Wednesday, February 18, 2015

Berkshire Hathaway 4th Quarter 2014 13F-HR

The Berkshire Hathaway (BRKa4th Quarter 13F-HR was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.
(For a convenient comparison, here's a post from last quarter that summarizes Berkshire's 3rd Quarter 13F-HR.)

There was plenty of buying and selling during the quarter. Here's a quick summary of the changes:*

Added to Existing Positions
IBM (IBM): 6.49 mil. shares (incr. 9%); total stake $ 12.3 bil.
DaVita (DVA): 944k shares (2%); total stake $ 2.92 bil.
DirecTV (DTV): 1.35 mil. shares (4%); total stake $ 2.72 bil.
Deere & Co. (DE): 9.53 mil. shares (125%); total stake $ 1.51 bil.
General Motors (GM): 1.0 mil. shares (2%); total stake $ 1.43 bil.
Charter (CHTR): 1.25 mil. shares (25%); total stake $ 1.03 bil.

I've included above only those positions worth at least $ 1 billion at the end of the 4th quarter. In a portfolio this size -- roughly $ 240 billion (equities, fixed income, cash, and other investments) as of the latest available filing with roughly half made up of common stocks** -- a position that's less than $ 1 billion doesn't really move the needle much.

Other positions that were added to but worth less than $ 1 billion include: Suncor (SU), Precision Castparts (PCP), Visa (V), Viacom (VIAB), Liberty Global (LBTYA), Phillips 66 (PSX), and Mastercard (MA).

A couple of relatively small brand new positions were also added.

New Positions
Rest. Brands Int'l (QSR): 8.44 mil. shares worth $ 329 mil.***
21st Century Fox (FOXA): 4.75 mil. shares worth $ 182 mil.

It turns out that some Deere & Company shares were actually purchased during the 3rd quarter but not disclosed until yesterday.

Berkshire's 3rd Quarter 13F-HR filing had indicated some activity was being kept confidential. That filing said: "Confidential information has been omitted from the public Form 13F report and filed separately with the U.S. Securities and Exchange Commission."

We now know it was the Deere position that was omitted.
(Last quarter's 13F-HR made it appear as if Berkshire had sold its stake in Deere. In fact, they were quietly adding to the position with SEC approval.)

This separate 13F-HR/A filing reveals the specific number of shares of Deere that were bought prior to the 4th quarter. That Berkshire had initially purchased some shares of Deere in the 3rd quarter of 2012 was already known. We now know they added to the position in both 3rd and 4th quarter of last year.

Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.

Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.

Reduced Positions
Positions that were reduced somewhat but not sold outright include Bank of New York Mellon (BK), National Oilwell Varco (NOV), and Liberty Media (LMCA) with each being worth less than $ 1 billion.

Sold Positions
Exxon Mobil (XOM): 41.1 mil. shares worth $ 3.80 bil.
Express Scripts (ESRX): 449k shares worth $ 38.1 mil.
ConocoPhillips (COP): 472k shares worth $ 32.6 mil.

Todd Combs and Ted Weschler are responsible for an increasingly large number of the moves in the Berkshire equity portfolio. These days, any changes involving smaller positions will generally be the work of the two portfolio managers.
(Though some of the holdings they're responsible for have become more substantial over time.)

Top Five Holdings
After the changes, Berkshire Hathaway's portfolio of equity securities remains mostly made up of financial, consumer and, to a lesser extent, technology stocks (mostly IBM).

1. Wells Fargo (WFC) = $ 25.4 bil.
2. Coca-Cola (KO) = $ 16.9 bil.
3. American Express (AXP) = $ 14.1 bil.
4. IBM (IBM) = $ 12.3 bil.
5. Wal-Mart (WMT) = $ 5.18 bil.

At the end of the quarter, Berkshire's Wal-Mart position was only somewhat larger than the Procter & Gamble (PG) position. Well, that's going to change with Berkshire recently agreeing to acquire Duracell from P&G in exchange for Berkshire's ownership stake in the consumer goods company.
(P&G will also contribute some cash.)

As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.

As mentioned above the portfolio value equals ~ $ 240 billion. This number includes the investment in Heinz. (The Heinz common and preferred stock are separately on the books for just under $ 12 billion with that book value likely diverge greatly from economic value over time.) The portfolio naturally excludes all the operating businesses that Berkshire owns outright with ~ 330,000 employees according to last year's letter. Numbers like these -- along with many other things of interest especially for Berkshire shareholders -- will soon be updated when the new annual report and letter is released.

Here are some examples of Berkshire's 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, Lubrizol, Oriental Trading Company, as well as 50% of Heinz.
(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 111 of last year's annual report for a full list of Berkshire's businesses.

Adam

Long positions in BRKb, WFC, KO, AXP, USB, WMT, PG, DTV, COP, and PSX established at much lower than recent market prices. Also, small long position in IBM established at slightly higher than recent market prices.

* All values shown are based upon the last trading day of the 4th quarter.
** Berkshire Hathaway's holdings of ADRs are included in the 13F-HR. What is not included are the shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F-HR is if Berkshire happens to buy the ADR. Investments in things like the preferred shares (and, where applicable, related warrants) are also not included in the 13F-HR. The same is true for the Heinz common shares (i.e. not just the Heinz preferred shares).
*** This December 2014 press release further explains the investment in Restaurant Brands International.
(Formed as a result of the merger between Tim Hortons Inc. and Burger King Worldwide, Inc.)
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