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THE HOUSE HERO

BUY/SELL HOUSES!

@ BERKSHIRE

25 min read

During Q4 2018, Berkshire Hathaway’s (BRK.A, BRK.B) 13F stock portfolio value increased ~9%, from $183B to $199B. The top five positions account for ~64% of the portfolio: Apple Inc. (AAPL), Bank of America (BAC), Wells Fargo (WFC), Coca-Cola (KO), and American Express (AXP). There are 45 individual stock positions, many of which are minutely small compared to the overall size of the portfolio.

Note: In Q1 2019, Berkshire Hathaway repurchased ~6.5M class B shares at ~$201 and 1258 class A shares for a total outlay of $1.7B. Book Value as of Q1 2019 was ~$150 per share. So, the repurchase happened at ~134% of Book Value. In July 2018, Berkshire had announced a plan to make their re-purchase criteria to be more flexible – instead of the 120% of Book Value criteria, Buffett and Munger had to agree that Berkshire was trading below intrinsic value. The Class B shares currently trade at ~$203.

New Stakes

Amazon (AMZN): AMZN is a 0.43% of the portfolio stake established this quarter at prices between $1500 and $1820, and the stock currently trades above that range at $1884.

Stake Disposals

Verizon Communications (VZ): The minutely small remainder stake in VZ was disposed this quarter.

Stake Increases

JPMorgan Chase (JPM) and PNC Financial (PNC): These two positions established in Q3 2018 saw substantial increases over the last two quarters. The 3.02% JPM stake was established at prices between $104 and $119, and increased by ~40% last quarter at prices between $92 and $115. There was another ~20% stake increase this quarter at prices between $97 and $107. The stock currently trades at ~$111. The 0.53% PNC stake was established at prices between $134 and $146, and increased by just over one-third last quarter at prices between $110 and $140. The stock is now at ~$130. This quarter also saw a ~5% stake increase.

Delta Air Lines (DAL): DAL was a very small 0.19% position in Q3 2016. The stake saw a whopping ~850% increase in Q4 2016 at prices between $39 and $52. The stock currently trades at $55.30, and the stake is now at 1.84% of the portfolio. There was a ~20% increase in Q2 2018 at prices between $49 and $56, and that was followed with an ~8% increase this quarter at ~$49.50.

Note: Berkshire controls ~10% of DAL, and their overall cost basis is ~$44.

Red Hat Inc. (RHT): RHT is a 0.47% of the portfolio position established last quarter and increased by ~22% this quarter. Last October, IBM agreed to acquire Red Hat for $190 per share cash. The stock is now at ~$186.

Stake Decreases

Wells Fargo & Co.: WFC is Buffett’s third-largest stake at 9.93% of the 13F portfolio. In recent activity, around 9M shares were sold in Q2 2017 at around $53 per share to bring the ownership stake below the 10% threshold. The stock currently trades at $46.24. Berkshire’s cost basis is at ~$24.50. The last six quarters had seen marginal trimming, and that was followed with a ~4% selling this quarter.

Southwest Airlines (LUV): LUV is a 1.40% portfolio stake purchased in Q4 2016 at prices between $38.50 and $51, and increased by ~10% in the following quarter at prices between $49.50 and $59. Q2 2018 saw another ~20% stake increase at prices between $50 and $57. The stock is now at $52.24. There was minor trimming in the last three quarters.

Note: Berkshire owns ~9.5% of LUV, and their overall cost basis is ~$42.

Charter Communications (CHTR): CHTR is a ~1% of the portfolio position. It was established during the last three quarters of 2014 at prices between $118 and $170. In Q2 2015, the position was again increased by ~42% at prices between $168 and $193, and that was followed with another ~21% increase the following quarter at prices between $167 and $195. The stock currently trades at ~$380, compared to Berkshire’s cost basis of ~$178. The last six quarters had seen a combined ~25% selling at prices between $250 and $395, and that was followed with a ~20% reduction this quarter at prices between $285 and $366.

