Wednesday, November 15, 2017

Berkshire Hathaway 3rd Quarter 2017 13F-HR

The Berkshire Hathaway (BRKa3rd 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 2nd 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): 3.9 mil. shares bought (3% incr.); stake = $ 20.7 bil.
Monsanto (MON): 832 thous. shares (10% incr.); stake = $ 1.1 bil.

I generally include above only those positions that were worth at least $ 1 billion at the end of the 3rd quarter. In a portfolio this size -- more than $ 310 billion (equities, fixed income, cash, and other investments including Kraft Heinz: KHC at end of quarter market 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.

Synchrony Financial (SYF) is the only positions added to worth less than $ 1 billion.

New Position
Bank of America (BAC): 679 mil. shares; stake = $ 17.2 bil.

The new position in BofA common stock is the direct result of warrants that were exercised by Berkshire in August of this year. It's now one of Berkshire's top five equity holdings.

From the latest Berkshire 10-Q:

In 2011, we acquired 50,000 shares of 6% Non-Cumulative Perpetual Preferred Stock of Bank of America Corporation (“BAC”) with a liquidation value of $100,000 per share (“BAC Preferred”) and warrants to purchase up to 700,000,000 shares of common stock of BAC (“BAC Warrants”) at $7.142857 per share (up to $5 billion in the aggregate). On August 24, 2017, we exercised all of our BAC Warrants and acquired 700,000,000 shares of BAC common stock. We also surrendered substantially all of our BAC Preferred as payment of the $5 billion cost to exercise the BAC Warrants and acquire the BAC common stock.

The 679 million shares of BofA common stock held by Berkshire at the end of the 3rd quarter is somewhat less than the 700 million shares acquired on August 24th. The remaining shares are reported separately.

Reduced Positions
Wells Fargo (WFC): 3.8 mil. shares sold (<1% decr.); stake = $ 25.6 bil.
IBM (IBM): 17.1 mil. shares (31% decr.); stake = $ 5.4 bil.
Charter (CHTR): 954 thous. shares (10% decr.); stake = $ 3.1 bil.

Berkshire had previously announced they may need to sell some of their Wells Fargo shares from time to time to keep the ownership stake below 10%.

No other positions valued at more than $ 1 billion were partially sold off during the quarter.

Sold Positions
WABCO (WBC)

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.

Also, Todd Combs and Ted Weschler are responsible for part of the Berkshire equity portfolio. So some of the changes -- especially those involving smaller positions -- will generally be the work of the two portfolio managers.

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

1. Wells Fargo (WFC) = $ 25.6 bil.
2. Kraft Heinz (KHC) = $ 25.3 bil.
3. Apple (AAPL) = $ 20.7 bil.
4. Coca-Cola (KO) = $ 18.0 bil.
5. Bank of America (BAC) = $ 17.2 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 also 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 ~ 367,000 employees (25 being at headquarters) according to the latest available annual report.

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 116 of the annual report for a more complete listing of Berkshire's businesses.

Adam

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

* All values shown are based upon the last trading day of the 3rd 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. Also, certain equity holdings are reported separately while investments in things like preferred shares and warrants, when applicable, are not included in the Berkshire 13F.
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