Major Changes to Berkshire’s Portfolio in Third Quarter 2014

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Nov 162014
 

In its SEC 13F filing after the market closed on Friday, November 14, Berkshire Hathaway (BRK.A, BRK.B) revealed several major changes to its portfolio during the third quarter of 2014.

Berkshire’s four largest transactions involved increasing its previous stakes in three companies, and divesting its prior investment in a fourth as follows:

(1) DirecTV (DTV) – Holding increased by over $500 million, or 28%, to 30,000,000 shares currently valued at $2.6 billion.  This is an investment of both Ted Weschler and Todd Combs.

(2) Charter Communications (CHTR) – Stake increased by over $400 million, or 114%,  to 4.95 million shares currently valued at about $750 million.  This is likely an investment of Ted Weschler or Todd Combs.

(3) General Motors (GM) – Holding increased by over $200 million, or 21%, to 40 million shares currently valued at $1.2 billion.  Warren Buffett has previously attributed this investment to Ted Weschler.

(4) Deere & Co. (DE) – Sold entire holding of 4 million shares currently valued at over $300 million.  This investment was made by Todd Combs (Fortune Magazine, October 27, 2014).

 

 

 

 

 

 Posted by at 10:04 pm

Berkshire Hathaway To Acquire Duracell From Procter & Gamble

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Nov 132014
 

Berkshire Hathaway (BRK.A, BRK.B) has announced that it will acquire the Duracell battery business from Procter & Gamble (PG) plus $1.7 billion in cash in exchange for its PG shares valued at $4.7 billion.  This is very similar to its recent deals for subsidiaries of Phillips 66 (PSX) and Graham Holdings (GHC) which were tax efficient transactions.

Warren Buffett  has stated: “I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette.  Duracell is a leading global brand with top quality products, and it will fit well within Berkshire Hathaway.”

PG had previously said that it was looking to exit its Duracell battery business as part of a larger plan to divest up to half its brands to simplify and speed sales growth.  Duracell has the largest market share in the battery market with $2.2 billion in annual sales.

 Posted by at 7:52 am

Berkshire Hathaway Reports 29% Increase in Third Quarter Operating Profits

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Nov 082014
 

Berkshire Hathaway reported a 29% increase in third quarter operating profits as compared to the corresponding quarter in 2013.  Including a $678 million impairment charge relating to its investment in U.K. retailer Tesco, and accounting for investment sales and derivatives, net income declined 8.6%.  Warren Buffett has said on numerous occasions that Berkshire’s performance should be judged by its operating earnings and not by the timing of its investment sales or its accounting for its derivatives.  Berkshire’s operating profit of $2,876 per Class A share exceeded by 11% the $2,594 expected by analysts polled by Thomson Reuters.  Revenues rose by 10%.

Approximately 70% of Berkshire’s operating earnings were derived from its non-insurance businesses, primarily Burlington Northern Santa Fe Railroad,  Berkshire Hathaway Energy, and its various manufacturing, service, and retailing units.

As of September 30, 2014, Berkshire’s stock portfolio was valued at $118.9 billion.  Its cash position was at a record level of $62.4 billion versus $48.2 billion a year earlier.  Since Mr. Buffett has stated that he would like to have $20 billion in cash at all times, he now has over $40 billion available for one or more major acquisitions.

At Friday’s closing price of $214,970, each Class A share currently is valued at 1.5 times Berkshire’s book value of $144,542.  This is very close to Berkshire’s historical average ratio of  market value to book value.

I was quoted in a Bloomberg Businessweek article on this topic:

The $678 million impairment on Berkshire’s Tesco holding was a rare blunder for Buffett, who has amassed a superlative investing record during his five decades leading Berkshire. The grocer’s shares fell about 34 percent in the third quarter after the company disclosed its profit estimate was overstated.

“It’s certainly an anomaly,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of business who has taken students to meet Buffett in Omaha. “He’s not perfect, but his batting average is still high.”

The entire article is available at:

 http://www.businessweek.com/news/2014-11-07/berkshire-profit-falls-8-dot-6-percent-on-investments-to-4-dot-62-billion

 

 Posted by at 10:29 am

Don Graham’s Insights Into Warren Buffett and Berkshire Hathaway

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Nov 052014
 

Last evening at a book talk in Washington, DC by Lawrence Cunningham (Berkshire Beyond Buffett, Columbia University Press, 2014), Don Graham (Chairman of Graham Holdings and former Chairman of the Washington Post Company) provided numerous insights into Warren Buffett and Berkshire Hathaway.  Mr. Graham noted that not only is Warren Buffett the world’s greatest investor, but he is also one of the top 3 or 4 CEO’s.  Yesterday’s closing price of Berkshire Hathaway Class A at $213,000 per share was an all-time high.   Berkshire is now valued at over $330 billion and is the fifth largest company by market capitalization.  He noted that Berkshire’s shares have the lowest turnover of any stock on the New York Stock Exchange.  Berkshire’s shareholders follow Warren Buffett’s lead and typically plan to hold their shares forever.

Don Graham also reminisced about the role Warren Buffett played in saving Salomon Brothers in 1991.  Previously, in 1987, Berkshire had invested $700 million in Salomon.  As a result of a Treasury bond trading scandal, its CEO was forced to resign and was replaced by Warren Buffett.  At that time, Mr. Buffett had mentioned to Mr. Graham, that if Salomon had been allowed to fail it would have triggered “a world-wide financial catastrophe” as a result of its numerous transactions with many counter-parties around the world.   Warren Buffett was primarily concerned about preventing a major financial crisis rather than saving his company’s investment.  In frequently cited Congressional hearings on Salomon in 1991, Mr. Buffett said he told Salomon employees: “Lose money for the firm and I will be understanding, lose a shred of reputation for the firm and I will be ruthless” .

Each member of Berkshire’s board of directors receives only $1,000 per meeting and is not insured.  However, the board is comprised of “huge shareholders” of Berkshire.  Warren Buffett’s annual compensation is only $100,000, but he also owns 40% of Berkshire.  Don Graham, however, expects the next CEO to be paid substantially more.

Don Graham also mentioned that it was Meg Greenfield at the Washington Post who introduced Bill Gates and Warren Buffett to each other at a party she hosted.

Currently, Warren Buffett has 80 people (80 companies owned by Berkshire) reporting to him at Berkshire.  (Tracy Britt Cool also has a few Berkshire company CEO’s reporting to her.)  However, the next CEO of Berkshire will reorganize the firm with fewer managers reporting directly to him.

With respect to the Berkshire annual meeting which currently attracts 40,000 shareholders, Don Graham believes that under the next Berkshire CEO, there “will not be 30,000 people” in attendance.  There is no other company annual meeting that approaches that of Berkshire.

Finally, Don Graham mentioned that if someone had invested $10,000 in 1965 in a good stock such as Procter & Gamble or General Electric, that investment would be worth hundreds of thousands today.  But, $10,000 invested in Berkshire would today be worth millions.

(Note 1:  I was an outside reviewer of the author’s book proposal and manuscript for Columbia University Press.)

(Note 2:  I am quoted twice in this book — on p. 15 (footnote 17) and p.123 (footnote 12) with respect to See’s Candies.)

 

 Posted by at 7:46 am