Happy 84th Birthday, Warren Buffett!

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Aug 302014

Happy 84th Birthday, Warren Buffett!

Today is Warren Buffett’s 84th birthday.  It is also the 4th anniversary of the launching of this blog on August 30, 2010, on the occasion of Warren Buffett’s 80th birthday.  I hope the 120 posts on this blog over the past four years have been of interest to those who have taken the time to read them.

 Posted by at 12:47 am

Warren Buffett and Burger King/Tim Hortons Merger

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Aug 272014

As part of the $12.5 billion financing to fund the cash portion of the acquisition of Tim Hortons, Warren Buffett through Berkshire Hathaway will be investing $3 billion in a special issue of preferred stock with a coupon of 9 percent.  The annual dividend of $270 million will be taxed at 35 percent since it will be paid by a foreign company after Burger King moves its corporate headquarters from the U.S. to Canada. If Berkshire had received this dividend from a U.S company, it would be taxed at only 15 percent.

This so-called ‘tax inversion’ (switching domiciles from the U.S. to Canada) will result in a Canadian corporate tax rate of 26.5 percent, which is considerably lower than the 35 percent in the U.S.  However, Burger King currently pays an estimated tax rate of only 27 percent.  Burger King CEO Daniel Schwartz said: ‘We don’t expect our tax rate to change materially…This transaction is not really about taxes…  It’s about growth.”

Burger King said Canada is where it will have 80 percent of its outlets after this deal is completed.  Overall, it expects about two-thirds of its revenue to come from Canada, one-fifth from the U.S., and the rest from overseas locations.

3G Capital of Brazil owns 70 percent of Burger King and will have operational control over the merged firm. Warren Buffett and 3G Capital jointly purchased H.J. Heinz in 2013.  Buffett has praised 3G Capital for their outstanding ability to cut costs and seek growth opportunities through acquisitions. He had previously mentioned that he looked forward to joining with 3G Capital in future deals.

This article has been published by Investing.com:


These comments also appear on the Smith School (University of Maryland) home page:




 Posted by at 4:47 pm

Berkshire Adds To Chicago Bridge & Iron Stake In 2014 Second Quarter

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Aug 212014

I am quoted in a Bloomberg article on Berkshire Hathaway’s increased investment in Chicago Bridge & Iron during the second quarter of 2014:

“Berkshire Hathaway Inc. is betting the best response to a short seller is to go long.

As Chicago Bridge & Iron Co. plunged 22 percent in the second quarter, Berkshire snapped up additional shares of the engineering-and-construction firm. The purchase came days after a short seller drove down the stock price by saying that CB&I had artificially inflated earnings.

The slump was rare for a stock selected by one of Chairman Warren Buffett’s deputies at Omaha, Nebraska-based Berkshire. The backup portfolio managers, Todd Combs and Ted Weschler, beat the market and their boss’s picks in 2012 and 2013. Adding to the CB&I bet follows a strategy that Buffett has used for decades: identifying companies based on long-term prospects and sticking with them through declines.

“This is behavior that I would expect” from Combs or Weschler, said David Kass, a professor at the University of Maryland’s Robert H. Smith School of business who has taken groups of students to meet the Berkshire chairman. “It’s consistent with Warren Buffett’s own thinking.”

The entire article is available at:



 Posted by at 10:28 am

Portfolio Changes for Berkshire Hathaway During Second Quarter of 2014

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Aug 152014

In an SEC 13F filing after the market closed on August 14, Berkshire Hathaway reported many changes to its portfolio during the second quarter of 2014.  There was one new investment, Charter Communications (CHTR), with a stake of 2.3 million shares currently valued at $360 million.  One relatively small position, valued at $60 million, STARZ (STARZA), was eliminated.

Investments were increased in Chicago Bridge & Iron (CBI), General Motors (GM), International Business Machines (IBM), Liberty Global (LBTYA), Suncor Energy (SU), USG Corp. (USG), U.S. Bancorp (USB), VeriSign (VRSN), Verizon Communications (VZ), Visa (V), and Wal-Mart (WMT).

