BRK Q2 '24 Earnings

[gfp]

27 minutes ago, Spekulatius said:

What is most surprising to me is that BRK can sell 5% of a Megacap in a quarter and nobody noticed it, until the filing came out.

 

Well it was 2.5% of Apple in a quarter.  And I'll bet it corresponded with the period Apple went sideways for a long time.  Then he probably stopped, at an even 400m shares (same as Coke!).  And Apple was unburdened to break higher. 

 

Plus he told us ahead of time he was selling and would be selling some more and would have over $200 B in cash on the books.  He probably already had the $200 B when he said that.

[schin]

Does anyone remember a situation when Buffett started to sell going into a downturn? I don't he did anything special (do any mass sells) going into the dotcom bubble; GFC; Covid, etc. Is this the first time he started selling his top positions like this?

 

I find it funny for a person famous for being buy and hold, he does a lot of selling recently.... I remember Alan Greenberg of Bear Stern laughing when talking about Buffett being a buy and hold investor when he says... he sees him active every day.

Edited August 4 by schin

[Libs]

3 hours ago, 73 Reds said:

I'm of a different ilk.  If you believe this is a "better" than wonderful company, why pay taxes and then have to find an even better than "better wonderful company" in which to invest?

 

I hear you. On the other hand, he bought it at 10X earnings; now it's 33X and earnings are stagnant. Sometimes you gotta ring the cash register. Like he should have sold KO in 1998.

 

 

[thepupil]

1 hour ago, schin said:

Does anyone remember a situation when Buffett started to sell going into a downturn? I don't he did anything special (do any mass sells) going into the dotcom bubble; GFC; Covid, etc. Is this the first time he started selling his top positions like this?

 

I find it funny for a person famous for being buy and hold, he does a lot of selling recently.... I remember Alan Greenberg of Bear Stern laughing when talking about Buffett being a buy and hold investor when he says... he sees him active every day.

https://www.wsj.com/articles/SB898287577264756000

Buffett issued shares for Gen Re after a big run up in his stock and peak. Article mentions Berkshire running up to $80k, $37k 1998 BV, also note that the inputs to BV were expensive large cap stocks. 
 

 

[wabuffo]

 

Does anyone remember a situation when Buffett started to sell going into a downturn? I don't he did anything special (do any mass sells) going into the dotcom bubble; GFC; Covid, etc. Is this the first time he started selling his top positions like this?
 

I recall Buffett sold almost all of his equity positions except for Cap Cities, GEICO, WaPo going into 1987.  There was a crash in 1987 but not an economic slowdown.

He didn’t sell his big positions (Coke, Gillette) before the Nasdaq crash but he kind of did by buying Gen Re via the issuance of overvalued BRK stock (in effect trading an overvalued book of equity securities for a bond portfolio (Gen Re) in a tax-free way).

 

Bill

[Eldad]

Can’t help but wonder if Charlie would have tried to veto this. I think he probably would have if WB doesn’t have reason besides it’s too big and expensive. 

[Xerxes]

At least the tiny Paramount capital tax loss is getting used up !

[scorpioncapital]

On 8/3/2024 at 8:26 AM, 73 Reds said:

The irony is he sold "an even better business" and kept a mere "wonderful" business.  Certainly valuation is a (the) reason but one has to wonder whether he would buy shares of KO today over AAPL. 

 

Perhaps diversification? At least a minimal amount? If you had even 10 positions which is fairly concentrated, you might rebalance your largest holding. I don't think anyone would own 1 or 2 stocks, that would require a super high level of confidence and I don't recall most any investor owning 1 or 2 stocks even if you were super smart. This means outside investors, not founders of companies who might own all their wealth in one stock before diversifying.

[charlieruane]

56 minutes ago, scorpioncapital said:

 

Perhaps diversification? At least a minimal amount? If you had even 10 positions which is fairly concentrated, you might rebalance your largest holding. I don't think anyone would own 1 or 2 stocks, that would require a super high level of confidence and I don't recall most any investor owning 1 or 2 stocks even if you were super smart. This means outside investors, not founders of companies who might own all their wealth in one stock before diversifying.

 

I have never heard Buffett speak in terms of "rebalancing," in fact I've heard him espouse the opposite: concentrating on and in one's best ideas. 

 

Munger said owning 3 high-quality businesses provides enough diversification. 

[73 Reds]

5 minutes ago, charlieruane said:

 

I have never heard Buffett speak in terms of "rebalancing," in fact I've heard him espouse the opposite: concentrating on and in one's best ideas. 

 

Munger said owning 3 high-quality businesses provides enough diversification. 

Yeah, rebalancing individual equities seems like a concept for those who don't know what they own.  Buffett would be the last such person.   My guess is he needs the money for something better but KO has seen its best days and AAPL probably has new business ideas that are yet unknown.  Eventually he'll explain it.

