The largest reduction was in General Dynamics (GD, $275 million) which was eliminated from Berkshire’s portfolio.  Berkshire also sold its entire position in Archer Daniels Midland (ADM, $163 million) and reduced its investment in Mondelez (MDLZ, $175 million).

The portfolio changes to WFC, WMT, and MDLZ are believed to have been made by Warren Buffett, since his initial positions generally exceed $1 billion, and these investments were made prior to the arrival of his portfolio mangers, Todd Combs and Ted Weschler.  The other portfolio changes were apparently made by Combs and/or Weschler.

I am quoted in a Bloomberg article on this topic:

Combs and Weschler have an incentive “to put that money to work” if they think there are opportunities to outperform the market, 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. “Buffett wants his $20 billion rainy-day fund.”

The entire article is available at:

http://www.bloomberg.com/news/2013-05-15/buffett-s-berkshire-discloses-chicago-bridge-stake.html

I am quoted in a Kiplinger article mentioning DaVita as a company Warren Buffett might want to own:

For Buffett watchers, changes to Berkshire Hathaway’s common stock holdings  may offer important clues to the Oracle of Omaha’s thinking. David Kass, a  finance professor at the Robert H. Smith School of Business  at the University of Maryland, says DaVita HealthCare Partners  (DVA) may be one name on Buffett’s list because Berkshire has  been increasing its stake in the company over the past few years. Berkshire was  buying shares of DaVita, which is one of the largest providers of dialysis  services in the U.S., as recently as March of this year. With 13% of the  outstanding shares, Berkshire is now DaVita’s largest shareholder.

DaVita appears to match Buffett’s preference for companies with sustainable  competitive advantages. The company accounts for about one-third of the dialysis  market in the U.S. &mdash it has almost 2,000 outpatient facilities and  serves about 153,000 patients &mdash and its share has been growing in  recent years. Kass says the company benefits from economies of scale, meaning  that by running a large operation it can keep costs down. It also has a strong  brand name.

The impetus for Berkshire’s large DaVita holdings appears to come from Ted  Weschler, a Berkshire newbie. Weschler and former hedge fund manager Todd Combs,  another relative newcomer to Berkshire, are being groomed to eventually replace  Buffett as overseers of the company’s entire investment portfolio. Each is  managing about $6 billion worth of Berkshire’s stock portfolio, which totals  about $87 billion.

Weschler held a significant position in DaVita through Peninsula Capital  Advisors, the hedge fund he managed before joining Berkshire. Weschler also  helped to orchestrate the acquisition of a dialysis firm when he worked for W.R.  Grace, a chemical company, in the 1980s. “He has been following this industry  for maybe 20 years, and he knows the economics of the industry as well as  anyone,” Kass says.

Kass believes Berkshire could be approaching an acquisition of DaVita in a  manner similar to its purchase of Burlington Northern Santa Fe in 2010. In that  instance, Berkshire built up a 23% stake in the railroad’s shares over a number  of years before it struck a deal to purchase the remainder of the company.

The big question is whether Buffett, who’s known for his bargain-hunting  acumen, would be willing to pay up for DaVita, which at $119.02 per share is  already trading for a 16 times the $7.49 per share analysts expect the company  to earn in 2013. That may be up to Weschler’s powers of persuasion (share prices  are as of April 29).

The entire article is available at:

http://www.kiplinger.com/article/investing/T052-C008-S003-3-companies-warren-buffett-might-want-to-own.html

Goldman Sachs called the preferred stock for redemption on April 18, 2011 at a premium of 10% over par value, plus accrued and unpaid dividends.  As a result, Berkshire Hathaway earned approximately $1.75 billion ($1.25 billion in dividends plus a redemption premium of $500 million) in 2½ years on its investment of $5 billion. This represents a return of 35% over this time period from the preferred stock alone.

On March 26, 2013, Goldman Sachs announced a modification of this agreement with respect to the warrants.  The new arrangement stipulates that instead of Berkshire investing $5 billion in Goldman on October 1, 2013, and owning about 10% of its shares, Berkshire would not invest any additional capital in Goldman but would receive Goldman shares representing the profit above the exercise price of $115 on October 1, 2013.  At Goldman’s current price of about $145, Berkshire would own about 2% of Goldman with a market value of $1.3 billion.  This arrangement would be beneficial to both Goldman and Berkshire.  The amount of dilution in Goldman shares would be substantially reduced from 10% to 2%.  Berkshire would not only be retaining $5 billion in capital, but also committing only $1.3 billion to this investment (not $6.3 billion = $5 billion + $1.3 billion).  Warren Buffett has promised that the exercise of the Goldman warrants would result in a long-term investment for Berkshire.

