Tuesday, November 15, 2016

Berkshire Hathaway 3rd Quarter 2016 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
Phillips 66 (PSX): 1.9 mil. shares (2% incr.); tot. stake $ 6.5 bil.
Charter (CHTR): 106 thous. shares (1% incr.); tot. stake $ 2.5 bil.

I've included above only those positions worth at least $ 1 billion at the end of the 3rd quarter. In a portfolio this size -- more than $ 257 billion (equities, fixed income, cash, and other investments including Kraft Heinz: KHC at fair value) 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.

Shares that were added to among positions worth less than $ 1 billion include Liberty SiriusXM (LSXMK), Liberty Global (LBTYA), Visa (V), Bank of New York Mellon (BK), WABCO  Holdings (WBC), and Liberty SiriusXM (LSXMA).

New Positions
American Airlines (AAL): 21.8 mil. shares; tot. stake $ 797 mil.
Delta Air Lines (DAL): 6.3 mil. shares; tot. stake $ 249 mil.
United Continental Holdings (UAL): 4.5 mil. shares; tot. stake $ 238 mil.

Separately, Warren Buffett noted that Berkshire purchased shares of  Southwest Airlines (LUV) after the 3rd quarter ended.
(The 13F-HR naturally only reflects purchases/sales that occurred before the end of the 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.

Shares that were sold among positions worth more than $ 1 billion include the following:

Reduced Positions
Deere & Co. (DE): 874 thous. shares (3% decr.); tot. stake $ 1.8 bil.

The other reduced positions worth less than $ 1 billion include Wal-Mart (WMT), Kinder Morgan (KMI), and Liberty Media (LMCK & LMCA).

It's worth mentioning that the Wal-Mart position was sizable -- nearly $ 3 billion -- before roughly two-thirds of the shares were sold last quarter.

Sold Positions
Suncor (SU)
Media General (MEG)

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, to a lesser extent, technology stocks (mostly IBM).

1. Kraft Heinz (KHC) = $ 29.1 bil.
2. Wells Fargo (WFC) = $ 21.2 bil.
3. Coca-Cola (KO) = $ 16.9 bil.
4. IBM (IBM) = $ 12.9 bil.
5. American Express (AXP) = $ 9.7 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 (with 25 being at headquarters) according to the latest 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 2015 annual report for a more complete listing of Berkshire's businesses.

Adam

Long positions in BRKb, PSX, KO, WFC, and AXP established at much lower than recent market prices. Also, long positions in WMT established at somewhat below recent market prices and IBM established near 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. 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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