Nov 142019

In an SEC Form 13-F filing after the market closed today, Berkshire Hathaway revealed 2 major additions to its portfolio during the third quarter.

Berkshire made an initial purchase of

(1) 7.5 million shares of Occidental Petroleum (OXY) that was valued at $332 million on September 30   (Note: Berkshire also has warrants to purchase 80 million shares of OXY at $62.50 per share which would result in a $5 billion stake in the company.  That resulted from a May 2019 funding deal which included $10 billion perpetual preferred stock with an 8% annual dividend).

(2) 1.2 million shares of RH (formerly Restoration Hardware) (RH) that was valued at $206 million on September 30.

There was one major portfolio reduction during the third quarter.  Berkshire’s stake in Wells Fargo (WFC) was reduced by 7.67% or $1.58 billion.

Berkshire’s top 5 portfolio holdings (66% of its total portfolio of $215 billion) as of September 30 were:

(1) Apple (AAPL)– $55.7 billion

(2) Bank of America (BAC) – $27.0 billion

(3) Coca Cola (KO) – $21.8 billion

(4) Wells Fargo (WFC) – $19.1 billion

(5) American Express (AXP)– $17.9 billion




 Posted by at 6:40 pm
Nov 122019

This is my favorite Warren Buffett quote:

“Success in investing doesn’t correlate with IQ once you’re above the level of 120.  What you need is the temperament to control the urges that get other people into trouble in investing.  If your IQ is 150, sell 30 points; it won’t hurt.”


 Posted by at 9:33 pm
Nov 112019

I am quoted in this University of Maryland (Smith Brain Trust) article:


Nov 11, 2019

SMITH BRAIN TRUST – Ancient rulers loved it. Modern investors have, at times, flocked to it. What is it about gold, anyway?

Gold prices have gained more than 15% this year, amid worries about the trade war between the United States and China, uncertainties surrounding Brexit, and signs of weakness across major economies.

In an unfavorable market environment, gold tends to perform well, favored by investors as a so-called safe-haven asset.

David Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business, has closely followed financial markets for over 50 years and has been watching gold’s recent rise. He offers some insights on why investors like the shiny metal and how famed investor Warren Buffett views it.

Q: Why does gold appear to be performing so well recently?

Kass: Gold has increased in value recently as interest rates have declined or gone negative in Europe and Japan. Investors seeking a positive rate of return are seeking other asset classes such as stocks and gold.

Q: Where do you see gold prices going from here?

Kass: If interest rates remain very low or negative, then gold is likely to maintain its recent price increases.

Q: How do people invest in gold?

Kass: Investors can buy gold coins, gold bars, gold ETFs (exchange-traded funds), and gold mining stocks. A good source for further discussion on this question is Investopedia’s ‘How do you purchase physical gold bars.’ Gold, a non-productive asset, has historically resulted in a rate of return approximating the rate of inflation. It has substantially underperformed stocks as well as underperforming bonds.

People who buy gold do so out of fear that the economy will get worse in the near future. They follow the ‘greater fool theory’ – that a greater fool will subsequently buy their gold at a higher price than they paid.

What Warren Buffett Thinks About Gold

When Warren Buffett, chairman and CEO of Berkshire Hathaway, spoke about gold during the 2018 Berkshire annual shareholders meeting, Kass took notes.

“Buffett mentioned that at age 11 he bought his first shares of stock.” Kass said. It was March 11, 1942, and he bought three shares of Cities Service Preferred at $38 per share.

Buffett noted that had someone invested $10,000 in the S&P 500 Index on that date, it would now be worth $51 million (for a compounded annual return of 12%). “By contrast,” Kass said, “a $10,000 investment in gold would be worth only $400,000 (compounded annual rate of return of 5%).”

Here are Buffett’s other takeaways about gold, from his 2011 letter to Berkshire shareholders:

1. “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

2. “The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you. … It is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”

3. “Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”

4. “I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side. …Now, for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States. … For $7 trillion … you could have all the farmland in the United States, you could have about seven Exxon Mobils (NYSE:XOM) and you could have a trillion dollars of walking-around money. … And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally. … Call me crazy, but I’ll take the farmland and the Exxon Mobils.”

