Aug 172017

I am quoted in the Washington Post on Amazon (Nasdaq:AMZN) borrowing $16 billion to finance the purchase of Whole Foods (Nasdaq:WFM).

“Amazon doesn’t want to issue stock to make the purchase because that would introduce dilution,” said David Kass, finance professor at the University of Maryland. Besides, Kass added, “now is a sweet spot for debt. Interest rates are likely to rise.”

 Posted by at 2:31 pm
Aug 142017

In its SEC Form 13-F filing after the market closed today, Berkshire Hathaway reported several large changes to its portfolio during the quarter ending June 30, 2017 that had not previously been disclosed.

Its largest additions were:

(1) $500 million initial investment in Synchrony Financial (credit card company that was spun off from General Electric in 2015) (NYSE:SYF).

(2) $500 million additional investment in Bank of New York Mellon (NYSE:BK).

(3) $500 million additional investment in Liberty Media SiriusXM (Nasdaq:LSXMA) (Nasdaq:LSXMK).

(4) $350 million additional investment in General Motors (NYSE:GM).

The largest reductions were:

(1) $300 million sale of its entire position in General Electric (NYSE:GE).

(2) $300 million sale of almost its entire position in Wabco (NYSE:WBC).

I am quoted in a Bloomberg article on these portfolio changes:

“The outlook for GE has certainly soured,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, citing the recent departure of Jeff Immelt as chief executive officer. “The CEO essentially was forced to resign.”

Kass said Berkshire’s decision to sell GE and buy Synchrony in the same period was probably a coincidence. Buffett oversaw the GE holding, and one of his deputies — Todd Combs or Ted Weschler — was likely responsible for the new investment, given its smaller size in the Berkshire portfolio, Kass said. The filing doesn’t say which money manager is responsible for each pick.

 Posted by at 11:21 pm
Aug 112017

I am quoted in the Washington Post on the stock market and North Korea:

David Kass, a finance professor at the University of Maryland, said “there is an expectation that the (Korean) crisis will be resolved diplomatically. Markets go down in the short run on fear of the unknown, such as whether a military confrontation between the U.S. and North Korea could occur. But crises eventually do get resolved and markets recover and go on.”

 Posted by at 5:58 pm
Aug 072017

After the market closed on Friday, August 4, Berkshire Hathaway released its Form 10-Q for the quarter ending June 30, 2017.  This filing revealed a record cash position of $100 billion as compared to $96 billion on March 31 and $86 billion as of December 31, 2016.

Warren Buffett previously stated that Berkshire intends to hold a permanent cash position of $20 billion and would like to invest the remaining cash of $80 billion since it is currently earning a rate of return close to zero.  What are Berkshire’s likely options?

There are three approaches that Berkshire is likely to follow:

(1) Acquire one or more large companies such as its 2016 purchase of Precision Castparts for $32 billion and its 2010 acquisition of Burlington Northern Sante Fe for $26 billion (for the 77.4% it did not already own).  Warren Buffett will participate in friendly deals only and will avoid auctions.

(2) Partner with 3G Capital to provide $10 billion or more to acquire companies such as the acquisition of Kraft by Heinz (to form Kraft Heinz) in 2015.

(3) Common stock investments such as Berkshire’s 2016-17 purchase of shares in Apple which are currently valued at about $20 billion.  Berkshire’s equity investments equaled $137 billion on June 30.  (Warren Buffett’s portfolio managers, Todd Combs and Ted Weschler, each manage about $10 billion.)

Warren Buffett is extremely patient and will invest only when the opportunity is very attractive. With the stock market at all-time highs it is becoming more difficult to find undervalued stocks.  However, future market fluctuations should provide additional opportunities.


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




 Posted by at 8:55 am
Aug 052017

At its all-time high closing price on August 4, 2017 of $270,000 per Class A share, Berkshire Hathaway has a market capitalization of $444 billion, which is the sixth largest company.