[charlieruane]

21 minutes ago, 73 Reds said:

My guess is he needs the money for something better

 

He has already explained it. It seems like the "something better" is simply the optionality and decent real returns of short-term Treasurys, especially considering AAPL's rich valuation (KO in 1998 being the model) and the USA's all-time low cap gains taxes: 

 

So, we will end up, if something dramatically happens that really changes our capital allocation strategy, we will have Apple as our largest investment, but I don’t mind at all, under current conditions, building the cash position. I think when I look at the alternative of what’s available, the equity markets, and I look at the composition of what’s going on in the world, we find it quite attractive.

 

We don’t mind paying taxes at Berkshire, and we are paying a 21% federal rate on the gains we’re taking in Apple. And that rate was 35% not that long ago, and it’s been 52% in the past when I’ve been operating. And the government owns… The federal government owns a part of the earnings of the business we make. They don’t own the assets, but they own a percentage of the earnings, and they can change that percentage any year. (2024 Berkshire Annual Meeting)

 

 

Edited August 4 by charlieruane

[Blugolds]

I've seen speculation that BRK may have sold directly to Apple. Avoids open market and ensures a good price for both parties that they may not have been able to get in the open. 

 

 

[DooDiligence]

1 hour ago, 73 Reds said:

Yeah, rebalancing individual equities seems like a concept for those who don't know what they own.  Buffett would be the last such person.   My guess is he needs the money for something better but KO has seen its best days and AAPL probably has new business ideas that are yet unknown.  Eventually he'll explain it.

 

Rebalancing seems like a buzz word for talking heads but it happens, just less frequently and usually more slowly, when you know what you own.

[scorpioncapital]

He had 200 billion prior to the sale. He had enough money. Is he about to buy a 300 billion business? As for cash being better than even Apple, it is a possible idea. It is very strange to explain this very large sale. Perhaps he wants to reduce the volatility of Berkshire stock in a crash relative to the market (or high p/e stocks that will not do as well as cash if inflation picks up alot)? Or perhaps he was never comfortable with tech in general and so has a bias against it , especially after monster gains?

Edited August 5 by scorpioncapital

[charlieruane]

16 minutes ago, scorpioncapital said:

Perhaps he wants to reduce the volatility of Berkshire stock in a crash relative to the market

 

Buffett has never cared about Berkshire's stock performance/volatility, absolutely or relative to the rest of the market, in the short run, whether up or down. 

 

And "as for cash being better than Apple," keep in mind that cash isn't just the going yield on short-term Treasurys. It's also pure optionality, which is incredibly valuable.

[Eldad]

8 minutes ago, charlieruane said:

 

Buffett has never cared about Berkshire's stock performance/volatility, absolutely or relative to the rest of the market, in the short run, whether up or down. 

 

And "as for cash being better than Apple," keep in mind that cash isn't just the going yield on short-term Treasurys. It's also pure optionality, which is incredibly valuable.

I mean at this point what Buffett says he cares about or why he does or doesn’t do things may not be reliable. There has been a very high level of hypocrisy lately as it relates to the Berkshire financial maxims. 

[Masterofnone]

I think it's pretty damn exciting. He's going to do something with that surplus-surplus cash. There is either something already in the works or he feels the optionality of having cash for future bargains is more valuble than the expected return on AAPL at 33x. I'm glad to have him make these decisions for me.

[sleepydragon]

Buffett is still the GREATEST OF ALL. Not only timed the crash exactly, and most admiring, he's able to change his mind for his biggest position, and we are talking about a 100 billions+ dollar trades involving like two stocks.

[Thrifty3000]

I’m curious if any of his buddies in Japan gave him a heads up that it might be a good time to reload the elephant gun.

[Maverick47]

3 hours ago, Masterofnone said:

There is either something already in the works or he feels the optionality of having cash for future bargains is more valuble than the expected return on AAPL at 33x. I'm glad to have him make these decisions for me.

I agree.  At a 33, with not a whole lot of EPS growth the last few years, cash at 5% may well be more attractive, and the cash option has an unknown value, but likely to be greater than zero, especially in the hands of Buffett.   I have a few small positions of my own that have had multiple expansions over the last several years and are now in the mid 30’s to 50 or so PE ratios.  
 

I think I’ll trade out of them and into some other positions with lower PE’s, including Berkshire.  I like outsourcing my decisions about when to move to cash to Warren…

[73 Reds]

11 hours ago, DooDiligence said:

 

Rebalancing seems like a buzz word for talking heads but it happens, just less frequently and usually more slowly, when you know what you own.

Best move this investor ever made was NOT rebalancing BRK.

[gfp]

I was looking up BRK's taxable realized gains for the first six months and it was $73.7 Billion.  Pencil in a 20% effective tax rate and it's around $15 Billion they will send in to the Treasury.  T-bill interest on $300 Billion gets sent back over to BRK...  $15 Billion (pre-tax, I know).

 

Just liked the symmetry of it

 

[gfp]

Bets on whether BRK closes up on the day today?

[73 Reds]

Just now, gfp said:

Bets on whether BRK closes up on the day today?

Depends on how much the broad market loses.  The larger the loss, the better the odds BRK closes higher 

[Eldad]

If this continues to get worse it’s going to be a little awkward when he does his America will be fine interview with Becky.