5. “The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

6. “What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth – for a while.

7. “I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola (NYSE:KO) will be making money, and I think Wells Fargo (NYSE:WFC) will be making a lot of money and there will be a lot – and it’s a lot – it’s a lot better to have a goose that keeps laying eggs.

 Posted by at 3:49 pm
Nov 022019

Berkshire Hathaway released its 2019 third quarter report this morning.  The highlights are:

(1) Berkshire’s operating earnings were up 14.2% in third quarter.

(2) Berkshire’s cash rose to $128 billion at end of third quarter from $122 billion on June 30.

(3) Berkshire bought back about $700 million of its own shares in the third quarter, bringing its total buybacks for the year to $2.8 billion.

 Posted by at 9:47 am
Oct 252019

I am quoted in U.S. News & World Report (“Pros and Cons of Buying Berkshire Hathaway Stock” – October 24, 2019)

Berkshire is currently selling at a below market average price-earnings ratio and its earnings are projected to grow at an above market average rate over the next few years, says David Kass, a finance professor at University of Maryland’s Robert H. Smith School of Business. “Its intrinsic value is likely at least 10% above its current share price. Therefore, it’s undervalued and should be outperforming the market over the near future.”

The company’s largest holdings include Apple (AAPL), Wells Fargo & Co. (WFC), Kraft Heinz Co. (KHC), Bank of America and Coca-Cola. “Apple is Berkshire’s largest holding,” Kass says. “It has a below market average price-earnings ratio and above-average projected growth. Apple’s iPhone customers are very loyal and over 90% upgrade their iPhones every two to three years.”

Bank of America has successfully dealt with problems stemming from the financial crisis, and is well-managed and growing nicely, Kass says. “Additionally, Wells Fargo should resume its growth and profitability over the next year or two after it recovers from the reputational damage of the scandal where many of its customers were charged for services that they did not request,” he says.

 Posted by at 7:24 am
Oct 032019

My University of Maryland (Robert H. Smith School of Business) profile:




Finance professor David Kass first looked at the New York Times’ business section at age 12. Like many boys, he was mostly interested in the sports articles.

He became invested, literally, when his grandfather gave him his first stock: Long Island Lighting. He had five shares at $20 per share of this electric utility. All of a sudden, Kass wanted to follow the market.

“If my Long Island Lighting went up an eighth of a point (smallest unit of price change at that time), I was all excited because I had made 63 cents that day,” Kass says. “A few years later, the Federal Reserve was raising interest rates, and the stock went down. That wasn’t as much fun.”

Through reading every day, he discovered how increases in profits and dividends usually resulted in higher prices of individual stocks, while increases in interest rates generally lowered the prices of all stocks.

Today, as a clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business, he still begins each class with a news quiz — for himself. He’ll study The Wall Street Journal, The New York Times, Washington Post and CNBC before class. Students then gets a chance to stump him.

“I am a newsaholic,” Kass says. “90% of the time, I’ll be able to answer their questions. I will then briefly discuss any major finance or economics news story that the students did not mention.”

As a high school student in New York City, Kass spent one summer on Wall Street, working for a brokerage firm as an errand boy. His official title was “runner.” In the pre-internet days, when a customer of the brokerage firm sold shares, he had to take the signed paper certificate to the transfer agent (bank) for that stock.

His favorite task involved picking up research reports for the partners. They required him to get five copies of a daily report from another brokerage firm, but because they were free, he would always take a sixth for himself. Through watching the stock symbols and prices at lunch and reading the reports, 15-year-old Kass developed some insight into the stock market.

“I was convinced I was the youngest person on Wall Street that summer,” Kass says.

The next year, with his experience, he got a pay bump and became a clerk. “I’m 16 years old, and I’m moving up the ladder,” Kass says.

However, he decided to study electrical engineering for his undergraduate and graduate degrees, although his heart was in finance.

He did keep a portfolio on the side during that time, saving up to $500 each summer to invest in a personal fund he managed through college.

