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A Way To “Reset” Berkshire, Reward Its Investors, And Go Out With A Legendary Exit
This is Porter’s Daily Journal, a free e-letter from Porter & Co. that provides unfiltered insights on markets, the economy, and life to help readers become better investors. It includes weekday editions and two weekend editions… and is free to all subscribers.
What investors should be asking at Berkshire Hathaway’s annual meeting… The “I can’t make money in oil” investor hotline… They’d be better off in an index fund… Break it up and run it as three businesses… Dropping the mic: Warren Buffett’s $300 billion gift… McDonald’s is just for the rich… |
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Berkshire Hathaway’s annual meeting is tomorrow.
As I wrote recently, “Berkshire Hathaway: It’s Over,” I believe Berkshire Hathaway (BRK) is facing a crisis at its Berkshire Hathaway Energy (“BHE”) business that will lead to a major capital loss. I also know that virtually all of Warren Buffett’s biggest investments since 2000 have been busts, with the notable exception of Apple (AAPL).
Today, with over $300 billion in cash, the biggest question that investors must answer when considering the value of the business is how this cash hoard will eventually be invested.
My answer may surprise you…
Here’s what investors should be asking at the meeting tomorrow.
#1: Why does Berkshire keep buying oil at the top and selling at the bottom?
Buffett’s latest major investment – $19 billion into Occidental Petroleum (OXY) – has been a debacle. Berkshire purchased about 265 million shares for around $14 billion. It also purchased $10 billion in preferred shares with an 8% dividend. And as part of these purchases, it got 83.9 million warrants to buy shares at a $59 strike price. Even though this is the type of deal only Warren Buffett could get, and even though he’s done much better than regular investors, Buffett is still down $3.8 billion on the common stock. His warrants are now deeply out of the money and thus have zero intrinsic value. The preferred stock helps – he’s gotten $4.5 billion in dividends and he redeemed $1.5 billion of these shares in 2022. When you add all of this together, you find that Berkshire has made about $55 million, in total, since 2019. That’s a compound annual growth rate of 0.04%. It would have done better owning Treasury bills.
This is part of a trend.