Whitney Tilson (T2 Partners) Talks Berkshire Hathaway

Hat tip to Farnam Street for posting up an excerpt from hedge fund T2 Partners July investor letter. Whitney Tilson details some of his thoughts/plays on Warren Buffett's Berkshire Hathaway (BRK.A).

"In late November Berkshire Hathaway tumbled into the mid-$70,000 range, at which point we backed up the truck, confident that we were seeing a once-in-a-decade buying opportunity for this superior company. At this price, we were only paying for Berkshire’s investment portfolio and getting all of its operating businesses for free. We were quickly rewarded, as the stock rose above $107,000 within a few weeks and we sold quite a bit of our position.

We were wrong, however, about it being a once-in-a-decade buying opportunity. As the market collapsed in the early months of this year, Berkshire also fell and hit a low of $70,050 on March 5th. We backed up the truck again and once again profited as the stock today sits at $97,000.

We have trimmed the position, but not as aggressive as we did last December, for a number of reasons. First, obviously $97,000 isn’t $107,000. Also, the stock has actually underperformed the S&P 500 by a bit more than 10 percentage points since March 5th, so while we’re not complaining, on a relative basis Berkshire is even cheaper than it was a few months ago. More importantly, Berkshire’s intrinsic value has risen smartly – not as much as the stock, but enough so that we still think it’s attractively priced. We think the stock is worth at least $120,000 today.

Finally, we don’t want to sell prior to Berkshire’s second quarter earnings release coming up this Friday because we think the news will be very good in many areas. First, the investment portfolio will show approximately $7 billion in after-tax gains, plus there will likely be another $1 billion in a reversal of losses on the equity index put positions, and the Goldman Sachs warrants will add another $1.5 billion or so in after-tax gains. Thus, Berkshire should report a 10% gain in book value before operating results.

On top of this, investment income will be roughly $1.3 billion, mostly interest from the many preferred stock and debt deals Buffett did with Goldman, GE and many other companies during the worst of the crisis. Lastly, among Berkshire’s operating businesses, the two largest areas, insurance and utilities should report solid earnings, while the other operating businesses will continue to be weak.

Overall, we expect a very strong earnings report that, based on the stock price, we don’t think the market is anticipating, so it’s an added bonus to have this as a catalyst for the stock."


So there you have it, interesting stuff from Tilson and gang. Longer-term readers of Market Folly will recall that we posted up a quick bit back in December of 2008 regarding Tilson's bullishness on BRK.A. It looks like he's played that one well so far (twice).

Warren Buffett's Berkshire Hathaway Letter to Investors / Annual Report (BRK.A)

Hot off the presses, here's Warren Buffett's letter to Berkshire Hathaway investors. (RSS & Email readers will need to come to the blog to view it).

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Charlie Munger Speech

Berkshire Hathaway's Charlie Munger gave a speech at UCSB and here is the text:

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[Hat tip to ValuePlays for finding it]

Warren Buffett Berkshire Hathaway Portfolio Update: 13F Filing Q4 2008

Warren Buffett, the legendary investor and oracle from Omaha, has filed Berkshire Hathaway's 13F and we get a glimpse as to what he's been up to in these tumultuous markets. The man needs no introduction, but if you want to learn more about him: read his biography, its very insightful. The man is known for his buy and hold strategy and he has amassed some large stakes in great brands and great companies. This crisis has presented numerous opportunities in his eyes, as he has started buying American. He most recently bought bonds in Tiffany's and Harley Davidson. Earlier on, he got involved with Goldman Sachs and General Electric with large multi-billion dollar preferred purchases. Do you notice a theme yet? He sees opportunity in America. He sees opportunity in American brands and American companies. Heck, he had even mentioned possibly buying back Berkshire stock, which is the Warren Buffett brand in and of itself. But, enough about all his recent purchases that everyone already knows about. Let's get to the info revealed in the 13F.

To be honest, the changes to his portfolio were kind of lackluster. After all the Buffett activity we've seen lately, there's nothing massive to report. But, there have been some changes indeed. A while ago, we had mentioned that Buffett was selling puts on Burlington Northern. He was clearly drawing a line in the sand as to where he wanted to add to his already large position in BNI. And, that strategy worked out as he was assigned more BNI shares to add to his large pile.

The second (and arguably biggest) change to his portfolio would be the large position he picked up in Nalco (NLC). This is a brand new position for him and he has over 8.7 million shares. Nalco does a lot of water treatment among other things, so its interesting to see him step into this arena. We've been reading a lot recently about the impending clean water problems worldwide, and its safe to say that Buffett has as well.