Before taking the leap to finance through a PhD program, Kass decided he would try teaching high school mathematics in the New York City public school system.

“I had to do some yelling at the kids. That — I did not like,” Kass says. “But when I was able to teach, I really enjoyed it.”

He pursued his PhD at Harvard University in a program where only six students were admitted. Only one other student completed the program in addition to Kass.  After that, he planned to go back to New York City to teach at the City University of New York.

“But the city went bankrupt,” Kass says. “If anything, they were laying teachers off.”

Faced with an uncertain path to tenure as a professor at any university, Kass instead ventured to Washington, D.C., to become an economist. He held senior positions at the Federal Trade Commision, General Accounting Office, the Department of Defense and the Bureau of Economic Analysis.

In 2004, he remembered why he got his PhD in the first place: to teach. He joined the Maryland Smith faculty as an adjunct professor in the MBA program.

Now frequently quoted in publications like The Wall Street Journal, The Washington Post and Bloomberg, and appearing on CNBC and other cable channels, Kass is seen as an expert on the economy, markets and, especially, Warren Buffett.

“He has a track record of being reliable and being insightful,” says Tomas Garchitorena, Kass’s former student and teaching assistant. “It’s because of this consistency, why a lot of these writers are looking to go for him for insight that other people just don’t have.”

Kass’s Buffett blog began as a passion project in 2010 on the occasion of Buffett’s 80th birthday, but he’s now seen as a leading expert on the well-known billionaire. He became a Buffett follower before it was cool.

“In 1980, I picked up a book called ‘The Money Masters’ by John Train. I immediately turned to the back of the book, to look at the portfolios of these money managers,” Kass says. “Seven out of eight were holding the hot stocks of the previous year. And then there was one portfolio that was different: high quality stocks that were beneath the radar such as American Express, Capital Cities Broadcasting and the Washington Post.  I thought, ‘Who is this?’”

And thus began Kass’s Buffett obsession. Every year for 10 years he brought students to the Berkshire Hathaway annual shareholders meeting in Omaha, and is regularly contacted by reporters to comment on Berkshire Hathaway. On four occasions he was invited to bring 20 MBA students to Omaha for private meetings with Buffett.

“The first time Bloomberg TV invited me to appear for a 5-minute live TV interview on Warren Buffett, I was worried that if I said something that was incorrect, it would be all over the internet forever,” Kass says. “So the night before, I spent three hours reading over all of my notes. It turned out that one of Buffett’s quotes that I studied the night before provided me with an excellent response to a critical question about Buffett that was asked at the very end of the interview.

These days, Kass is frequently seen in the hallways of Van Munching Hall, sometimes late in the evening, carrying a large box of papers — teaching materials and informational handouts, Garchitorena says.

Like a Wall Street runner for his students, Kass makes sure they know what’s going on in the world and how it relates to finance.

“I jokingly tell my students that I live here,” says Kass, sitting in his office, surrounded by stacks of news articles, research and assignments. “My door is always open.”

— Kira Barrett, Communications Writer at the University of Maryland’s Robert H. Smith School of Business

 Posted by at 6:15 pm
Oct 012019

I am quoted in a Robert H. Smith School of Business (University of Maryland) article on the successful IPO’s of 2019.

It’s been a big year for IPOs, but it hasn’t been a kind one.

Ride-share startups Uber and Lyft made their public trading debuts in belly-flop style, and initial offerings from workplace collaboration tool Slack, connected fitness company Peloton and online dentistry firm SmileDirectClub weren’t prettier. But shared workspace darling WeWork never even got that far. In the span of a week, the parent We Company shed its CEO and scrapped its planned IPO, as the money-losing startup takes a critical look at its balance sheet.

Hollywood talent firm Endeavor also scrapped its IPO recently, just days before its planned debut, citing unstable market conditions. No doubt.

“The successful IPOs, this year, they’re a minority, at least percentage-wise,” says David Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business.

Investors have been proceeding on new issues with ever-increasing caution, he says.

“The main determinant of which IPOs are likely to do well is whether the company expects to be making a profit within three years,” says Kass. “Investors are asking the question: What is the road to profitability for this company?”