Phillips 66 (PSX): PSX is now a very small 0.26% of the portfolio stake. It is a long-term position. In recent activity, Q2 and Q3 2015 saw a huge position (~62M shares) built at prices between $70.50 and $84.50. In Q1 2018, Phillips 66 repurchased 35M shares from Berkshire at $93.725 per share. There was a ~24% selling in Q2 2018 at prices between $95 and $122, and that was followed with a ~56% reduction next quarter at prices between $109 and $123. Last quarter saw another ~23% selling at prices between $78.50 and $118, and that was followed with a ~50% reduction this quarter at prices between $86 and $99. The stock is now at $88.01.

Note: Berkshire avoided disclosing PSX stake build-up in the original Q2 2015 13F by making use of the “section 13(F) Confidential Treatment Requests”. An amendment filed on 9/4/2015 disclosed the activity. Berkshire controlled ~16% of PSX at the time.

Kept Steady

Apple Inc.: AAPL is currently the largest 13F portfolio stake at ~22%, and Berkshire’s ownership is at ~5% of the business. It was established in Q1 2016 at prices between $93 and $110, and increased by ~55% the following quarter at prices between $90 and $112. Q4 2016 saw another ~275% increase at prices between $106 and $118, and that was followed with a stake doubling in January 2017 at prices between $116 and $122. There was another ~23% increase in Q4 2017 at prices between $154 and $176, and that was followed with a ~45% increase in Q1 2018 at prices between $155 and $182. Since then, the activity has been minor. The stock currently trades at ~$190.

Note: As of Q4 2018, Berkshire’s overall cost basis on Apple was ~$141 per share.

Bank of America: Berkshire established this large (top-three) ~12% of the portfolio position through the exercise of Bank of America warrants. The warrants had a strike price of $7.14, compared to the current price of $28.71. The cost to exercise was $5B, and it was funded using the $5B in 6% preferred stock they held. There was a ~30% stake increase in Q3 2018 at prices between $27.75 and $31.80 and a marginal increase last quarter.

Note: Berkshire’s ownership stake in Bank of America is ~9.5%, and their overall cost basis as of Q4 2018 is $12.68.

American Express and Coca-Cola: These two very large stakes were kept steady during the last ~5 years. Buffett has said these positions will be held “permanently”. Berkshire’s cost basis on AXP and KO are at around $8.49 and $3.25 respectively, and the ownership stakes are at ~17.6% and ~9.4% respectively.

Kraft Heinz Co. (KHC): KHC is currently a large position at 5.33% of the portfolio. Kraft Heinz started trading in July 2015, with Berkshire owning just over 325M shares (~27% of the business). The stake came about as a result of two transactions with 3G Capital as partner: a ~$4B net investment in 2013 for half of Heinz, and a ~$5B investment for the acquisition of Kraft Foods Group in early 2015. Berkshire’s cost basis on KHC is ~$30 per share, compared to the current price of $32.44.

US Bancorp (USB): The 3.12% USB stake has been in the portfolio since 2006. The original position was tripled during the 2007-2009 time frame. It was then kept relatively steady till Q2 2013, when ~17M shares were purchased at prices between $32 and $36. H1 2018 had seen a ~16% increase at prices between $49 and $58, and that was followed with a ~25% increase in Q3 2018 at prices between $50 and $55. The stock is now at $51.35, and Berkshire’s cost basis is ~$38. There was a ~4% stake increase last quarter.

Moody’s Inc. (MCO): MCO is a 2.24% of the 13F portfolio stake. It is a very long-term position, and Buffett’s cost basis is $10.05. The stock currently trades at ~$189. Berkshire controls ~13% of the business.

Bank of New York Mellon Corp. (BK): BK is a ~2% of the 13F portfolio stake. The bulk of the original position was purchased in Q2 2012 at prices between $19.50 and $25. In recent activity, 2017 saw a ~180% increase at prices between $43.50 and $55, while last year saw another one-third increase at prices between $44.50 and $58.50. The stock currently trades at $46.84. Berkshire’s cost basis on BK is ~$46 per share.