I am quoted in two Wall Street Journal articles (March 27, 2013) on this topic:

Mr. Buffett is “risking less money,” said David Kass, a finance professor at the Robert H. Smith School of Business at the University of Maryland. “I don’t know if that’s an indication of having less confidence, but he’s made a decision to put less capital at risk.”

http://online.wsj.com/article/SB10001424127887324105204578384350556958438.html

and,

“Goldman was an excellent investment even before today, and the shares he’ll get going forward will work out for him very well,” said David Kass, a finance professor at the Robert H. Smith School of Business at the University of Maryland who follows Berkshire Hathaway. “But the Bank of America investment is just off the charts.”

http://blogs.wsj.com/deals/2013/03/26/warren-buffetts-bailouts-goldman-copy-cats-ge/

(1) The rate of change in the book value of Berkshire Hathaway (BRK), which is Buffett’s proxy for intrinsic value, is likely to underperform the S&P 500 in a rising stock market because BRK invests only 1/3 of its assets in stocks (vs. 100% in the S&P 500) and BRK pays a 35% corporate tax rate.

(2) BRK purchased Heinz (HNZ) in parnership with 3G Capital.  Buffett likes the business, his partner, and the price.  His partner, Jorge Paulo Lemann, will do the work (managerial oversight).  BRK will own HNZ 100 years from now.  If 3G Capital sells some HNZ shares in the future, Buffett will buy them.  BRK received a 9% preferred stock (HNZ) which can be called at a premium.  The preferred stock minimizes debt leverage.   Buffett also received warrants to purchase an additional 5% of HNZ stock.  Jorge is the best manager in the world.  3G is the managing partner, BRK is the financing partner.  BRK would not have purchased HNZ at this price without Paulo as a partner.  There was insider trading in HNZ call options the day before the deal was announced.  Many people knew about this deal, including four investment banking firms, lawyers, and other parties.

(3) Buffett would buy BRK shares at prices up to 120% of book value.  He purchased shares at that price in December from a $1.2 billion estate.  Buffett stated: “Whether BRK is worth 135% or 138% of book value, no one knows.”  (Note:  At BRK’s closing price of $154,425 on March 5, it is at 135% of BRK’s book value of $114,214 on December 31, 2012.  This is also BRK’s all-time closing high.)

(4) “Lots of people will get out of assets (e.g., stocks, bonds, etc) when the Federal Reserve begins to disgorge (sell the bonds that it is buying).”  Stock prices are higher today because of zero interest rates which also contributes to mergers and acquisitions since firms can borrow at rates close to zero.

(5) Buffett never considers the macroeconomic environment when deciding when to buy or sell a stock.

(6) Buffett is looking for the “right business at the right price”.

(7) Bank of America (BAC) is cleaning up its balance sheet and has a low cost deposit base.

(8) Apple (AAPL) should ignore Einhorn (return cash to shareholders) and focus on running the company for the next five years.

(9) BRK’s largest common stock holding is in Wells Fargo (WFC).  Buffett added to his WFC holding this year.  (Note: This is the only stock that BRK has added to in every year since 2005.)   Buffett has not bought or sold any shares in 20 years in his second largest holding, Coca-Cola (KO).  “WFC is cheaper.”

(10) Buffett will give $1 billion more to both Todd Combs and Ted Weschler to invest at the end of March. They will then each have $6 billion to invest.  Todd and Ted each made $120 million last year.  If they were running a hedge fund earning 2/20 they could earn $400 million.  But they will be at BRK for another 20 years.  They each run concentrated portfolios of 5 stocks and 11 stocks. respectively.  (Note: I believe that Ted’s portfolio has 5 stocks and Todd’s has 11 stocks.)  They are both very smart and each has DirecTV (DTV) in his portfolio.  DTV is their first investment listed in Buffett’s letter with a value of over $1 billion.  DaVita (Ted Weschler) also exceeds $1 billion, but part of it is in BRK pension funds.  BRK owns over 13% of DVA (which is a kidney dialysis company).

