Source: Finance Federation Author: Xiao Xiang

Yearly$Berkshire Hathaway-A (BRK.A.US)$The shareholders' meeting, listening to “stock god” Buffett and Munger share their investment wisdom together, has always been the most attractive moment for investors from around the world. This year's “Investment Spring Festival Gala” is scheduled to be held from May 3 to 5, EST. For all investors attending live or watching the webcast, this may be a unique and special weekend of the year.

During the question and answer session, which lasted about six hours on Saturday, in addition to sharing his investment experience, Buffett also often talked about his thoughts on life. And this year's shareholders' meeting may certainly be particularly special for the “stock god” himself — his close “comrade” Munger died in November of last year, just 33 days before his 100th birthday, at the age of 99. This also made Bamang Erlao's “One Song, One Harmony” at previous shareholders' meetings a thing of the past.

As Buffett wrote after Munger's death, “Berkshire Hathaway would not have grown to where it is today without Charlie's inspiration, wisdom, and participation.”

Munger played an important role in Berkshire Hathaway's transformation into an investment giant, and often acted as the driving force behind some of the company's investments. Obviously, with Munger's death, Buffett alone has been at the helm of this investment “aircraft carrier” for at least half of the past year (between May of last year and May of this year).

So, what impact did Munger's death have on the investment decisions of “stock gods”? What are the new changes in Berkshire's holdings over the past year? Also, can people find the handwriting of Buffett's successor Greg Abell in a series of recent deals? Next, let's first review what Buffett, known as the “Omaha Prophet,” and his Berkshire Hathaway company have done over the past year...

Behind Buffett's “Harvest Year”: Cash reserves hit a record high

According to Berkshire Hathaway's 2023 annual report released in February this year, Berkshire Hathaway's operating profit for the fourth quarter of last year reached US$8.48 billion, an increase of 28% over the previous year. Operating profit for the year reached US$37.35 billion; in addition to the “stock god”'s huge investment surplus in 2023, Berkshire Hathaway's net profit attributable to shareholders in fiscal year 2023 reached US$96.223 billion.

Of course, Buffett himself doesn't like this method of reporting statistics on net profit, believing that this kind of data is misleading and “meaningless.”

Thanks to stronger operating profits, the level of cash on Berkshire's accounts also continued to rise. By the end of last year, Berkshire's cash/short-term treasury bonds and other liquidity reserves reached a record high of $167.6 billion, an increase of nearly $60 billion over the past 15 months. Berkshire continued to buy back 2.2 billion US dollars of shares in the fourth quarter of last year, bringing the total number of repurchases for the whole year to 9.2 billion US dollars.

However, the continued rise in the size of cash and the further increase in buybacks also seem to indicate, to a certain extent, that it is still difficult to find convincing acquisition and investment targets.

Steve Hanke, a well-known American economist known as the “money doctor,” and professor of applied economics at Johns Hopkins University, even said in an interview in March of this year that Buffett's huge cash reserves currently shows that he is not optimistic about the outlook for US stocks, and he expects the US economy to fall into trouble.

According to the 13F statement, as of the end of the fourth quarter of 2023, Berkshire held a total of 45 listed companies in the US market, with a total market value of 348.037 billion US dollars. The top ten holdings are Apple, Bank of America, American Express, Coca Cola, Chevron, Occidental Petroleum, Kraft Heinz, Moody's, and Davita Healthcare.

Looking at the long term, from 1965 to 2023, Berkshire Hathaway's compound annual growth rate per share was 19.8%, clearly exceeding the 10.2% of the S&P 500 index. The long-term steady performance has always been an iconic impression left by this “Omaha Prophet”.

And this has also largely driven Buffett's net worth to rise year after year. According to the Bloomberg Billionaires Index, Buffett, who is now nearly 94 years old, is currently ranked ninth on the list of the world's richest people with a net worth of 133 billion US dollars.

In fact, even though he is almost 94 years old, Buffett's many “magic tricks” over the past year still make me feel that this investment legend's “sword is not old”: various buying initiatives, including boosting Japanese stocks and increasing energy stocks, have all hit the wind in the financial market over the past year; and his move to reduce Apple holdings in the fourth quarter of last year can also be described as being extremely timely...

Behind the record high of Japanese stocks: no one can forget Buffett

In the first quarter of this year, the Japanese stock market, which broke the 34-year high record of dust, certainly impressed everyone. And behind the record high in Japanese stocks, almost all media reports mention one name — Buffett.

Yes, even before the Japanese stock market regained its strength, Buffett had already prepared a layout in the Japanese market. This must be extremely impressive; “stock gods” can always have such a keen eye for investment.

Berkshire Hathaway first revealed in August 2020 that it holds approximately 5% of the shares in five Japanese trading companies — ITOCHU Corporation (Itochu), Marubeni Corporation (Marubeni), Mitsubishi Corporation (Mitsubishi), Mitsui & Co. (Mitsui), and Sumitomo Corporation (Sumitomo). Since then, it has increased its holdings in these five trading companies year after year. These trading companies themselves are a group of companies with a wide range of businesses and investments.