Goldman Sachs (GS): GS is a 1.77% of the portfolio stake established in Q4 2013. Berkshire received $5B worth of warrants to buy GS stock during the financial crisis (October 2008) at a strike price of $115 (43.5M shares) that was to expire on October 1, 2013. Buffett exercised the right before expiry to start this long position. In recent activity, Q3 2018 saw a ~40% stake increase at prices between $220 and $243. It currently trades at ~$199. Their overall cost basis is ~$127 per share.

General Motors (GM): GM is a 1.34% of the 13F portfolio position that was first purchased in Q1 2012 at prices between $21 and $30. By Q3 2017, the position size had increased by around six times (10M shares to 60M shares). Q4 2017 saw a reduction: ~17% selling at prices between $40.50 and $46.50. There was a ~38% stake increase last quarter at prices between $30.50 and $38.50. The stock currently trades at $37.35. Overall, Berkshire’s cost basis on GM is ~$32.

Verisign Inc. (VRSN): VRSN was first purchased in Q4 2012 at prices between $34 and $49.50. The position was more than doubled in Q1 2013 at prices between $38 and $48. The buying continued till Q2 2014 at prices up to $63. The stock currently trades at ~$198, and the position is at 1.18% of the portfolio (~10% of the business).

DaVita Inc. (DVA): DVA is a ~1% of the portfolio position that was aggressively built up over several quarters in the 2012-13 time frame at prices between $30 and $49. The stock currently trades at $50.29, compared to Berkshire’s overall cost basis of ~$45 per share.

Note: Berkshire’s ownership stake in DaVita is ~23%. In May 2013, Berkshire’s Ted Weschler signed an accord with DVA, limiting open market purchases to 25% of the company.

Liberty SiriusXM Group (LSXMA, LSXMK): The tracking stock was acquired as a result of Liberty Media’s recapitalization in April 2016. Shareholders received 1 share of Liberty SiriusXM Group, 0.25 shares of Liberty Media Group, and 0.1 shares of Liberty Braves Group for each share held. Berkshire held 30M shares of Liberty Media, for which he received the same amount of Liberty SiriusXM Group shares. There was a ~40% stake increase in Q2 2017 at a cost basis of ~$40 per share. The stock is now at $38.51.

Note: LSXMA/LSXMK is trading at a significant NAV discount to the parent’s (SIRI) valuation. For investors attempting to follow Buffett, LSXMA/LSXMK is a good option to consider for further research.

United Continental Holdings (UAL): A minutely small 0.18% UAL position as of Q3 2016 saw a huge ~540% increase in Q4 2016 at prices between $52.50 and $76. It currently goes for ~$82. The stake is at 0.88% of the portfolio. Last year had seen a ~22% selling at prices between $63 and $98.

Note: Berkshire controls ~8% of UAL, and their overall cost basis is ~$55.

USG Corporation (USG): USG was a very long-term holding, and there was a significant 21.39M share stake increase in Q4 2013 due to conversion of notes at $11.40 per share – Berkshire acquired the convertible notes during the financial crisis (2/2009), and USG opted to redeem them on 12/16/2013. Q2 2014 saw a ~12% stake increase at prices between $30 and $33. In March 2018, the USG board rejected a $42 per share cash offer by Germany’s Knauf. Partly in response, Berkshire Hathaway disclosed in a regulatory filing in April that they would vote against USG directors in the upcoming annual meeting. In June, USG accepted a $44 per share cash offer (includes 50c special dividend) from Knauf, and that transaction closed last month. Buffett controlled around 31% of the business, and his cost basis was ~$19.

American Airlines (AAL): AAL stake was first purchased in Q3 2016. The position is now at 0.70% of the portfolio. The original purchase was at prices between $28 and $39, and doubled in Q4 2016 at prices between $36.50 and $50. The stock is now at $32.17. There was a ~3% trimming in Q2 2018 and a similar reduction next quarter.

Note: Berkshire controls ~9% of AAL.