(11) BRK’s derivatives would have a profit if they settled today.  They cannot be settled before 2018 -2026.  He sold puts on four major international stock indexes.  BRK received $4.2 billion in premiums for these contracts and did not have to put up collateral.  Since collateral is required today, BRK would not sell any more similar contracts.  If there was a once in a century event (stock market crash of 1987, nuclear, chemical, or biological attack) the collateral could be required on 24 hour notice.

(12) “Geico is shooting the lights out.”  They are adding 165,000 – 170,000 new auto policies annually.  Superstorm Sandy cost Geico three times as much as Hurricane Katrina since Geico is number one by market share in the New York metropolitan area.

(13) Local community newspapers are a good business which is declining.  (BRK has been purchasing several of these recently.)  He is buying these newspapers at low prices.

(14) Buffett’s “job is to beat the S&P 500 over time”.  He is always optimistic on the economy.

(15) In terms of possible future purchases of large companies in consumer products, there is nothing that he is now interested in.  He does like those businesses.  He is currently exploring a large acquisition in another industry and thinks there is a 5% – 10% chance that it will work out.

(16) Buffett “advertised” in his annual letter for a “bear” on BRK to ask questions and liven up the next annual meeting.  He announced the selection of Doug Kass (no relation) to be the Berkshire Bear.  (Note:  He runs the hedge fund, Seabreeze Partners, which usually has a net short position.  He currently has a short position in BRK).

(17) Stocks are undervalued in relation to other assets such as bonds and farmland.  If interest rates go up, all assets will go down.  The dumbest investment now is a long term government bond.

This blog post has been published by Investing.com:

http://www.investing.com/analysis/highlights-of-warren-buffett%E2%80%99s-cnbc-interview-on-march-4,-2013-158030?preview_fp_admin_1234=this_is_1234

These are some of the highlights:

Warren Buffett was disappointed with Berkshire Hathaway’s (BRK) performance in 2012 for two reasons.  First, BRK’s book value per share rose at only 14.4% compared to the 16.0% achieved by the S&P 500 with dividends included.  This is the third time in the last four years that BRK has underperformed the S&P 500.  Second, BRK was unable to make a large acquisition (more than $10 billion).  (However, in February 2013, BRK was successful in investing $12 billion for a 50% ownership stake in Heinz.  3G Capital purchased the other 50% of Heinz in partnership with BRK.)

But, there was also a lot of good news in 2012.  The five most profitable non-insurance companies owned by BRK (BNSF, Iscar, Lubrizol, Marmon Group, and MidAmerican Energy) did extremely well.  In addition, BRK’s insurance operations, led by GEICO, had an outstanding year.  Insurance is BRK’s core operation and it is “the engine that has propelled our expansion over the years.”

BRK’s new investment managers, Todd Combs and Ted Weschler, each outperformed the S&P 500 by double-digit margins.  Warren Buffett stated:  ‘They left me in the dust as well”.  Combs and Weschler are now each managing about $5 billion.  Warren Buffett’s letter lists 15  BRK common stock investments that at year end 2012 had a market value of more than $1 billion.  One of these stocks, DIRECTV, is the first stock to be selected by Combs or Weschler to meet this threshold.  It is being held in the portfolios of both Combs and Weschler.

In 2012, BRK increased its ownership interest in its “Big Four” investments (Wells Fargo, Coca-Cola, IBM, and American Express).

Warren Buffett remains very optimistic.  Both American business and stocks will do fine over time.  “The risks of being out of the game are huge compared to the risks of being in it.”

Warren Buffett discussed his views on dividend policy.  Since BRK has had excellent opportunities to reinvest its retained earnings over its 48 year life, it has never paid a dividend.  Companies should be consistent with respect to dividend policy.  Either they should pay dividends every year, or they should not pay dividends at all.  They should not be paying dividends in some years and not in others.  An inconsistent dividend policy would confuse investors.

With respect to share buybacks, value is destroyed when purchases are made above intrinsic value.  Warren Buffett considers the book value of BRK to be a “significantly understated proxy” for its intrinsic value.

I am quoted in a Bloomberg article on the release of Warren Buffett’s Letter to Shareholders and BRK’s annual report:

Buffett, 82, uses index put options to speculate on long- term gains in stock-market indexes in the U.S., Europe and Japan. Those bets added $2 billion to profit in the fourth quarter before taxes as Japan’s Nikkei 225 (NKY) Stock Average rallied.

