The Berkshire Hathaway Effect: Market Response to Berkshire’s Portfolio Changes

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May 182015
 

After the market closed on May 15, 2015, Berkshire Hathaway (NYSE: BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending March 31, 2015.  This report revealed numerous changes to Berkshire’s portfolio.  The largest were:

(1) Warren Buffett added about $400 million (3%) to his holding in International Business Machines (NYSE:IBM) ($13.8 billion)

(2) Warren Buffett added about $350 million (1.5%) to his holding in Wells Fargo (NYSE: WFC) ($26 billion).

(3) Todd Combs added about $300 million (50%) to his position in Precision Castparts (NYSE: PCP) ($900 million)

(4) Todd Combs sold about $200 million (60%) of his holding in National Oilwell Varco (NYSE: NOV) ($100 million).

(5) Warren Buffett added about $150 million (5%) to his holding in US Bancorp (NYSE: USB) ($3.7 billion)

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

(1) IBM declined by 0.12% ($173.06 – $0.20).  (Warren Buffett had previously mentioned this increased investment during an interview on CNBC on May 4.  IBM rose 0.2% on May 4.)

(2) WFC rose by 0.41% ($55.75 +$0.23).

(3) PCP rose by 1.64% ($219.02 +$3.53).

(4) NOV declined by 0.18% ($51.18 – $0.09).

(5) USB rose by 0.61% ($44.20 + $0.27).

These price changes occurred in a slightly positive market on May 18, with the S&P 500 rising 0.30% and the Dow Jones Industrial Average closing higher by 0.14%.

With the exception of IBM (with news of Berkshire’s additional investment being released on May 4), each of the largest additional investments outperformed the market on May 18, while the one major reduction in Berkshire’s portfolio resulted in a decline of that stock.  PCP produced the largest outperformance with a gain of 1.64%.

Thus, the “Berkshire Hathaway Effect” of investors closely following Berkshire’s transactions appears to be taking place. It is important to note that one of Mr. Buffett’s portfolio managers, Todd Combs, is believed to have purchased the additional shares in PCP, and to have sold the shares in NOV.

 Posted by at 6:48 pm

Changes to Berkshire Hathaway’s Portfolio in First Quarter 2015

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May 172015
 

After the market closed on May 15, 2015, Berkshire Hathaway (NYSE: BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending March 31, 2015.  This report revealed numerous changes to Berkshire’s portfolio.  The largest were:

(1) Warren Buffett added about $400 million (3%) to his holding in International Business Machines (NYSE:IBM) ($13.8 billion)

(2) Warren Buffett added about $350 million (1.5%) to his holding in Wells Fargo (NYSE: WFC) ($26 billion).

(3) Todd Combs added about $300 million (50%) to his position in Precision Castparts (NYSE: PCP) ($900 million)

(4) Todd Combs sold about $200 million (60%) of his holding in National Oilwell Varco (NYSE: NOV) ($100 million).

(5) Warren Buffett added about $150 million (5%) to his holding in US Bancorp (NYSE: USB) ($3.7 billion)

Berkshire also had minor additions to stakes in Deere (NYSE: DE), Phillips 66 (NYSE: PSX), and Twenty First Century Fox (NASDAQ: FOXA).

There were also minor reductions in Bank of New York Mellon (NYSE: BK), Charter Communications (NYSE: CHTR), Liberty Global (NASDAQ: LBTYA), MasterCard (NYSE: MA), Viacom (NASDAQ: VIAB), Visa (NYSE: V), and Wabco (NYSE: WBC)

There were no positions that were either initiated or eliminated.

Berkshire’s 13F filing for the first quarter of 2015 is available at:

http://www.sec.gov/Archives/edgar/data/1067983/000095012315006438/xslForm13F_X01/form13fInfoTable.xml

 

 

 Posted by at 10:17 am
May 042015
 

Warren Buffett (WB)was interviewed for three hours on CNBC today from 6 a.m. – 9 a.m.   The highlights of this interview are:

(1) WB strongly endorsed Berkshire’s investment in IBM, which is one of its (BRK) four largest holdings. Berkshire is IBM’s largest shareholder and owns almost 80 million shares or about 8% of its shares, currently valued at over $13 billion.  WB added to his position during the first quarter of 2015.  IBM has reduced its shares outstanding from 1.6 billion 10 years ago to about 985 million today through stock buybacks.  It has also reduced its employee stock options from 250 million shares 10 years ago to just a few million today.  IBM is buying back stock at prices below what the stock is worth and therefore adding to shareholder value.  Wells Fargo and American Express are large customers of IBM as is Geico (Watson data analytics).  IBM is trusted and innovative.  Although its share of the cloud is small, it will do well in the future since this is not a winner take all business as is search.  Since IBM has no net tangible equity it is earning infinite returns.  (At the BRK annual meeting on May 2, both WB and Vice Chairman Charlie Munger (CM) endorsed their investment in IBM — CM said they “voted 2 – 0” to invest in IBM.)  IBM CEO Ginni Rometty said IBM’s data analytics business grew 7% last year and at 12% during the first quarter.  IBM has been returning $10 – $11 billion to shareholders per year through stock buybacks and dividends.

(2) Stocks are cheap relative to bonds.  If interest rates rose to normal levels, then stock prices would be high (but not excessively high).  If interest rates stay low for 10 years, then stocks are greatly undervalued.

(3) WB vigorously defended Clayton Homes against charges made in the Seattle Times about predatory pricing.

(4) In response to NetJets pilots picketing the annual meeting on Saturday, WB mentioned that they are paid an average of $145,000 per year which is higher than their competitors and they are also treated better with 7 days on duty and 7 days off.  NetJets pilots are not leaving BRK to go to its competitors.  On the contrary, pilots from its competitors are lining up to join NetJets.  The NetJets pilots union is objecting to Berkshire’s plan to have the pilots contribute to the cost of their health insurance.

(5) WB deflected criticism about its partnership with 3G Capital leading to large layoffs at Heinz (HNZ).  WB stated that HNZ was inefficient with too many employees.  Also plants that were shut down were losing money. 3G Capital turns inefficient firms into efficient firms.  Both BRK and 3G Capital are long term investors and plan to grow the company (HNZ) and not sell it after a few years as is typically done by private equity firms.

(6) BRK is not too big too fail.  Regulators have not contacted BRK about being possibly designated  a Systemically Important Financial Institution (SIFI) which would require additional regulations and capital requirements.

(7) Both WB and CM agreed that earned income tax credits are a far better solution to income inequality than raising the minimum wage.

(8) WB is concerned about the Federal Reserve raising interest rates when European and other countries are lowering them.

(9) WB is not concerned about the amount of sugar in Coca-Cola and Heinz Ketchup.  These products have had  sales increase for over 100 years and will continue to do so.  WB said that 1/4 of his calories comes from Coca-Cola and he has never felt better.  (At the annual meeting WB said that if he had to eat broccoli he would not live as long since he would not be happy.  “People who shop at Whole Foods do not look happy”.)

(10) WB thinks the European Union will evolve and change over time.

 Posted by at 11:34 am