impact on an individual company, industry or sector are virtually impossible to anticipate. Major economic or political news, along with natural or man-made disasters, either domestic or international, can create substantial movements in equity prices across the entire market.

By contrast, the antithesis of market timing, which is a buy-and-hold strategy, is likely to succeed. Several academic studies have shown that equities have appreciated by about 9 percent to 10 percent (including dividends) annually over many decades. A well-diversified portfolio of stocks, or a low-cost S&P 500 index fund, such as that offered by Vanguard, should enable an investor to achieve similar returns in the future.

Q. Do market-timing strategies have any other disadvantages?

A. In addition to the challenges of forecasting short-term price movements, frequent trading will result in considerable transaction costs as well as tax liabilities.

Q. Are there any circumstances under which a market timing strategy can succeed?

A. Short-term trading strategies might depend on luck at least as much as skill. Over short periods of time, active traders might be able to outperform the market by correctly anticipating price movements. However, the randomness of events — both internal and external to individual companies — and/or sectors make it very unlikely that outperformance can be achieved over any extended time period. For example, correctly predicting the price of oil over the next few days or weeks might be possible for some, but how many traders will also be able to accurately forecast the level and direction of oil prices beyond this short-time horizon?

Q. How supportive is the academic finance literature of your views on this topic?

A. I am not aware of any academic study indicating that a short-term trading strategy results in long-term outperformance relative to a buy-and-hold strategy such as that offered by a low-cost S&P 500 index fund. The most successful investors, such as Warren Buffett of Berkshire Hathaway, have accumulated their fortunes by primarily being long-term investors. Most investors, individuals and institutions tend to invest at market tops and sell at market bottoms. This “buy high and sell low” behavior, heavily influenced by short-term market psychology, clearly results in underperformance relative to a steady buy-and-hold strategy.

 Posted by at 10:36 pm
Aug 172015

After the market closed on August 14, 2015, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending June 30, 2015.  This report revealed, for the first time, one major large investment, an increase of about $450 million in Berkshire’s stake in Charter Communications (NASDAQ:CHTR).  This represents a 42% increase in Charter to $1.5 billion, which is currently in the process of acquiring Time Warner Cable (NASDAQ:TWC).  It is believed that this investment was made by Warren Buffett’s portfolio managers, Ted Weschler and/or Todd Combs.

So how did CHTR perform on its first day of trading (August 17, 2015) after release of Berkshire’s 13F filing?

CHTR rose by 3.98% ($186.98 + $7.16), substantially outperforming the market averages.  (The S&P 500 rose 0.52% and the Dow Jones Industrial Average rose 0.39%.)

Thus, the “Berkshire Hathaway Effect” of investors closely following Berkshire’s major transactions continues to be observed as it has in previous quarters and years.    

 Posted by at 10:33 pm
Aug 142015

In an SEC 13F filing after the market closed on August 14, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) revealed several changes to its portfolio during the quarter ending on June 30, 2015.  The largest changes were:

(1) An increase of about $450 million in its stake in Charter Communications (NASDAQ:CHTR).  This represents a 42% increase in Charter to $1.5 billion, which is currently in the process of acquiring Time Warner Cable (NASDAQ:TWC).  This is an investment of Ted Weschler and/or Todd Combs.

(2) Berkshire eliminated its $600 million investment in Phillips 66 (NYSE:PSX) (Ted Weschler and/or Todd Combs) and its $80 million stake in National Oilwell Varco (NYSE:NOV) (Todd Combs).

(3) Berkshire reduced its stake in Viacom (NYSE:VIAB) by 32 percent or $100 million (Todd Combs).

Berkshire also reported a small increase in its stake in U.S. Bancorp (NYSE:USB) (Warren Buffett) and small reductions in its investments in Chicago Bridge & Iron (NYSE:CBI) (Todd Combs) and Wabco (NYSE:WBC)(Todd Combs).

The only new position added in the second quarter, and reported on the 13F, was Axalta Coating Systems Ltd., (NASDAQ:AXTA) which was disclosed in April.  Berkshire Hathaway purchased the stock from Carlyle Group LP for $560 million, representing a stake of 8.7% in the company.  Axalta supplies coatings to car-repair shops and automakers.

