Reading Between the Lines

I just got back from the annual pilgrimage to Omaha, Nebraska also known as the Berkshire Hathaway annual shareholders meeting. The event, which was attended by more than 40,000 investors, was a celebration of capitalism, a celebration of generosity and more importantly a celebration of kindness.

The energy in the first half of the meeting was very different from last year as it was clear that Warren Buffett was missing his business and intellectual parter of 63 years, Charlie Munger, who passed away at the young age of 99.

The focus this year was as much on the charity and generosity of Berkshire shareholders as it was about how the various subsidiaries of the company performed in the first quarter of 2024. The 93 year old Ruth Gottesman gifted $1 billion worth of Berkshire Hathaway stock so that several generations of new doctors don’t have to be indebted with large loans. And she didn’t even want The Albert Einstein College of Medicine in Bronx, New York to name a building after her.

According to Buffett, another shareholder donated $500 million worth of Berkshire Hathaway stock anonymously. In a special message after lunch at the shareholder meeting, Buffett urged other shareholders in that massive auditorium to follow in the footsteps of the Gottesmans like he and Bill Gates did by pledging to give away most of their wealth.

Mr. Buffett spent a lot of time taking questions from the audience and sometimes you have to read between the lines to fathom what he is saying or more importantly what he is leaving unsaid.

Here are my three key takeaways by reading in-between the lines:

1. Apple: In the fourth quarter of 2023, Berkshire Hathaway had reduced its massive stake in Apple (AAPL) by 1% by selling 10 million shares. This time around they were more aggressive by selling 116 million shares or 13% of their position. This still leaves the company with a stake worth $134 billion in Apple. In response to a question about Apple, Buffett mentioned that by the end of this year he still expects Apple to remain their largest position. Considering their second largest public market investment, Bank of America (BAC), is worth less than $40 billion in their portfolio, Berkshire could easily cut nearly 70% of their Apple position and his statement would still be true. Reading between the lines, I fully expect Bershire to cut their Apple position significantly through the rest of this year.
2. Berkshire’s Cash Position: This move to sell Apple has probably left Berkshire with around $200 billion in cash on its balance sheet. Buffett is in no hurry to deploy this capital and said that he was happy with holding cash. After all, with treasuries yielding around 5%, he is still generating some return on the cash. Reading between the lines, Berkshire Hathaway has been a buyer of the oil production company Occidental Petroleum (OXY) multiple times at prices marginally below $60 per share and in a few rare instances, a little above that level. Buffett has a very good understanding of oil industry cycles and many observers widely expected him to make a bid for the full company. Following their February insider purchases, Berkshire now owns 248 million shares of OXY representing more than 28% of the company. With an enterprise value of almost $85 billion, this is a large enough purchase that could move the needle for Berkshire. Whether buying a company in a cyclical industry that is widely expected to decline in the future (maybe a decade later?) is a good fit for Berkshire is not entirely clear to me as a Berkshire shareholder.
3. Todd and Ted: With a view to transition management of various aspects of Berkshire Hathaway, Buffett and Munger picked Greg Able as their successor to manage Berkshire’s fully owned operating businesses like BNSF Railway, Pilot Travel Centers, See’s Candies, etc. and Ajit Jain to run their insurance operations like GEICO. They also picked Todd Combs and Ted Weschler to manage portions of Berkshire’s money allocated to public equities. The magic of Berkshire happened when the operating subsidies sent the extra cash generated from their business back to the parent company for Buffett and Munger to reinvest in new opportunities. When asked who would be responsible for those kinds of capital allocation decisions going forward, many of us in the audience were surprised to hear Buffett indicate that it would be Greg Able instead of Todd and Ted. Reading between the lines, it became clear that Todd and Ted’s stars had dimmed within the organization. Even as I was writing this article, it was revealed that Buffett is now considering having Greg Able manage decisions about the public equities part of their portfolio as well.

Whether it is Todd, Ted, Greg or Ajit making decisions at Berkshire, it is clear that filling the shoes of Buffett and Munger is nearly impossible. They were both towering intellects and their collaboration transformed Berkshire Hathaway and the lives of thousands of early investors in the company. I am glad I got a chance to see both of them at the shareholder meeting last year and this year’s meeting has left me with fond memories.

It was great to see many old friends in person (some who I had known only online for well over a decade like Tobias Carlisle and Vitaliy Katsenelson, CFA in the picture above) as well as several new ones including the anonymous author behind Clark Square Capital, Richard Howe of Stock Spinoffs Investing, @John Wegmann, Gaurav Kumar , the no longer anonymous author of Compounding Quality , the selfie expert David Park (Tilman I now understand what you meant), India focused fund manager Rajeev Agrawal, CFA , Ravi Devisetty , my new friend from Thailand Sirapob Wu , brilliant Amazon and Google engineers Xuan (Anna) L.  and Jan Kopański , the marketing expect Ricky Lee , credit investments expert Yujia Du , IMF analyst Vatsal Nahata , Praful Raj , Austin Farris, CFA , fellow Seeking Alpha contributor Kris Heyndrikx and too many more to name.