In S-1 filings for WeWork, Uber and Lyft that answer was nowhere to be found.

“If you don’t get to profitability, then your value is zero,” Kass reminds.

To see how choppy it’s been, look no further than the Renaissance IPO exchange-traded fund, (whose ticker is IPO). The ETF, which invests exclusively in stock debuts, has fallen sharply in the past two months, after a rather giddy start to the year.

It’s been a big year for IPOs – with more dollars raised in initial public offerings than in any year since 2014.

Of the 114 companies that have debuted on U.S. stock exchanges this year, 51 appear trapped in negative territory. Of course, it’s not all doom and gloom. For you glass-half-full types, 63 newly traded companies have traded above their IPO prices.

In fact, there have even been some highlights. In an interview with Smith Brain Trust, Kass shares three of the more notable successes in the IPO class of 2019.

Beyond Meat (BYND): The plant-based non-meat “meat” company made its hotly anticipated public debut on the Nasdaq in May. It closed its first day of trading at $65.75, or 163% above its IPO price of $25 – the best first-day stock performance in nearly two decades. “It’s done extraordinarily well,” Kass says. Its debut comes amid surging interest – from grocery retailers, restaurants and quick-serve chains for the new crop of vegan, plant-based foods that closely replicate the taste and look of beef. The stock was trading recently at $155, up nearly 520% from its initial price. “Beyond Meat is a very interesting company, and it’s benefitting in the market from its first-mover advantage,” he says.

Zoom Video Communications (ZM): Zoom went public in April and has impressed investors since. Zoom stood apart from the rest of its unicorn IPO class, debuting on the Nasdaq as an already-profitable tech company. The enterprise communications company that provides remote conferencing services using cloud computing continues to see significant revenue growth and operating margins, largely topping expectations. “Zoom has a subscription model, which is viewed as providing recurring income and therefore likely to succeed,” says Kass. It traded recently at $76, up more than 200% from its $36 IPO price.

Pinterest (PINS): The social media platform that allows users to view, save and share images by “pinning” them, has 300 million monthly users worldwide, and is just beginning to tap into its revenue potential. The San Francisco-based company isn’t yet profitable, but it’s revenue is climbing faster than its larger social media rivals, such as Twitter and Snapchat parent SNAP. “The company has been the first to do what they’re doing,” says Kass, and it lacks some of the controversies currently dogging its social media brethren. PINS has seen a slow ascent since its March IPO. It traded recently at $26, up from its $19 initial offering price.

There are two determinants to a successful IPO, says Kass.

The first is that earnings are visible, either current or demonstrably imminent. The second, he says, is that the IPO is fairly priced. “Overprice the IPO – or anything, for that matter – and it’s not going to prove to be a good investment.”


 Posted by at 8:53 am
Sep 182019

Tracy Britt Cool, one of Warren Buffett ’s key lieutenants in recent years, is leaving Berkshire Hathaway to create a mini Berkshire of her own, as reported by the Wall Street Journal.

Ms. Britt Cool joined Berkshire in 2009 at age 25 as Mr. Buffett’s financial assistant, a job he created for her. In 2014, she became chief executive of Pampered Chef, a cookware company owned by Berkshire.

Now 35, Ms. Britt Cool wants to build an investment vehicle that acquires companies for the long term, like Berkshire does.

Ms. Britt Cool, who is based in Chicago, plans to leave Pampered Chef at the end of March. She will also resign from the board of Kraft Heinz in the first quarter of 2020, she said.

In her decade at Berkshire, Ms. Britt Cool specialized in helping Berkshire companies that were struggling. At various points, she served as chairman of Benjamin Moore & Co., Larson-Juhl, Johns Manville and Oriental Trading Co., meaning that those companies’ CEOs reported directly to her. She took over Pampered Chef when its sales and earnings were falling.

“She was the fireman,” Mr. Buffett said in an interview. “Anything I’ve assigned her she’s done a first-class job on.”

In the second quarter of 2019, Pampered Chef’s sales rose 19% and its pretax earnings rose 52% from the prior year, Mr. Buffett said.

 Posted by at 5:23 pm