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Buffett CNBC transcript


rogermunibond
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Bloomberg has said he would sell his interest in Bloomberg LP if he ran for president, or at least if he was elected, if I remember correctly. Maybe Warren would be interested in assisting with that.

 

Warren might be interested, but Bloomberg won't get to a point where he has to sell.

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Guest longinvestor

It's more likely that the elephant is one they partially own, a script which has played out multiple times already....which of these belong permanently in the Berkshire collection? My speculation is the ones bolded,

 

 

Shares*        Company                                              Percentage of Company Owned          Cost**            Market(in millions)

151,610,700 American Express Company ....... 17.9                                                  $ 1,287            $14,452

255,300,329 Apple Inc. . . . . . . . . . . . . . . . . . . . . . . 5.4                                                    36,044            40,271

918,919,000 Bank of America Corp. . . . . . . . . . . . . . 9.5                                                    11,650            22,642

84,488,751 The Bank of New York Mellon Corp. . . . . . 8.8                                                      3,860              3,977

6,789,054 Charter Communications, Inc. . . . . . . .  . . 3.0                                                      1,210              1,935

400,000,000 The Coca-Cola Company . . . . . . . 9.4                                                      1,299            18,940

65,535,000 Delta Air Lines, Inc. . . . . . . . . . . . . . . . . 9.6                                                      2,860              3,270

18,784,698 The Goldman Sachs Group, Inc. . . . . . . .  4.9                                                      2,380              3,138

50,661,394 JPMorgan Chase & Co. . . . . . . . . . . . . . . 1.5                                                      5,605            4,946

24,669,778 Moody’s Corporation ..................            12.9                                                      248              3,455

47,890,899 Southwest Airlines Co. . . . . . . . . . .8.7                                                    2,005              2,226

21,938,642 United Continental Holdings Inc. . . . . . . . .8.1                                                    1,195              1,837

146,346,999 U.S. Bancorp . . . . . . . . . . . . . . . . . . . . 9.1                                                      5,548            6,688

43,387,980 USG Corporation ..........................          31.0                                                    836                1,851

449,349,102 Wells Fargo & Company . . . . . . . . . . . . .9.8                                                      10,639            20,706

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Southwest Airlines is intriguing, given the recent death of its founder. In the mould of the BNSF deal, if it were an airline I'm guess they'd divest their stakes in the other airlines and would be unlikely to hold any other airline stocks in future, just as they wouldn't be likely to hold Union Pacific stock now they own BNSF in entirety (though railroad regulation is probably more restrictive than airline regulation in this respect.

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Thanks for the link. Also interesting to read that both Buffett and his deputies have lagged the s&p over the last 7 years. And if I had to guess, I would say Buffett was referring to some chunk of GE, where the price started running away from him towards the end of December.

 

A part of GE for sale would have been my guess as well. WEB knows GE well and has lent them money before. We also know that GE just announced the sale of their biopharm business to DHR for $21.4B, which is the size of a whale for BRK. I suspect though that GE may have tried to sell other assets to BRK than to DHR (DHR has Medical tech focus) but than settled with DHR instead. All the above is pure speculation of course.

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I don't think Bloomberg LP would cost enough to qualify for his characterization.  When the interviewers were like, "you could write a check for $100 Billion" - Warren's reply was, "that is true."

 

I think he had something big that was possible.  If it was GE it was probably Reinsurance / balance sheet stuff that kept it from being workable at the time.  GE has been in talks with Ajit about their insurance liabilities for a while but I don't think GE can stomach the price it would take to shed to BRK.

 

Could he be referring to buy Bloomberg LP?

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What did you guys think of his discussion of the banks and the metaphor to a CD emulating the ROTE of the banks and what multiple of tangible book you would pay for that given the current IR environment?  I found it informative, but I didn't follow his "and its FDIC insured" logic.  I mean I see how it would apply to his metaphor of a CD, but I thought we were really talking about holding equity in the banks.  Seems like one should discount the return on tangible equity some for the whole "levered 5-1" thing. 

