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Rare Ted Weschler Interview (!!)


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(Newb question) Can anyone explain in a bit more detail why going over 10% ownership causes enough “hassle” relative to return expectations that it’s rational to avoid doing so in most cases? Ted references this in the interview and of course WEB has before as well, but given the smaller pool of investments that make a difference for Berkshire (due to size and other constraints), it seems weird to me that they’d defer allocating more money to a business that meets their criteria just to avoid various filings and some amount of bureaucratic headache. I know avoidance of bureaucracy is part of BRK’s culture and I applaud that, I am just trying to understand what would make > 10% ownership so annoying as to be willing to pass up what must be hundreds of millions in expected returns.

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If we are just talking about non-bank stocks, there are two main "hassles" - one is the "short swing profit rule" which basically has the effect of forcing the 10+% holder of the stock to return to the company any profit it makes if it holds the stock for less than 6 months.  Despite what your intentions might be on holding period, it is a pain to not be able to sell out of your position and keep any profits if something changes (like your liquidity needs or the share price for example).  That's not the biggest hassle, but it does play into their thinking.

 

The main "hassle" for a high profile investor (remember that Ted and Todd's trades will largely say "Warren E. Buffett, Berkshire Hathaway" when reporting) is that once you are in the stock and over 10%, you have to notify the world 3 days after your first share sale.  So you greatly increase your friction costs to exit the position if everybody knows that Warren Buffett (who's supposed to know a lot about these things) is just beginning a major divestment and has a lot more stock to sell.  So the price gets pushed lower on you and it costs you real money.

 

With a bank holding company, you cannot go over 10% without Fed approval.  Berkshire has conditional approval to go up to 25% on American Express if they remain totally passive and they have conditional approval to go above 10% on BAC - I don't remember how high they can go.  Perhaps higher if it is only due to company repurchases.  This is why Berkshire periodically sells USB shares.  They don't have permission to go above 10%.

 

So they only go above 10% when something is going to be a really long-term hold or they really really like it.  They went above 10% on BNSF (something like 22%).  They are above 10% on Moody's, DaVita and Occidental.  There may be some others (obviously BAC & AXP above).  KHC is sort of special because they are part of a control group and use the equity method.

 

To me, it means that they are not buying OXY for a short term hold.  They may want the entire company but who knows (not me).

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13 minutes ago, gfp said:

With a bank holding company, you cannot go over 10% without Fed approval.  Berkshire has conditional approval to go up to 25% on American Express if they remain totally passive and they have conditional approval to go above 10% on BAC - I don't remember how high they can go.  Perhaps higher if it is only due to company repurchases.  This is why Berkshire periodically sells USB shares.  They don't have permission to go above 10%.

 

Effective April 1, 2020, Berkshire can now go over 10% percent as long as it can avoid some factors that could lead to rebuttable presumption of control.  See https://www.federalreserve.gov/aboutthefed/boardmeetings/files/control-rule-fr-notice-20200130.pdf.

 

Here is a clearer table from https://www.arnoldporter.com/en/perspectives/advisories/2020/02/federal-reserve-adopts-final-rule-clarifying that clarifies what factors Berkshire would need to avoid for different levels of ownership to not have to deal with rebuttable presumption of control: 

image.thumb.png.231c96f181c281a37781d8ffdd01d5e2.png

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Thank you for sharing - the talk was great.

 

I met Ted at the annual meeting. He is really down to earth and very approachable. There was this Capitalist card that was selling for $1 at the annual meeting. He got a bunch from the head office and was giving them away for free. 

 

When he finished his own 5K run (7th in his age group), he would cheer for everyone at the finish line.   

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Nice interview but always get the feeling that Ted is very secretive with his process and approach towards markets..

 

Or maybe it's really *that simple*.

 

He also sounds exactly like Warren: talks, laughs and outlook re life and success...no wonder they get along.

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I listened to it. Pretty good. 
 

Liked how he describe current market condition (post-invasion/higher rate) being something that their team is more familiar with as oppose to mid-March 2020. 


It seems that the same discipline being applied to individual name seem to be applied at “macro event situations”. 
 

March-April 2020 was not a fat pitch but post-Feb 2022 was 

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