In February of this year, Buffett revealed that Berkshire already holds about 9% of the shares in these five Japanese trading companies. Since Berkshire began investing, the average increase in these trading companies' stock prices has more than doubled, which can be described as contributing greatly to the process of driving the Japanese stock market to a 34-year high. The data also shows that Berkshire's profits from the five major trading companies have exceeded 2 trillion yen — about 12.9 billion US dollars.

In fact, up to now, Buffett's continuous increase in positions in the Japanese market is probably not over. On April 19, Buffett's Berkshire Hathaway once again attracted widespread attention in the market. This time, they issued a large number of yen bonds, raising a total of 263.3 billion yen, making it the largest yen deal for overseas issuers since the Bank of Japan abolished the negative interest rate system. Many analysts believe that Berkshire is issuing Japanese yen bonds this time to lock in the current low interest rate of yen and continue to increase Japanese stocks by borrowing low interest yen.

Diversified business, high dividends, high free cash flow, and prudent issuance of new shares are important reasons why Buffett favors the “Big Five Trading Companies.” And the above investment logic for Japan's top five trading companies clearly coincides with Buffett's long-standing investment preferences — they don't pursue short-term fluctuations; they look more at long-term profits that continue to grow steadily.

Continued increase in Occidental Petroleum holdings: did stock gods “foresee” it for a long time?

In addition to successfully riding the Japanese stock market's record high, Buffett's continued increase in energy stocks over the past year has once again reaped rich rewards.

At the beginning of February this year, Buffett increased his position in Occidental Petroleum for three consecutive trading days, buying a total of 4.3 million shares of the company's common shares, and the shareholding ratio further climbed to over 34%. Since Buffett first invested in Occidental Petroleum in 2019, Buffett's increase in Occidental Petroleum's holdings has hardly been interrupted in recent years, making Berkshire the single largest shareholder of Occidental Petroleum.

There is no doubt that Buffett is optimistic about the long-term development trend of the petroleum industry. He said that due to difficulties in increasing production capacity, petroleum will become an even scarce investment energy in the future. The late Munger even believed that oil would become a scarce resource in the next 200 years.

In a letter to shareholders published in February of this year, Buffett once discussed his views on Occidental Petroleum's continuous increase in positions: “By the end of 2023, Berkshire owned 27.8% of Occidental Petroleum's common stock, became the company's largest shareholder, and also has warrants. Over the past five years, Berkshire has had the option to substantially increase ownership at a fixed price.”

Buffett said, “The energy industry is one such industry, and it is very likely to pay off after a corresponding period of time. These businesses require long-term support. Therefore, short-term market fluctuations will not affect Berkshire's investment strategy.”

However, since this year, under the influence of geographical tension such as the Russian-Ukrainian conflict and the Palestinian-Israeli conflict, oil prices have also skyrocketed, thus driving the trend of energy stocks.

Among the 11 major stocks in the S&P 500 index, energy stocks led the way with a 14% increase this year. Occidental Petroleum has also accumulated a cumulative increase of more than 13% since the beginning of the year, bringing rich returns to Buffett's investment.

Rare reduction in Apple holdings: What did Buffett smell?

If the continued increase in holdings in Japanese trading companies and Occidental Petroleum shows Buffett's firm confidence in his optimism about the subject, then Buffett's unexpected reduction in Apple's holdings in the fourth quarter of last year shows to a certain extent that Buffett will actually “sell” the “good company”...

According to the 13F statement disclosed in February of this year, Buffett carried out a rare operation to reduce Apple's holdings in the fourth quarter of last year, reducing holdings by about 10 million shares, which is estimated at about 1,822 million US dollars based on the market value at the time. Although Apple still holds the top position in its portfolio — accounting for 50.19% of its disclosed holdings, the move has attracted widespread attention in the market.

Apple has been the largest stock in Berkshire in recent years. Even at last year's shareholders' meeting, Buffett bluntly stated that selling some Apple shares in 2020 was “very foolish.” However, just a few months later, Buffett chose to cut back on Apple's position. The meaning behind this is definitely worth pondering.

Rumor has it that the decision may have been made by two Berkshire investment managers Greg Abell and Ajit Jahn, mainly due to Apple's excessive share of Berkshire's investment portfolio and required position adjustments.

Looking at the results after the work, Berkshire's holdings reduction was unquestionably wise. After Buffett reduced his Apple holdings in the fourth quarter of last year, Apple's stock price did not perform well this year. By the close of last Friday, Apple had dropped nearly 12% this year. Whether it's the lack of momentum after the release of the Vision Pro, or the lack of momentum in Apple's decision to cut cars, or the poor demand for the new iPhone in China, and the delay in Apple's ability to make a big difference in the AI field, it is difficult for people to be optimistic about Apple's future.

Of course, considering that Buffett's current position on Apple is still extremely heavy, it remains to be seen whether Buffett's holdings reduction in one quarter actually indicates a change in Buffett's views on Apple. At this week's shareholders' meeting, Buffett is likely to be asked about his latest views on this topic, and investors might as well pay close attention.

