I am a contributor to the forthcoming book: “The Warren Buffett Shareholder: Stories from Inside the Berkshire Hathaway Annual Meeting”. This book is scheduled to be released on April 19, 2018.
Berkshire Hathaway’s 2017 Annual Report to shareholders will be
posted on the Internet on Saturday, February 24, 2018, at approximately 8:00 a.m. eastern time
where it can be accessed at www.berkshirehathaway.com. The Annual Report will include
Warren Buffett’s annual letter to shareholders as well as information about Berkshire’s financial
position and results of operations. Concurrent with the posting of the Annual Report, Berkshire
will also issue an earnings release.
In an SEC 13F filing after the market closed today, Berkshire Hathaway (Warren Buffett) reported the following major changes to its common stock portfolio during the fourth quarter of 2017:
(1) Apple – An additional $5.3 billion stake of 31.2 million shares (or additional 23.3% stake) resulting in a total position valued at $28 billion on December 31, 2017.
(2) Bank of New York – An additional 21% stake of 10.6 million shares or $570 million.
(3) Teva – New position of $358 million.
(4) Monsanto – An additional 32% stake of 2.8 million shares or $330 million.
(1) IBM – A reduction of 35 million shares or $5.4 billion representing a 94.5% reduction in its stake.
(2) General Motors – A reduction of 10 million shares or $410 million representing a 17% reduction in its stake.
As of December 31, 2017, Berkshire Hathaway’s top five common stock holdings by market value (representing 62.4% of its portfolio) were:
(1) Apple – $28.0 billion
(2) Wells Fargo – $27.8 billion
(3) Kraft Heinz – $25.3 billion
(4) Bank of America – $20.0 billion
(5) Coca Cola – $18.4 billion
Phillips 66 to repurchase 35 million shares from Berkshire Hathaway at $93.725 per share for $3.3 billion. Berkshire will retain 10% stake.
I am quoted in the Washington Post:
“There is a lot of concern in the rising yield in the 10-year Treasury note,” said David Kass, professor of finance at the University of Maryland. “As it approaches 3 percent, concerns about inflation and competition for stocks by fixed income securities are increasing.”
Wells Fargo will replace four board members and face limits on growing its banking business after an unprecedented action announced Friday by the U.S. Federal Reserve, which cited “widespread consumer abuses.”
Wells Fargo is Berkshire Hathaway’s (Warren Buffett’s) largest common stock investment. At Friday’s closing price of $64.07 on the New York Stock Exchange, Berkshire’s 10% stake in the bank was valued at $32 billion. Berkshire has invested in Wells Fargo since 1989.
Wells Fargo is also Daily Journal’s (Charlie Munger’s) largest common stock investment.
(Note: This blog post has been published by Value Walk.)
I am quoted in the Smith Brain Trust:
SMITH BRAIN TRUST – For those who listen closely to what Warren Buffett says, the announcement that Berkshire Hathaway was hooking up with Amazon.com and JPMorgan Chase to create an independent healthcare company didn’t come as a big surprise. Buffett, the billionaire investor and Berkshire Hathaway CEO, has been lamenting the state of healthcare in the country and its corrosive effect on the economy for much of the past year.
“He has been hinting that there is a problem here that needs to be solved, and now this morning he is saying that he is going to begin to try to solve it with Amazon.com CEO Jeff Bezos and JPMorgan Chase CEO Jamie Dimon,” says David Kass, clinical professor of finance at the University of Maryland Robert H. Smith School of Business. Kass is a former health economist for the federal government and has followed Buffett’s investments and philosophy for more than 35 years.
Details remain limited about the new initiative, which brings together the country’s best-known billionaire investor, its biggest online retailer and its largest bank by assets.
The three companies said Tuesday the entity, which would be “free from profit-making incentives and constraints” would use technology to provide simplified, quality health care at a reasonable price. The news sent shares of established health insurers sharply lower on Wall Street.
The notion of divorcing health care from profit incentives answers a criticism that’s been rising, with unchecked cost increases in the healthcare sector wildly outstripping rates of inflation in recent years. Buffett has referred to the rising costs of healthcare as “a hungry tapeworm” attacking the U.S. economy. “Our group does not come to this problem with answers,” Buffett said Tuesday. “But we also do not accept it as inevitable.”
In the United States, health-care spending increased 4.3 percent in 2016 to $3.3 trillion, accounting for an 18 percent share of the country’s gross domestic product, according to the U.S. Centers for Medicare and Medicaid Services.
“I think there are opportunities to reduce the prices and price increases of pharmaceuticals in this country,” says Kass. “It is quite glaring how much lower prices are for specific pharmaceuticals in other countries. There is enormous potential for cost savings.”
