Nov 142017

In its Form 13F filing released after the market closed today, Berkshire Hathaway reported that it sold approximately 30% of its stake in IBM (NYSE:IBM) for about $2.5 billion, and purchased an additional $600 million of Apple (NASDAQ:AAPL) during the third quarter of 2017.  The sale of 17 million shares of IBM were at an approximate price of $150 per share, which was below Berkshire’s average cost of $170 per share.

Berkshire also increased its positions in Monsanto (NYSE:MON) and Synchrony Financial (NYSE:SYF) by about $100 million each.

Berkshire also decreased its stake in Charter Communications (NASDAQ:CHTR) by about $300 million and Wells Fargo (NYSE:WFC) by about $175 million.

Berkshire’s five largest equity holdings as of September 30, 2017 were:

(1) Wells Fargo —           $25.6 billion

(2) Kraft Heinz —             $25.3 billion

(3) Apple   —                    $20.7 billion

(4) Coca Cola —              $18.0 billion

(5) Bank of America —    $17.2 billion




 Posted by at 6:24 pm
Nov 122017

Seeking Alpha has published my article and slides on “The Value Investing Strategies of Warren Buffett, Charlie Munger, Todd Combs, and Ted Weschler at Berkshire Hathaway”.


$1,000 invested in Berkshire Hathaway 52 years ago is now worth $18.5 million.  The same amount invested in the S&P 500 with dividends included would be worth $123,000.

Warren Buffett, Charlie Munger, Todd Combs, and Ted Weschler have consistently outperformed the S&P 500 over decades.

Todd Combs and Ted Weschler are largely compensated based on their outperformance of the S&P 500.

As demonstrated in the attached slides, the value investing approaches of Warren Buffett, Charlie Munger, Todd Combs and Ted Weschler have resulted in consistently outperforming the S&P 500 with dividends included over many decades. From 1965-2016, Berkshire Hathaway’s (NYSE:BRK.A) (NYSE:BRK.B) compounded annual gain in per share market value of 20.8% far exceeded the 9.7% compounded gain of the S&P 500 with dividends included.

Over the foreseeable future, Berkshire’s outperformance is very likely to continue. Todd Combs and Ted Weschler are in place and have been designated to run all of Berkshire’s investments after Warren Buffett is no longer at Berkshire. With Berkshire’s rapidly growing cash position of $109.3 billion as of September 30, 2017, substantial growth can be anticipated through the continued friendly acquisitions of companies as well as investments in equity securities.

Berkshire also is a more tax efficient investment than is the S&P 500. Since the S&P 500 pays dividends that are taxable and Berkshire does not pay dividends, Berkshire’s outperformance relative to the S&P 500 increases when calculated on an after-tax basis.

 Posted by at 5:50 pm
Nov 032017

After the market closed today, Berkshire Hathaway released its 10-Q for the third quarter of 2017.

Five highlights were:

(1) Berkshire’s operating earnings declined by 29% in the third quarter as a result of underwriting losses from three hurricanes.

(2) Berkshire had $109.3 billion in cash as of September 30, 2017.  Its price to book value ratio is 1.5, which is above Warren Buffett’s previously announced 1.2 threshold for its stock buybacks.

(3) Berkshire had a net additional investment of $5.9 billion in equities in “Banks, insurance and finance” during the third quarter of 2017.  ($5 billion for exercise of Bank of America (NYSE:BAC) warrant.)

(4) Berkshire decreased its equity investments in “Commercial, industrial, and other” by $2.25 billion based on cost.

(5) Berkshire apparently added 3 million shares of Apple (Nasdaq:AAPL) (+ $450 million).


(Note:  This blog post has been published by and Value Walk.)


 Posted by at 8:25 pm
Nov 022017

I am quoted in the Smith Brain Trust on the nomination of Jerome “Jay” Powell to be Federal Reserve chair.

Powell, announced Thursday as President Donald Trump’s choice for Federal Reserve chair, represents continuity for monetary policy in the U.S., says Clinical Professor of Finance David Kass at the University of Maryland’s Robert H. Smith School of Business. Powell has been a member of the Fed’s board of governors since 2012. Not an economist by training, Powell was a lawyer and former partner at the Carlyle Group private-equity firm.

Chair Janet Yellen’s term is set to end on Feb. 3. She nears the end of her term amid accelerating economic growth, a 16-year low in the unemployment rate and tepid inflation.

Although Yellen could have been reappointed – a decision that would have been welcomed by the markets, Kass says – Trump had said he wanted to tap his own nominee for the position, rather than reinstating an incumbent. 

Powell and Stanford University economist John Taylor were seen as the likely potential successors.

Taylor was seen as a potential interest rate hawk, having authored the so-called Taylor Rule, a forecasting model that can be used to determine an appropriate rate strategy depending on shifts in economic fundamentals. Kass says Taylor would have “posed a threat to the stock market.”

Not so with Powell, Kass says. Powell is perceived as slightly more dovish than the average Board of Governors member and has typically voted with Yellen. With that perceived continuity, Kass says, “the financial markets will be receptive.”

“Interest rates are to stocks what gravity is to matter,” Kass says, quoting Warren Buffett. In other words, Kass says, stocks “have been performing well largely as a function of the historically low rates we’ve had.”

Higher interest rates, while they seem inevitable, will have a dampening effect on equities.

“Higher interest rates would tempt investors to pull money out of stocks and into treasuries,” Kass says. “Higher interest rates also increase the cost of capital for corporations, increase interest expenses and lower profits.”

Powell is expected to continue leading the Fed’s deliberate approach to unwinding recession-era stimulus measures as the economy expands.

This means raising short-term interest rates in quarter-percentage-point increments through 2020 while slowly shrinking the Fed’s $4.2 trillion portfolio of treasury and mortgage-backed securities it purchased to suppress long-term rates.

The Powell nomination also gives Trump timely political advantage, Kass says. A healthy stock market that reinforces the economy gives him more oxygen for getting legislation through, Kass says. “And,” Kass adds, “he’s perhaps looking ahead three years to his possible re-election.”

 Posted by at 6:13 pm