Berkshire has now sold more than half its BYD stake

FRI, MAY 12, 2023

WARREN BUFFETT WATCH

Berkshire has now sold more than half its BYD stake

Berkshire Hathaway's reduction of its stake in the Chinese electric carmaker BYD has reached the halfway point.

In a Hong Kong filing earlier this week, Berkshire revealed that as of May 2 it held 108.3 million shares, which is just under 10% of BYD's outstanding shares.

It's an overall reduction of almost 52 percent from the 225 million shares it purchased for $230 million in 2008.

The sales have locked in enormous profits for Berkshire. Even after cutting the stake, it has a market value of $3.3 billion.

Although we don't know exactly when the sales began, the first disclosure was in August of last year.

There has still been no detailed explanation of what's driving the selling.

It did not come up during Saturday's shareholders meeting, and in a live CNBC interview almost a month ago Buffett would only say it is an "extraordinary company" being run by an "extraordinary person," but "I think that we'll find things to do with the money that I'll feel better about."

In that interview and last Saturday, Buffett did appear to indicate he had quickly changed his mind and sold a large stake in Taiwan Semiconductor that had been recently purchased because he had reassessed the geopolitical risk posed by Beijing's claim that Taiwan is part of China, saying, "I feel better about the capital that we've got deployed in Japan than Taiwan. I wish it weren't so, but I think that's the reality."

(At the same time, the CEO of Berkshire's Dairy Queen told Reuters that while the company is mindful of political concerns wherever it operates, Taiwan is one of several areas that "is on our list for exploration at this point.")

BYD Chairman Wang Chuanfu, Charlie Munger, Warren Buffett, and Bill Gates at the launch ceremony for the BYD M6 vehicle in Beijing, September 29, 2010. Photo: REUTERS | Jason Lee

That raises the possibility the BYD sales may be related to the rising economic tensions between the U.S. and China that Charlie Munger called "stupid, stupid, stupid" at the shareholders meeting.

(I think it is extremely unlikely that the reduction is connected to Buffett and Munger lightheartedly saying Saturday that Tesla CEO Elon Musk is a "brilliant, brilliant guy" who doesn't need to "overestimate" himself, but they don't want to compete with his "dedication to solving the impossible." In a tweet, Musk wrote, "Appreciate the kind words from Warren & Charlie.")

But as Barron's notes, while it is "still anyone's guess" as to why Berkshire is selling BYD shares, "investors ... are no longer shocked" that it is happening.

OXY starts chipping away at Berkshire's expensive $10B loan

Occidental Petroleum has begun to pay back a small portion of what was, in effect, a $10 billion loan it got from Berkshire Hathaway in 2019 when it was so desperate for money to help pay for Anadarko Petroleum that it was willing to pay 8% a year for the financing.

In its first quarter 10-Q released Saturday morning, Berkshire says that in March, Occidental "issued mandatory redemption notifications" for $474 million worth of the preferred shares Berkshire purchased in 2019, paying 110% of their face value.

At the meeting, Buffett noted Occidental's move, "which we don't like, obviously. But we'd be disappointed in them if they didn't reduce it. It's intelligent from their standpoint," since the interest rate is so high.

Barron's points out that Occidental's ability to repay the loan is limited by a formula in the deal "in which half of any money available for dividends and buybacks beyond $4 a share a year goes to paying off the preferred stock," with the other half going to common shareholders.

OXY shares started Monday with a drop of around 2% in reaction to Buffett's proclamation at the meeting that Berkshire would not make an offer to acquire all of the oil giant, squelching speculation that its ongoing purchases of common shares could lead to a bid.

But it went even lower later in the week after reporting a disappointing 48% drop in Q1 earnings amid a slide for oil companies as recession worries hit the price of crude.

One positive for Buffett, who likes when companies in Berkshire's portfolio buy back their shares, is CEO Vick Hollub telling analysts that it will prioritize returning excess cash to shareholders over additional investments in technology to remove carbon dioxide from the air.

