Wednesday, February 15, 2017

Berkshire Hathaway 4th Quarter 2016 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 both some buying and selling during the quarter. Here's a quick summary of the changes:*

Added to Existing Positions
Apple (AAPL): 42.1 mil. shares (276% incr.); stake = $ 6.6 bil.
Delta Air Lines (DAL): 53.7 mil. shares (847%); stake = $ 3.0 bil.
American Airlines (AAL): 23.8 mil. shares (109%); stake = $ 2.1 bil.
United Continental (UAL): 24.4 mil. shares (538%); stake = $ 2.1 bil.
Bank of New York (BK): 535 thous. shares (2%); stake = $ 1.0 bil.

I generally include above only those positions that were worth at least $ 1 billion at the end of the 4th quarter. In a portfolio this size -- roughly $ 257 billion (equities, fixed income, cash, and other investments including Kraft Heinz: KHC at fair value) according to 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. No positions worth less than $ 1 billion were added during the quarter.

New Positions
Southwest Airlines (LUV): 43.2 mil. shares; stake = $ 2.2 bil.
Monsanto (MON): 8.04 mil. shares; stake = $ 846 mil.
Sirius XM Holdings (SIRI): 167 mil. shares; stake = $ 742 mil.

Warren Buffett previously mentioned that Berkshire had purchased shares of Southwest Airlines during the 4th quarter.

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
No positions still valued at more than $ 1 billion were partially sold off during the quarter. Positions that were sold in part but worth less than $ 1 billion include Wal-Mart (WMT) and Verizon (VZ),

Sold Positions
Deere & Company (DE)
Kinder Morgan (KMI)
Liberty Media/Formula One Group (FWONK) - Formerly LMCK
Liberty Media/Formula One Group (FWONA) - Formerly LMCA
Now, Inc. (DNOW)
Lee Enterprises (LEE)

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.

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

1. Kraft Heinz (KHC) = $ 28.4 bil.
2. Wells Fargo (WFC) = $ 26.4 bil.
3. Coca-Cola (KO) = $ 16.6 bil.
4. IBM (IBM) = $ 13.5 bil.
5. American Express (AXP) = $ 11.2 bil.

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.

The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 361,000 employees (25 being at headquarters) according to the latest available letter. Numbers like these -- along with many other things of interest especially for Berkshire shareholders -- should be updated in the next annual report and letter.

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, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.
(Among others.)

In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.

See page 115 of the annual report for a more complete listing of Berkshire's businesses.

Adam

Long positions in BRKb, KO, WFC, and AXP established at much lower than recent market prices. Also, long positions in WMT and IBM established somewhat below recent market prices. (In each case compared to average cost basis.)

* 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. What is not included are 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 is if Berkshire buys the ADR. Investments in things like preferred shares (and valuable warrants, where applicable, as explained in the recent letters) are also not included in the 13F.
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