The third most noticeable change would be in regards to his Johnson & Johnson (JNJ) position. He sold over half his position in this name from over 60 million shares down to around 28 million shares. If we were to wager a guess, we'd say that Buffett did so in a "selling when its the hardest to" kind of move. The right plays are usually the hardest to make. And, if you think about it, selling a consumer staples name in the heart of the recession is probably a tough play. But, it could very well be the right play, as more names could be attractive once we emerge from these difficult times. Who knows though, as that's just pure speculation on our part. For all we know, Buffett could simply be trading his 'safe' portfolio plays for a solid income stream of 10-15% interest, which he has garnered in some of his most recent deals. And, who wouldn't take that? Those were some sweet terms, so that would also make perfect sense. Additionally, he sold some of his Procter & Gamble (PG), another well known consumer staples name.

Buffett is the third name we've covered in our fourth quarter 2008 hedge fund portfolio tracking series. We're tracking a ton of prominent names and we invite you to check out what John Paulson and Carl Icahn were up to recently, as we've already covered their movements. Look for 35+ more hedge funds in our daily coverage.

Bottom line in all things Buffett: He started a new position in Nalco (NLC), and he picked up some more Burlington Northern (BNI), & NRG Energy (NRG) among others. He sold some Johnson & Johnson (JNJ), Procter & Gamble (PG), US Bancorp (USB), & Wells Fargo (WFC), among others.

Warren Buffett Talks About Buying Back BRK.A Stock

Here's Buffett's interview with PBS, where he discusses possibly buying back Berkshire Hathaway (BRK.A) stock.




Also, we wanted to pass along a nice collection of past Buffett columns. Like the recent Warren Buffett is Buying American column, these .pdf's take you back through similar columns he has written during periods where stocks looked attractive to him.

And, lastly, don't forget to check out The Snowball: Warren Buffett and the Business of Life by Alice Schroeder. She was hand picked by Buffett to be his biographer and this is the result. Snowball turns you upside-down and inside-out within the world of all things Buffett. I recently read this and enjoyed it immensely.

T2 Partners' Whitney Tilson Bullish on Berkshire Hathaway (BRK.A)

Hedge fund manager Whitney Tilson was recently on CNBC's Fast Money to discuss Berkshire Hathaway's derivative exposure. Tilson is a deep value investor and you can bet he is very bullish on BRK.A/BRK.B at these levels. If you missed it, we've covered T2 Partners' recent portfolio updates in our hedge fund tracking series. Here's the video:




Additionally, in a recent email, Tilson pointed out another bullish signal on Berkshire: insider selling. Wait... what?!? Charlie Munger, in a recent SEC Filing, disclosed he sold 13% of his BRK.A shares. But, if you read the fine print of the filing, this sale was actually a bullish bet on Munger's part, as Whitney describes,

"If you read footnote 3 of the filing ("This Form 4 is being filed to report a private sale of shares of Class A Common Stock to family members, in exchange for a promissory note."), you'll understand that precisely the opposite is true: he sold them to a family member in exchange for a promissory note. In other words, he found the stock so cheap that he decided to pass the stock along this way -- and pay taxes on the gains this year! -- rather than through his will. It would be hard to find a stronger statement of how cheap he thinks the stock is -- he must believe $77,500 is the lowest basis he will ever see again."

Simply put, Tilson (and many others) are bullish on BRK.A/BRK.B at these levels.

Berkshire Hathaway Shareholder Letters

Someone asked me the other day where to find all the various letters written by Buffett and company. So, I figured I'd post up the link for everyone who is curious or who has not read them. Read them here.

Warren Buffett Buys Stake in Chinese Battery Co

Well, as the markets suffered a loss of nearly 7% yesterday, you might have missed this piece of information that seemingly slipped under the radar. Warren Buffett has acquired a 9.89% stake in BYD Company, a Chinese battery manufacturer. This battery company plans to sell electric cars by 2010 in the US. Buffett bought the stake through his Berkshire Hathaway holding MidAmerican Energy Holdings (Berkshire owns 87% of MidAmerican) and the stake cost around $230 million.

Purchasing a stake in a battery maker makes a great deal of sense here, given the squeeze in the automotive industry. Numerous manufacturers have already produced hybrids or electric cars and one can assume that the trend will continue, as consumers worry about miles per gallon and rising fuel costs. The automotive landscape is changing and Buffett looks to capitalize on the upcoming trend/shift in the industry. BYD makes lithium-ion batteries that will be found in electric vehicles. So, while this may be the worst year for hedge funds in a long time, Buffett is sticking to business as usual.



Source: NYT