Investments were decreased in ConocoPhillips (COP), DirecTV (DTV), Graham Holdings (GHC), Liberty Media (LMCA), National Oilwell Varco (NOV), Phillips 66 (PSX), and Precision Castparts (PCP).

Berkshire’s 13F filing is available at:


I am quoted in a Bloomberg article on this topic (via Moneynews):

“While Buffett and his deputies continue to add new investments, their stock purchases have slowed this year amid surging equity values. They’ve also sold some holdings. That helped boost Berkshire’s cash hoard to a record $55.5 billion on June 30.”

“For many years, Buffett has had this huge surplus of funds,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who has taken students to meet the billionaire in Omaha. “He’d be happier if he could find his $20 billion investment.”

The entire article is available at:


Another version of this Bloomberg article (via Philly.com) is available at:



 Posted by at 4:32 pm

Big Banks Receive Failing Grade For “Living Wills”

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Aug 052014

The Federal Reserve and Federal Deposit Insurance Corp. told 11 of the largest U.S. and foreign banks  that their so-called “living wills” were unsatisfactory. The agencies ordered the banks to simplify their legal structures and revise some practices to make sure they would not damage the financial system if they failed.  These 11 banks, all with assets greater than $250 billion, included Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan Chase, Morgan Stanley, State Street, and the U.S. units of Barclays, Credit Suisse Group, Deutsche Bank, and UBS.  Each of these firms received letters detailing deficiencies in their “living wills”.  Berkshire Hathaway currently has investments in three of these banks, Goldman Sachs, Bank of America, and Bank of New York Mellon.  It is worth noting, however, that Berkshire’s largest investment, Wells Fargo, is not on this list.

I am quoted in a Bloomberg article on this topic:

David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, said it would be best for the banks to make these changes voluntarily before they are forced to by the regulators.

“This is potentially of major consequence to the banks if they fail to respond to these concerns,” Kass said. “Each bank receiving this letter needs to address each deficiency and do it in a way that is convincing.”

The entire article is available at:






 Posted by at 9:36 pm

Berkshire Hathaway Increases Stake in VeriSign to 10.4%

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Aug 042014

In an SEC 13G filing dated August 1, 2014, Berkshire Hathaway is reporting a 10.4% stake in VeriSign (VRSN).  Its 12,985,000 shares are currently valued at approximately $700 million.  Berkshire has been steadily increasing its stake in VRSN since its initial investment during the first quarter of 2013.  This filing indicates that Berkshire’s latest purchase occurred on July 31, 2014.  Most likely this investment was made by Todd Combs and/or Ted Weschler.

The Schedule 13G filing is available at:






 Posted by at 11:36 am

Berkshire’s Operating Earnings Rise 11% In Second Quarter 2014

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Aug 012014

Berkshire Hathaway’s operating earnings rose 11% in the second quarter of 2014 ($4.331 billion) vs. the second quarter of 2013 ($3.919 billion).  Overall net earnings rose 41% ( $6.395 billion vs.$ 4.541 billion), but that result was driven largely by a realized gain from the tax-free exchange of shares in Graham Holdings.  Operating earnings are more meaningful than net earnings for Berkshire, since realized gains and losses, as well as the valuation of its derivative contracts, are highly variable from quarter to quarter and do not provide a good indication of Berkshire’s performance.

The increase in operating earnings was driven by non-insurance businesses.  Manufacturing, services, and retail realized a 29% increase in operating earnings.  Within this category, operating earnings for manufacturing (Lubrizol, Iscar, Marmon, etc) rose 19%.

At the end of the second quarter, Berkshire held $55.5 billion in cash.  This is is the first time that Berkshire’s cash position has exceeded $50 billion.  Since Warren Buffett plans to hold $20 billion in cash to primarily cover insurance claims, he now has $35 billion available for one or more large acquisitions.  He previously stated that he is seeking to acquire a $20 billion “elephant”.

Berkshire Hathaway’s 10-Q for the second quarter of 2014 is available at:


 Posted by at 7:25 pm