The six largest companies by market capitalization are:

(1) Apple ($815 billion)

(2) Alphabet (Google) ($655 billion)

(3) Microsoft ($561 billion)

(4) Facebook ($493 billion)

(5) Amazon ($474 billion)

(6) Berkshire Hathaway ($444 billion)

(Note:  This blog post has been published by

 Posted by at 9:59 am
Aug 042017

After the market closed today, Berkshire Hathaway released its second quarter earnings report for 2017.  Its operating earnings declined by 11%  primarily as a result of a loss of $22 million in its insurance businesses as compared to a profit of $337 million during the second quarter of 2016.  In addition, there was a negative $407 million for corporate interest expense vs. a positive $32 million in the corresponding quarter last year. Berkshire’s earnings from its railroad, utilities, and energy businesses increased by 18% compared to last year.

Net income, including investment and derivative gains and losses, declined by 15%.

As of June 30, 2017, Berkshire had $100 billion in cash and its book value, which increased by 6.2% since yearend 2016, equaled $182,816 per Class A equivalent share.  At its record closing price today of $270,000 per Class A share, Berkshire’s price to book value ratio equals 1.48, which is below its 30 year average of 1.58.  Warren Buffett has previously stated that he would buy back shares of Berkshire if the price to book value ratio dips below 1.2.

At today’s closing price of $270,000 per Class A share, Berkshire has a market capitalization of $444 billion, which is the sixth largest company behind only Apple ($815 billion), Alphabet (Google) ($655 billion), Microsoft ($561 billion), Facebook ($493 billion) and Amazon ($474 billion).

(Note 1:  After-tax corporate interest expense included foreign currency exchange rate losses in the second quarter and first six months of 2017 of $342 million and $399 million, respectively, with respect to the revaluation of the Euro denominated debt. In 2016, after-tax corporate interest included foreign currency exchange rate gains of $101 million in the second quarter and losses of $60 million in the first six months. Excluding these foreign currency gains and losses, after-tax corporate interest expense in the first six months of 2017 and 2016 was $131 million and $121 million, respectively. The increase was attributable to increased average outstanding borrowings.)

(Note 2:  This blog post has been  published by


 Posted by at 8:36 pm
Aug 042017

Former Federal Reserve Chairman Alan Greenspan was interviewed on CNBC on August 4, 2017.  The 5 highlights of his comments were:

(1) Real long term interest rates in the U.S. are the lowest they have ever been going back to 1800.

(2) The only direction for interest rates is up, but no time frame was mentioned.

(3) Rising interest rates will exert downward pressure on stock prices.

(4) The most successful investment strategy is to buy and hold.  However, human nature usually results in selling when prices decline.

(5) The next Federal Reserve Chair should be a good economics forecaster and be able to resist pressure from Congress.


 Posted by at 8:04 am
Aug 032017

On August 2, 2017, the Dow Jones Industrial Average (DJIA) closed at an all-time high of 22,016.24.  Since the financial crisis stock market bottom of March 9, 2009, stocks have risen sharply.  The compounded annual return of the DJIA and the S&P 500 with dividends included has been about 18% over this 8 1/2 year time period.  However, the DJIA had plunged 55 percent from its high on October 9, 2007 as a result of the financial crisis.  Has this sharp rebound exceeded historical annual rates of return?

To answer this question, several studies have indicated that the total return to the stock market has averaged between 9 and 10% compounded per year over many decades.  For example, from the Berkshire Hathaway 2016 Annual Report, the S&P 500 with dividends included has compounded at 9.7% per year over the past 51 years from 1965-2016.

Instead of comparing the stock market’s return from its generational bottom as a result of the financial crisis of 2007-09, it is more appropriate to examine its performance over a longer time period which both precedes and includes the sharp stock market decline.  If one, therefore, examines the stock market’s performance over the past 10 years from August 2007 until the present time, the returns to the DJIA and S&P 500 are actually slightly below their historical norms.  Over the past 10 years, the DJIA and S&P 500 with dividends included have compounded at about 8 percent per year.  Since this is below the historical average of 9.7% achieved over the past 51 years, and the 9% to 10% returns over many decades, one can conclude that the stock market’s sharp recovery has not resulted in its being overvalued at current levels.

With corporate earnings growing, interest rates at historical low levels, and the economies in Europe and China recovering, the outlook for stocks continues to be bright.

(Note: This blog post has been published by Seeking Alpha, and ValueWalk.)

 Posted by at 7:36 am