Sirius XM Holdings (SIRI): The 0.39% SIRI stake was purchased in Q4 2016 at prices between $4.08 and $4.61. Q2 2017 saw selling: a ~20% reduction at prices between $4.70 and $5.50. The stock is currently at $5.66.

Teva Pharmaceutical (TEVA): TEVA is a very small 0.34% of the portfolio stake established in Q4 2017 at prices between $11.20 and $19.33, and more than doubled next quarter at prices between $16.50 and $22. The stock currently trades at $11.48.

Liberty Global PLC (LBTYA, LBTYK): The position was established in Q4 2013 at prices between $37.50 and $44.50 (adjusted for the 03/2014 stock split) and increased in the following two quarters at prices between $38.50 and $46. The three quarters through Q1 2016 had also seen a combined ~30% increase at prices between $30 and $50. Q2 2016 saw a ~17% further increase at prices between $27 and $39. The stock is now at $25.03, and the stake is at 0.34% of the 13F portfolio.

Synchrony Financial (SYF): SYF is a 0.33% of the portfolio position purchased in Q2 2017 at prices between $26.50 and $34.50, and increased by ~20% the following quarter at prices between $28.50 and $31.25. The stock is now at $35.02.

Note: Synchrony is the private-label credit card business split off from GE that started trading in August 2014 at ~$23 per share.

Store Capital (STOR): The 0.31% STOR stake was established in Q2 2017 in a private placement transaction at $20.25 per share. The stock is now at $34.10.

Axalta Coating Systems (AXTA): AXTA is a small 0.31% of the portfolio stake established in Q2 2015 at prices between $28 and $36, and increased by ~16% the following quarter at prices between $24.50 and $33.50. The stock currently trades at $25.67. Berkshire owns 10.1% of the business.

Suncor Energy (SU) and StoneCo Ltd. (STNE): These two stakes were established last quarter. The 0.17% SU stake was purchased at prices between $26 and $40, and it now goes for $32.41. STNE is a 0.29% position purchased at ~$21 per share, compared to the current price of $26.93. For investors attempting to follow, these are good options to consider for further research.

Note 1: Berkshire has an ~11% ownership stake in StoneCo. In October 2018, WSJ reported that Berkshire had invested ~$300M each in two fintech’s: India’s Paytm and Brazil’s StoneCo. The Paytm investment was made in August 2018, while the StoneCo purchase was following its IPO in October 2018.

Note 2: Suncor Energy has had a round-trip in the portfolio. It was a 0.48% position purchased in Q2 2013 at prices between $27 and $32. That stake was disposed during Q2 and Q3 2016 at prices between $25.50 and $29.

Restaurant Brands International (QSR): QSR is a 0.28% of the 13F portfolio position established in Q4 2014 at prices between $35 and $42. The stock currently trades well above that range at $67.82. It started trading in December 2014 following a merger/rename transaction between Tim Hortons and Burger King Worldwide.

Note: Berkshire’s stake in the business is ~4.2%.

Travelers Companies (TRV): TRV is a very small 0.39% position purchased in Q3 2018 at prices between $112 and $134, and it currently trades at ~$148.

Costco Wholesale (COST), Johnson & Johnson (JNJ), Liberty LiLAC Group (LILA, LILAK), Mondelez International (MDLZ), M&T Bank Corp. (MTB), Mastercard Inc. (MA), Procter & Gamble (PG), Torchmark Corporation (TMK), United Parcel Service (UPS), and Visa Inc. (V): These are very small positions (less than ~0.5% of the portfolio each) kept steady this quarter.

Note 1: Since November 2015, Warren Buffett is known to own ~8% of Seritage Growth Properties (SRG) at a cost basis of $36.50 in his personal portfolio. It currently trades at $45.57. SRG is an REIT spin-off from Sears (OTCPK:SHLDQ) that started trading in July 2015.

Note 2: Berkshire Hathaway also has a 225M share position in BYD Company at a cost basis of ~$1 per share (~$2 per share in terms of ADRs – OTCPK:BYDDY). The ADR currently trades at $12.37.

What just happened? See chart below.

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