(Bloomberg's Matt Levine had a very interesting take this week on how oil company buybacks could lead to more funding for green energy.)

Right-wing shareholder activist arrested at Berkshire meeting

An activist shareholder was arrested during the formal business portion of Berkshire's annual meeting and charged with trespassing after he refused a request to leave.

According to several reports, Peter Flaherty, the head of the conservative National Legal and Policy Center, had been speaking in favor of his shareholder proposal to separate Berkshire's chairman and CEO roles so that the company would be "less identified with Mr. Buffett's political activities," including donations to the Gates Foundation, when he insinuated that Bill Gates was associated with Jeffrey Epstein's sex trafficking of young women.

That prompted heavy booing from the audience and Buffett had Flaherty's microphone cut off, saying he had "crossed a boundary" with a personal attack.

According to an NLPC account, he was then escorted off the floor of the meeting by an Omaha police officer.

Flaherty told the conservative Daily Signal web site he wants the charges dropped and an apology from Berkshire, saying, "I didn't raise my voice. I was not disruptive."

The proposal was rejected by shareholders, getting just under 11% of the vote.

Buffett and Munger 'Squishmallows' are big hit

When Berkshire bought insurer Allegheny last year, it may not have been focusing on the "Squishmallows" that came along with it.

They are made by Allegheny subsidiary Jazwares, and are avidly collected by both adults and children.

Jazzware plush toys of Warren Buffett and Charlie Munger on display at the 2023 Berkshire Hathaway Annual Shareholder's Meeting in Omaha. NE.

Photos: CNBC | Yun Li | David A. Grogan

They made their Berkshire annual meeting debut this weekend and were an enormous hit, with around 10,000 special Buffett and Munger versions sold for $10 on the floor of the exhibition hall that features many Berkshire products.

Recent sales on eBay have them going for up to $250 a pair.

BUFFETT AROUND THE INTERNET

Some links may require a subscription

TheStreet: A Lesson for Retirement Investors from Warren Buffett and Charlie Munger

The Atlantic: The Billion-Dollar Ponzi Scheme That Hooked Warren Buffett and the U.S. Treasury

Reuters (commentary): Buffett's imprint on Berkshire reaches its limit

Kiplinger: Warren Buffett's Berkshire Hathaway Stock Is Taking Off

Associated Press: Maybe investors shouldn't worry about Buffett's successor

Yahoo Finance: Life after Warren Buffett begins taking shape at Berkshire

Wall Street Journal (subscription): Warren Buffett Has a History With Banks—as a Critic and Investor

Wall Street Journal (subscription): EV Startups Are Proving Warren Buffett Right

HIGHLIGHTS FROM THE ARCHIVE

The 2023 meeting is now on our Warren Buffett Archive, complete with transcripts, clips, and highlight reel.

VIDEO: 2023 Annual Meeting Highlight Reel

Also available: CNBC's "Squawk Pod" did three episodes this week on the "Weekend with Warren," which include excepts from the meeting and "Squawk Box's" coverage.

BERKSHIRE STOCK WATCH

BERKSHIRE'S TOP U.S. STOCK HOLDINGS - May 12, 2023

Berkshire's top holdings of disclosed publicly-traded U.S. stocks, and BYD, by market value, based on today's closing prices.

Holdings are as of December 31, 2022 as reported in Berkshire Hathaway's 13F filing on February 14, 2023, except for:

Apple, Bank of America, and Chevron , which also include shares held as of December 31, 2022 as disclosed in New England Asset Management's 13F filing on February 14, 2023
Occidental Petroleum, which is as of March 27, 2023

The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.

QUESTIONS OR COMMENTS

Please send any questions or comments about the newsletter to me at alex.crippen@nbcuni.com. (Sorry, but we don't forward questions or comments to Buffett himself.)

If you aren't already subscribed to this newsletter, you can sign up here.

Also, Buffett's annual letters to shareholders are highly-recommended reading. There are collected here on Berkshire's website.

-- Alex Crippen, Editor, Warren Buffett Watch