This 13F filing noted that at least one of Berkshire’s investments received confidential treatment.  The identity of this new investment will likely be revealed in Berkshire’s 13F filing for the third quarter which will be released on or about November 16.  Berkshire’s 10-Q for the second quarter indicated that it made additional equity investments of about $3 billion in the quarter ending June 30, 2015, with only $1 billion being explained by the 13F.

Finally, on July 24, 2015, AT&T (NYSE:T) completed its $49 billion acquisition of DirecTV (NASDAQ:DTV).  Under the terms of the merger, DirecTV shareholders received 1.892 shares of AT&T common stock and $28.50 in cash, per share of DirecTV.   Berkshire Hathaway’s 13F revealed that it owned 31.4 million shares of DirecTV (Todd Combs and Ted Weschler) as of June 30, 2015.  That holding likely converted into 59.4 million shares of AT&T valued at approximately $2 billion at AT&T’s closing price of $34.29 on July 24.  In addition, Berkshire Hathaway likely received approximately $900 million in cash.


 Posted by at 6:59 pm
Aug 102015

Berkshire Hathaway will acquire Precision Castparts (PCP) for $235 per share in cash, or a 21% premium over Friday’s closing price of $193.88.  The transaction is valued at $34.2 billion ($37.2 billion including debt) and is Berkshire’s largest acquisition in its 50-year history.  Berkshire will be using about $23 billion of its cash along with borrowing $10 billion to purchase PCP’s outstanding shares.  This deal is expected to close during the first quarter of 2016.  As of March 31, 2015, Berkshire owned about 3% of PCP’s shares.  This initial investment in PCP was made between 2012 and 2015 by Todd Combs, one of Warren Buffett’s two portfolio managers.

Precision Castparts supplies parts such as fasteners and turbine blades to aircraft makers, and it makes pipes and other equipment for power stations and the oil-and-gas industry. In 2014, approximately 75 percent of Precision’s sales were to the aerospace industry, the other 25 percent coming from the energy and power sectors.

I am quoted in an Omaha World-Herald article on this topic:

“I think the $235 per-share, a 21 percent premium, is a great deal for Berkshire,” said David Kass, a Berkshire shareholder and business professor at the University of Maryland.

The entire article is available at:

I was also quoted in U.S. News & World Report:

“Buffett’s investment in Precision Castparts is specific to the company,” says David Kass, clinical associate professor of finance at the University of Maryland’s Robert H. Smith School of Business. He also runs a blog dedicated to Berkshire Hathaway (BRK-A, BRK-B) and the Oracle himself.

“In fact, at recent Berkshire annual meetings, he has expressed his skepticism about investing in airlines,” Kass says. “Berkshire does not own any airline stocks in its equity portfolio.”

Not that Berkshire is struggling. Kass notes that in the wake of this acquisition, “everyday investors can benefit by investing in Berkshire Hathaway class B stock at its current price of about $142 per share.” But prepare for a prolonged flight: “Buffett has a very long time horizon,” he says.

The entire article is available at:

 Posted by at 8:12 am
Aug 082015

Berkshire Hathaway is close to announcing a $30 – $35 billion acquisition of Precision Castparts, its largest acquisition ever.

I am quoted in an Omaha World-Herald article on this topic:

A 30 percent premium of about $250 a share for Precision Castparts’ 138 million shares would about match the company’s 52-week high and would suggest a purchase price of $34 billion. Precision Castparts has about $3.5 billion of long-term debt, which also would have to be figured in, as would Berkshire’s current stake worth about $800 million.

Cash at Berkshire Hathaway was reported in second-quarter earnings Friday at $66.58 billion, up about $2 billion from a quarter earlier. Dollar bills are the preferred acquisition currency for Buffett, who abhors using Berkshire shares to pay for transactions. Low interest borrowings also might be used, said David Kass, a Berkshire shareholder and business professor at the University of Maryland.

A $34 billion price tag for Precision Castparts would still leave about $33 billion in the Berkshire kitty.

“Berkshire wants to keep $20 billion in cash at all times,” Kass said. “This will be a friendly deal with current management kept in place to fit the Berkshire model.”