 

I am sort of coming around to the hypothesis that U.S. banking might be more and more a Canadian banking type oligopoly over time (I know it already is to some extent).  BB&T/STI merger and recent WSJ article about small banks being fooked b/c of lack of tech, kind of increased confidence in that.  Trying to decide what, if anything, to do about it. 

 

I think I would want one of the banks with an ownership interest in the potential Venmo-slayer (and maybe other payments system/networks) Zelle.  Weighing WFC vs. BAC vs. USB.  Somewhat prefer the (admittedly, tarnished of late) brand (they actually have a name and logo that isn't generic 'merica) and lower IB exposure of WFC, but I never liked their overly salemany/golden west/consumer LPO type vibe. Obviously, that ain't the one the GOAT has been buying lately.  Prefer deposit base of WFC and BAC, but USB seemingly has more room to grow above GDP rate.

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Can anyone explain why Buffett can hold 17% of Amex but can’t go above 10% for other bank. In other words, why doesn’t Amex trigger the bank holding company requirement?

I've wondered that in the past too.  I found a fool.com article that says,

Berkshire recently asked the Federal Reserve to boost the maximum amount of American Express stock it can own from 17% to just under 25%. Berkshire has committed to be a passive investor in AmEx in order to get around another rule that would have limited its ownership stake to just 10%.

 

https://www.fool.com/investing/2017/06/20/how-risky-is-american-express-company.aspx

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Can anyone explain why Buffett can hold 17% of Amex but can’t go above 10% for other bank. In other words, why doesn’t Amex trigger the bank holding company requirement?

I've wondered that in the past too.  I found a fool.com article that says,

Berkshire recently asked the Federal Reserve to boost the maximum amount of American Express stock it can own from 17% to just under 25%. Berkshire has committed to be a passive investor in AmEx in order to get around another rule that would have limited its ownership stake to just 10%.

 

https://www.fool.com/investing/2017/06/20/how-risky-is-american-express-company.aspx

 

So why can't he make these same kind of requests for the banks?

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IIRC the story here was that Berkshire already had its huge stake in American Express when it converted to a bank holding company. Buffett then asked regulators if he could hold on to his shares, and they said okay — as long as he meets certain conditions (like staying passive and such).

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http://www.berkshirehathaway.com/news/apr1217.pdf

 

After several months of discussions with representatives of the Federal Reserve, we have concluded that the

commitments that would be required of us by the Federal Reserve to retain ownership of 10% or more of Wells

Fargo’s outstanding common stock would materially restrict our commercial activity with Wells Fargo.

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  • 2 weeks later...

When he said he bought a test position in Oracle, then upon contemplation realized he didn't really understand the long term dynamics I got two impressions, one good and one bad.

 

Good impression: He asks himself on every investment if he really understands the business model and dynamics. He only invests in what he feels he understands so that there are no really bad surprises at Berkshire.

 

Bad impression: He is unable to expand his circle of competence. This last point I find potentially problematic if Berkshire requires some new big deals to boost gains on top of the existing businesses. I do believe there are other areas of competence other investors have and have done very well. But of course they could in time be wrong as well. Many investors think they know something very well but in the end find out they are just buying something they know maybe 60% or 70% and that part they don't know reduces long term return.

 

To me it's crucial that Berskshire can expand it's circle of competence as the world changes. Maybe the new blood will help with this. And hopefully Apple is an example of a successful expansion of the competence circle.

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Bad impression: He is unable to expand his circle of competence. This last point I find potentially problematic if Berkshire requires some new big deals to boost gains on top of the existing businesses. I do believe there are other areas of competence other investors have and have done very well. But of course they could in time be wrong as well. Many investors think they know something very well but in the end find out they are just buying something they know maybe 60% or 70% and that part they don't know reduces long term return.

 

To me it's crucial that Berskshire can expand it's circle of competence as the world changes. Maybe the new blood will help with this. And hopefully Apple is an example of a successful expansion of the competence circle.

With respect, it is quite a leap to suggest that not being about to get confidence in Oracle's future prospects suggest an inability to expand circle of competence.  I tend to your first impression, recognizing that the number of people who have tech within their circle of competence - in an investable way - is vanishingly small.

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