Tuesday, August 16, 2011

Berkshire Hathaway 2nd Quarter 2011 13F-HR

The Berkshire Hathaway (BRKa2nd Quarter 2011 13F-HR was released yesterday.

Compared to the 1st Quarter 2011 13F-HR, where not much changed in the portfolio, Buffett added some new positions and continued to build upon several existing positions. There also was also just a bit of selling in the quarter.

Here is a post that summarizes changes made in the previous Berkshire Hathaway 13F-HR.

In 2Q 2011, there were at least some new purchase(or purchases) that were kept confidential. The filing says: "Confidential information has been omitted from the Form 13F and filed separately with the Commission."

From time to time, the SEC allows Berkshire Hathaway to keep certain moves in the portfolio confidential. The intention being to prevent buyers from driving up the price before Berkshire makes its future purchases.

Besides the mystery stock(s) that Berkshire has been purchasing, there were the following disclosed changes to the stock portfolio:

Equities Purchased
New positions:
Verisk (VRSK): Bought 2.1 million shares, ~$ 71 million*
Dollar General (DG): 1.5 million shares, ~$ 49 million

Added to Existing Positions:
Wells Fargo (WFC): Bought 9.7 million shares, ~$ 275 million (2.8% increase)
Mastercard (MA): 189,000 shares, ~$ 52 million (88% increase)

A look at the cash flow statement from the most recent 10-Q reveals that over $ 3.6 billion million of equity purchases were made in the 2nd quarter.

The total of the 4 above purchases equals only an estimated $ 447 million. That means roughly $ 3.15 billion of other new purchase(s) (ie. equities that sell on exchanges outside the U.S. or mystery purchases/confidential trades inside the U.S.) were transacted by Berkshire Hathaway during 2Q 2011 that have yet to be disclosed.

Unlike the above minor adjustments to the portfolio the mystery purchase(s) are relatively significant in size.

Equities Sold
Reduced Positions:
Approximately 5.7 million shares of (KFT) was sold or $ 190 million (a 5.5% decrease). It remains a top five position.

No positions were sold outright.

Portfolio Summary
After the changes, Berkshire Hathaway's stock portfolio** is made up of ~ 42% consumer goods, 39% financials, 6% consumer services, and 6% healthcare. The remainder is primarily spread across industrials and energy.

1. Coca-Cola (KO) = $ 13.6 billion
2. Wells Fargo (WFC) = $ 8.7 billion
3. American Express (AXP) = $ 6.8 billion
4. Procter and Gamble (PG) = $ 4.7 billion
5. Kraft (KFT) = $ 3.4 billion

As is almost always the case, it's a very concentrated portfolio with the top five often making up something like 60-70 percent and, at times, even more of the equity portfolio.

Some of these mystery purchase(s) could be, at least in part, those of Todd Combs. Initially, Combs is expected to manage just $ 2-3 billion of the entire Berkshire Hathaway portfolio.

As of the last 10-Q (the best view available until the annual report comes out), the combined value of the Berkshire portfolio including the above equities plus fixed maturity securities and other investments is roughly $ 118 billion (excluding cash).

That portfolio, of course, excludes all the operating businesses that Berkshire owns. ere are some examples of the non-insurance businesses: MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar Metalworking among others.

In addition, the insurance businesses (BH Reinsurance, General Re, GEICO etc.) owned by Berkshire have naturally provided plenty of "float" for their investments over time and continue to do so.

See page 106 of the annual report for a full list of Berkshire's businesses.

The earning power of these combined businesses is north of $ 10 billion/year.

In addition, there was nearly $ 48 billion in cash at the end of 2Q 2011 although $ 9 billion will be needed for the Lubrizol purchase that should close in 3Q 2011. With that pile of growing easily at a rate of $ 10-15 billion/year there is no shortage of money to put to work at Berkshire.

Adam

Long positions in BRKb, KO, WFC, AXP, PG, and KFT established at lower than recent market prices.

* Using the mid-point of each stocks trading range last quarter.
** Berkshire Hathaway's holdings of ADRs are included in the 13F-HR. What is not included are the shares listed on exchanges outside of the United States. The status of those shares (BYD, POSCO, Sanofi, Tesco etc.) are updated in the annual letter.
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