Kass said a buyout of Precision Castparts would be typical Buffett bargain-hunting, exemplifying the Oracle of Omaha’s determination to find cheap and out-of-favor companies with a history of strong earnings and high barriers to competition.

 Posted by at 9:11 pm
Aug 082015

After the market closed on August 7, Berkshire Hathaway reported a 37% decline in net earnings for the second quarter of 2015.  Operating earnings, which exclude investment results, declined by 10% because of higher claims costs from its insurance businesses, including Geico.

I was quoted in a Bloomberg article on this topic:

“The property-and-casualty insurance industry certainly occasionally takes large hits,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. “What matters is how you do over time.”


 Posted by at 9:25 am
Jul 242015

On July 24, 2015, AT&T completed its $49 billion acquisition of DirecTV.  Under the terms of the merger, DirecTV shareholders received 1.892 shares of AT&T common stock and $28.50 in cash, per share of DirecTV.   Since Berkshire Hathaway owned 31.4 million shares of DirecTV as of March 31, 2015, that holding converts into 59.4 million shares of AT&T valued at approximately $2 billion at AT&T’s closing price of $34.29 on July 24.  In addition, Berkshire Hathaway receives approximately $900 million in cash.  Each share of DirecTV is, therefore, being valued at $93.38.

In his 2012 letter to shareholders, Warren Buffett said that DirecTV was a combined purchase of Todd Combs and Ted Weschler.  When this deal was announced in May, 2014, Messrs. Combs and Weschler issued a joint statement: “This is a terrific transaction for all involved: Enhanced choice for consumers, coupled with increased value for both AT&T and DirecTV shareholders – a natural.”  The two portfolio managers built Berkshire’s stake in DirecTV beginning in 2011 at an average cost of about $60 per share.

(This blog post has been published by GuruFocus.)



 Posted by at 10:43 pm
Jul 232015

Kiplinger’s has published an article, “6 Best Buffett Stocks To Buy Now” (July 23, 2015).  The six Berkshire Hathaway (BRK.A, BRK.B) stocks that are recommended are (1) Wells Fargo (WFC), (2) Kraft Heinz (KHC), (3) International Business Machines (IBM), (4) American Express (AXP), (5) Visa (V), and (6) Mastercard (MA).  The first four are investments of Warren Buffett, while the last two are those of Todd Combs.  I am quoted in several places in this article:

“Of course, you shouldn’t imagine that you’ll make a fast buck emulating Buffett, says David Kass, a professor of finance at the University of Maryland’s business school, who studies Buffett and is a Berkshire shareholder. Buffett is usually looking for out-of-favor companies that are selling at a discount to their intrinsic value. He expects those bets to pay off in a matter of years—sometimes decades.”
“Still, if you’re willing to get rich slowly, there’s no better mentor than Buffett. Standard & Poor’s 500-stock index has returned a respectable 9.9% annualized since 1965, when Buffett took control of a textile manufacturer called Berkshire Hathaway. But Berkshire’s book value (assets minus liabilities), Buffett’s preferred measure of his company’s performance, has climbed an annualized 19.4%. And Berkshire’s A shares (BRK-A), which go back to 1965, have done even better, soaring from roughly $15 to an astonishing $215,421, for a gain of 21.6% annualized. “Investors with patience could do very well following his lead,” says Kass.”
“However, Kass says these purchases (Visa and Mastercard) were likely not orchestrated by Buffett. Instead, he attributes them to Todd Combs, a 44-year-old former hedge fund manager who is investing a piece of Berkshire’s portfolio. Combs owned MasterCard in Castle Point Capital, a hedge fund that he ran, says Kass. Combs was likely looking for opportunities to get back into the stock when he started managing money for Buffett in 2010. Should the wisdom of these investments be discounted because they weren’t made by Buffett? Not at all, says Kass. “The market may give them less weight, but I don’t,” he says.”
“Combs and Ted Weschler, another former hedge fund manager who is now part of Berkshire’s investment team, outperformed Buffett in both 2012 and 2013, according to Berkshire company statements. Berkshire didn’t reveal the relative performance of its investment managers in 2014, but Kass is convinced the newer team members are doing well. “Buffett has been an exemplary investor for 30 years, but Weschler and Combs are exceptional investors, too.”
The entire article is available at
 Posted by at 8:45 pm