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:


 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:


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:


 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
Feb 282015

In Berkshire Hathaway’s 50th Anniversary (under Warren Buffett’s management) letter to shareholders, Charlie Munger stated that either Ajit Jain or Greg Abel would make an outstanding CEO to eventually succeed Warren Buffett.

I was interviewed on CNBC Asia Squawk Box (March 1) on this issue:


I am also quoted in four (4) articles in the Omaha World Herald on a possible successor to Warren Buffett.  In one article:

“But Berkshire’s next CEO will be more than that, Munger said, citing Berkshire insurance chief Ajit Jain and Berkshire Energy CEO Greg Abel as two executives who “are proven performers who would probably be underdescribed as ‘world-class.’ ”

Munger’s listing the two by name raised speculation that Jain and Abel are the most likely people to be named CEO if necessary today. The fact that Matt Rose, executive chairman of BNSF Railway, is not mentioned in the report and that Buffett pointed out the railroad’s problems also brought some attention.

“Buffett’s explicit criticism of BNSF raises the question about its CEO, Matt Rose,” said David Kass, a business professor at the University of Maryland. “It cannot be considered a positive note for Rose’s chances.”

The entire article is available at:

In a second article:
“I think the finalists are Jain and Abel,” said David Kass, a University of Maryland business professor and Berkshire shareholder.
The entire article is available at:
In a third article:

“David Kass, a business professor at the University of Maryland and Berkshire shareholder, said Buffett appears to be attempting to motivate BNSF with his multiple mentions of Union Pacific, a former stock holding of Berkshire with a headquarters about two dozen blocks from Buffett’s office.

“He might be attempting to stimulate the competitive juices at BNSF,” Kass said. “But it does raise the question of how much the service problems were weather-related and how much they were a result of bad managerial decisions.”

 The entire article is available at:
In the fourth article:
David Kass, business professor at the University of Maryland:

“The overall message from Buffett and Munger is that Berkshire is fine and will be just fine without them.”

“I’m sure it is Buffett’s honest belief that he has set up a firewall with $20 billion in cash. When Wall Street’s checks were all bouncing a few years ago, the only banker left was Berkshire.”

The entire article is available at:



 Posted by at 5:30 pm
Feb 262015

Berkshire Hathaway Inc.’s 2014 Annual Report to the shareholders will be posted on the Internet on Saturday February 28, 2015, at approximately 8:00 a.m. eastern time where it can be accessed atwww.berkshirehathaway.com. The Annual Report will include Warren Buffett’s annual letter to shareholders as well as comments from Mr. Buffett and Charlie Munger regarding Berkshire’s past 50 years and their expectations for the next 50 years. Also included in the Annual Report will be information about Berkshire’s financial position and results of operations. Concurrent with the posting of the Annual Report, Berkshire will also issue an earnings release.

 Posted by at 8:46 pm
Feb 202015

The Financial Times reported today that Berkshire Hathaway is acquiring Devlet Louis Motorradvertriebs, a German (Hamburg) based retailer of motorcycle apparel and accessories for about $450 million.  Warren Buffett, looking for investment opportunities in Europe, stated “we have cracked the code in Germany”.

Louis is a family business that will remain a standalone subsidiary of Berkshire, overseen by one of Mr. Buffett’s portfolio managers, Ted Weschler.  Louis has 71 stores in Germany and Austria, and also sells through catalog and e-commerce.  It has gross revenues of $300 million and 1,600 employees.  Therefore, Berkshire is paying 1.5 times sales for this business.

This is Berkshire’s second exposure to the motorcycle business.  In February, 2009 it lent $300 million to Harley Davidson at a 15% interest rate at the peak of the financial crisis.  Harley Davidson repaid this loan in February, 2014.



 Posted by at 8:06 am
Feb 182015

After the market closed on February 17, 2015, Berkshire Hathaway (BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending December 31, 2014.  This report revealed numerous changes to Berkshire’s portfolio.  The three largest were:

(1) Warren Buffett sold his $4 billion investment in Exxon Mobil (XOM),

(2) Mr. Buffett added $1 billion (+9%) to his holding in International Business Machines (IBM) ($12 billion), and

(3) Warren Buffett and/or Todd Combs (Fortune Magazine October 27, 2014) added about $800 million to their position in Deere (DE) ($1.5 billion).

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

(1) XOM declined by 2.19% ($91.01 – $2.04)

(2) IBM rose by 0.76% ($162.19 + $1.23)

(3) DE rose by 3.15% ($92.75 + $2.83)

These large percentage changes in prices occurred in a relatively stable overall market on February 18, with the S&P 500 declining 0.03% and the Dow Jones Industrial Average closing lower by 0.10%.

Thus the “Warren Buffett Effect” of investors closely following the Oracle of Omaha’s transactions appears to be significant.  (It is important to note, however, that either Mr. Buffett or one of his portfolio managers, Todd Combs, purchased the additional shares of DE.)




 Posted by at 6:07 pm