Buffett last year warned that health insurance – not the U.S. tax code – was “crippling” American business around the world. Speaking at Berkshire Hathaway’s annual shareholder meeting in Omaha, Neb., last May, Buffett urged business leaders to shift their focus away from their tax bills and take a closer look at skyrocketing health care costs. He warned that increases in health care costs in recent years were crushing profits, touting the broad benefits of a single-payer or universal type of health coverage for all U.S. citizens, perhaps with an opt-out provision that would allow wealthy individuals to choose a more upscale plan.
In the same year, Amazon announced that it had obtained licenses to operate pharmacies in at least 12 states: Alabama, Arizona, Connecticut, Idaho, Louisiana, Michigan, Nevada, New Hampshire, New Jersey, North Dakota, Oregon and Tennessee. The move, announced in October, followed months of speculation that Amazon was looking to disrupt the country’s dysfunctional healthcare sector.
“Warren Buffett has referred to Jeff Bezos as the best manager in the world,” Kass says. “It was probably just a matter of time before they partnered on something. And Bezos has been, through Amazon.com, quite innovative.”
Kass adds that Buffett has had a close professional relationship with both Bezos and Dimon. “These are three prominent corporations and three prominent corporate leaders. They talk to each other periodically and they are each pretty innovative,” Kass says.
The partnership could be transformative for the wider corporate world, Kass notes. “It will certainly be in the interest of other corporations to observe what is happening here,” he says
From the Wall Street Journal:
Amazon.com Inc AMZN 1.11% , Berkshire Hathaway BRK.A -0.74% and JPMorganJPM -0.10% Chase & Co. are forming a company to figure out how to reduce health-care costs for their hundreds of thousands of U.S. employees, the three companies said Tuesday.
“The ballooning costs of health care act as a hungry tapeworm on the American economy,” Berkshire Chief Executive Warren Buffett said in prepared remarks. “Our group does not come to this problem with answers. But we also do not accept it as inevitable.”
The new company will focus on technological solutions that can provide simplified and transparent health care for the three companies U.S. employees at a lower cost.
Todd Combs, an investment officer at Berkshire Hathaway, Marvelle Sullivan Berchtold, a managing director of JPMorgan and Beth Galetti, a senior vice president at Amazon, are overseeing the company’s formation.
A longer-term management team, headquarters location and operational details of the new company will be announced later, the companies said.
I am quoted in the Washington Post: “Warren Buffett’s Berkshire Hathaway had an amazing 2017. 2018 isn’t looking too bad, either.”
“I would not be surprised to see both Jain and Abel joining vice chairman Charlie Munger and chairman Warren Buffett on the stage at the upcoming May 5 meeting, not only answering shareholder questions, but also eating See’s Candies’ peanut brittle and drinking Cokes,” said David Kass, a finance professor at the University of Maryland.
Warren Buffett (87) and Charlie Munger (94) were interviewed for one hour at 8:00 a.m. today on CNBC. The highlights were:
(1) Greg Abel (55) and Ajit Jain (66) have been added to Berkshire Hathaway’s board of directors. Greg Abel will be Vice Chairman – Non-Insurance Business Operations, and Ajit Jain will be Vice Chairman – Insurance Operations. Buffett said this will give each of them the experience of supervising businesses. There will be one CEO after Buffett is no longer there, presumably Abel or Jain in the near future. But 4 years from now it could be someone else.
(2) Stocks are not richly valued at current interest rates. Interest rates act like gravity. Berkshire is a net buyer of equities. Equities are the place to be. Bonds paying 2% are selling for 50 times earnings with no growth. Corporations are earning 15% on assets.
(3) Tax law increases corporate earning power by about 20%. Buffett says the tax law is very favorable for Berkshire shareholders. Since Berkshire’s tax rate drops from 35% to 21%, it will now keep 79% of pre-tax profits vs. 65% before. This 14% increase in the share of its pre-tax profits that it retains, represents an increase of about 20% in its after-tax profits. Furthermore, Berkshire’s deferred tax liabilities are similarly reduced on its unrealized capital gains of $100 billion. For example, if Berkshire realized capital gains in 2017, it would have paid a 35% tax. Now Berkshire would pay only 21%
(4) The 21% corporate tax rate was not baked into stock prices.
(5) Both Buffett and Munger would have voted for the tax bill.
(6) Bitcoin will have a bad ending. Buffett would buy 5-year puts on cryptocurrencies.
(7) Buffett likes Apple and has been buying its shares (at least through September 30 — last SEC 13F report). The market for iPhones is not yet saturated. (Berkshire is one of the largest shareholders of Apple.)
(8) GE is a “big, strong company” and Berkshire would buy it at the right price.
(9) Berkshire owns about $100 billion in U.S. Treasury Bills, representing over 5% of the total U.S. Treasury Bills outstanding.
(10) Charlie Munger is happy with Abel and Jain. Share prices are not crazy with bonds at 3%. There is a bubble in bitcoin and in venture capital (too much money).
(Note: This blog post has been published by Value Walk.)