“The probability of Berkshire ever having to take a loss on these contracts is very low” because they won’t be settled for years, said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, who has taken groups of students to visit Buffett in Omaha.

The entire article is available at:

http://www.bloomberg.com/news/2013-03-01/berkshire-profit-advances-49-on-buffett-s-derivatives.html

This blog post has been published by Investing.com (formerly Forexpros and Forex.com):

http://www.investing.com/analysis/highlights-of-warren-buffett%E2%80%99s-2012-letter-to-shareholders-157400

Options trading often surges for legitimate reasons, such as when a trader speculates on an event, according to David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business.

‘Highly Leveraged’

“It’s highly leveraged, so a small amount of money can give you a very high percentage rate of return,” Kass said in a Feb. 19 phone interview from College Park, Maryland. “Volume activity in options can pick up on rumors and speculation. Sometimes those rumors turn out to be true and sometimes not.”

The entire article is available at:

http://www.bloomberg.com/news/2013-02-28/buffett-betrayed-by-calls-shows-nobody-safe-from-leaks.html

The largest addition was an increase of $580 million to its position in Wells Fargo (WFC).   As a result, WFC has become Berkshire’s largest common stock investment with a value of $15.0 billion as of December 31, 2012.  Warren Buffett has held a large position in WFC since 1990, and has added to his position every year since 2005.  Other increases to existing positions include DaVita (DVA, +$375 million), General Motors (GM, +$250 million), DirecTV (DTV, +$225 million), and Wabco Holdings (WBC, +$150 million).

Berkshire also reported initial investments in Archer Daniels Midland (ADM, +$150 million) and Verisign (VRSN, +$140 million).

The largest reduction was in Kraft Foods (KRFT) and Mondelez (MDLZ).  KRFT is a fourth quarter 2012 spinoff from Kraft (KFT), and Mondelez (MDLZ) is the new name for the remaining businesses.  The combined reduction in Berkshire’s position in KRFT and MDLZ was $900 millon.  Berkshire’s remaining holdings in these two companies is valued at $400 million.

The portfolio changes to Wells Fargo, KRFT, and MDLZ are believed to have been made by Warren Buffett, since his initial positions generally exceed $1 billion, and these investments were made prior to the arrival of his portfolio managers, Todd Combs and Ted Weschler.  The other portfolio changes (less than $400 million) were apparently made by Combs and/or Weschler.

I was quoted in a Bloomberg article on this topic:

“Most of the new holdings in the portfolio are coming from Todd and Ted,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, who has taken students to visit Buffett in Omaha”

The entire article is available at:

http://www.bloomberg.com/news/2013-02-14/berkshire-buys-verisign-adm-stakes-as-deputies-add-stocks-1-.html

This blog post has been published by Investing.com (formerly ForexPros):

http://www.investing.com/analysis/berkshire%E2%80%99s-portfolio-changes-during-fourth-quarter-of-2012-155658

Heinz is a typical company that Warren Buffett (Berkshire Hathaway) likes to acquire. It dominates the ketchup market and is well run.  Buffett had a very large investment in General Foods in the 1980′s.  It was subsequently acquired by Philip Morris in 1985.  Berkshire likes stable food companies which have “large moats” protecting their brands.  This results in a durable competitive advantage that Buffett seeks.  Berkshire’s largest equity holding since 1988 is in Coca-Cola.   It also has a large stake in Kraft.

I am quoted in a Bloomberg article on this topic:

Heinz “just comes to mind as almost synonymous with ketchup, just as Coca-Cola is almost synonymous with soda,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business.

The entire article is available at:

http://www.bloomberg.com/news/2013-02-14/buffett-deal-highlights-fondness-for-snacks-ceding-management.html

I am quoted in a Bloomberg article on this topic:

Weschler and Combs are probably “on average outperforming the S&P 500,” 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 billionaire in Omaha. “That’s a wonderful indication” that they were good hires, he said.

The entire article is available at:

http://www.bloomberg.com/news/2013-01-02/buffett-combines-bofa-with-buybacks-to-beat-s-p-500.html?cmpid=yho

This blog post has been published by Investing.com:

http://www.investing.com/analysis/berkshire-vs.-s-p-500:-which-won-in-2012%20-149337