During Buffett's investment journey in recent years, he actually had the experience of reducing his Apple holdings. Berkshire reduced its holdings by 750,000 shares in the third quarter of 2019 and 3.7 million shares in the fourth quarter; in the Q3 and Q4 stages of 2020, Berkshire reduced its holdings of Apple by 36.3 million shares in the third quarter of 2020, and reduced its holdings of Apple shares by about 10 million shares in the fourth quarter.

However, in the process of reducing his holdings mentioned above, Buffett continued to emphasize his “preference” for Apple. In 2020, Buffett said in an interview with the media that he thought Apple was incredible in his business world and that Cook is one of the best managers in history. After that, from 2022 to 2023, Buffett did gradually buy back apples.

The brightest star in the night sky in Buffett's eyes: Sirius

Compared to the well-known investment decisions mentioned above, the “stock god” actually has a relatively rare move this year: “He will carve a bow like a full moon, look northwest, and shoot Sirius.”

According to documents on the US Securities and Exchange Commission (SEC) website, Berkshire Hathaway, owned by “stock god” Warren Buffett, once again increased its stake in Liberty SiriusXM last week. In total, Berkshire spent more than $28 million this time. After the deal, the financial giant held a total of 35,182,219 LSXMA shares and 69,691,260 LSXMK shares.

According to information, LSXMA, LSXMK, and LSXMB are all tracking stocks issued by the Liberty Media Group for approximately 80% of the shares of the free media giant SiriusXM (Sirius XM). After continuing to increase positions, Berkshire has increased its shareholding ratio to more than 20%. Unlike ordinary stocks, tracking stocks break the indivisibility of stock assets under traditional securities theory, incorporate the idea of separating asset ownership from income rights, and link stock income rights to the operating performance of the parent company's business branch entities; at the same time, they also break through the “one share, one vote” style of corporate decision-making participation — tracking stocks may not have the right to participate in decisions.

Sorting through previously disclosed documents, it was found that Berkshire Hathaway has been increasing its holdings in the above targets since 2024, which is also one of the company's most frequent transactions during the year.

So, what are the characteristics of the company Buffett actually attracted to? Looking at specific business, in 2008, Sirius Satellite Broadcasting Company and XM Satellite Broadcasting Holdings merged to form SiriusXM to provide music, sports, entertainment, comedy, conversation, news, traffic, weather and other channels and infotainment services in North America through a proprietary satellite broadcasting system. After that, SiriusXM also acquired Pandora, the former music streaming hegemon. According to the official website, SiriusXM's revenue for fiscal year 2023 reached 8.95 billion US dollars, profit before interest and tax and net profit were 2.79 billion US dollars and 1.26 billion US dollars respectively. The number of listeners reached 150 million, and the number of subscribers reached about 34 million.

The Financial Services Association previously mentioned that there are opinions that the future prospects of the SiriusXM business are worth betting on. The company mainly works on in-vehicle broadcasts and has an absolute dominant position in the US automobile market. Most new cars are equipped with SiriusXM systems. And with the gradual increase in demand for autonomous driving and in-vehicle entertainment, future revenue is clearly impressive.

Also, there are analysts who say that the deal was not Buffett's handwriting; it was more like a trade led by his deputy Ted Weschler. Buffett is likely to answer questions raised by analysts about SiriusXM at this week's Berkshire shareholders' meeting.

summed

Buffett long ago quoted Philip Fisher's point of view to describe the relationship between companies and shareholders: “The way a company attracts shareholders is like a restaurant solicits potential customers. A restaurant with a unique flavor can easily attract corresponding customers. But if the restaurant changes its inherent characteristics from time to time, it will surely cause customers to keep changing and eventually leaving with confusion and dissatisfaction.”

Buffett clearly knows very well what kind of company he wants and what kind of shareholders he wants. This is why he has been deeply involved in the value investment philosophy of exploiting long-term business results for decades, and has never easily changed course and maintained strength that is difficult for ordinary people to reach.

Looking back on the investment report card of the “stock god” over the past year, although Buffett did not do much, every transaction was clearly supported by clear logic. Even after losing his close comrade Munger, Buffett's investment philosophy and values have remained the same: emphasizing long-term investment, value investment, and investment safety margins, and focusing on the company's operational quality and management ability rather than short-term profits and market fluctuations. This concept of value investing and Berkshire's investment performance are also bound to always be a model and model for investors around the world to learn and follow.

As Buffett wrote in his annual shareholder letter in February this year:

I mentioned last year that Berkshire has long held two stocks, Coca Cola and American Express. These two companies aren't as big as our Apple holdings, and each stock accounts for only 4-5% of Berkshire's GAAP net worth. But they are valuable assets, and they also explain our thoughts.

We didn't trade American Express or Coca Cola shares during 2023; last year, these two companies once again rewarded our indifference by increasing profits and dividends. In fact, in 2023, our share of revenue from American Express has far exceeded the cost of our long ago purchase of $1.3 billion. Both American Express and Coca Cola will almost certainly increase their dividends in 2024, of which American Express is about 16%.

What did Coca Cola and American Express teach us? When you find a truly great business, keep investing in it. Patience always pays off, and choosing a great business can hedge against many unavoidably bad decisions.

edit/lambor