They actually did not buy any AAPL stock. Rather it came from Allegheny's (company they acquired recently) portfolio which they liquidated aside from AAPL. - Berkshire nerd.
Yes because the company the acquired may have purchased the stock at a price that fit with Berkshire’s previous purchase prices based on their own internal financial assessments.
The price at which the stock was purchased shouldn't really affect decisions about the portfolio, should it?
As I understand it, from the perspective of a rational investor, inheriting a stock and not selling it is the same as inheriting the equivalent amount of money and buying that stock.
Selling the stock means capital gains tax. In addition to buying the business presumably for its own intrinsic reasons Berkshire may want to increase its position in Apple with a long term price target of say, idk, $500/share within 10 years (just making something up here) and getting the stock at $50/share versus $150 on the open market may have made sense to them.
If the stock would have otherwise been sold off like the others, then it's not really different because the price is higher now than it would have been.
E.g. Allegheny selling AAPL + Berkshire buying AAPL == Berkshire buying Allegheny
(Assuming a perfect market, which isn't the case but I don't feel qualified to say what the other effects would be)
Part of it is: If you wouldn't buy a stock at the current price, why wouldn't you sell the stock at the current price? Shouldn't the band where you do neither be very narrow?
But the bigger part is: Why do you care what someone else paid? All that should matter is what you are paying for this acquisition, especially if you're only keeping the AAPL.
> If you wouldn't buy a stock at the current price, why wouldn't you sell the stock at the current price?
Taxes, portfolio position, longer-term price horizons, etc. Many business factors could potentially be at play. Why pay $150/share on the open market today for something you want to hold if you can get it for much cheaper?
The fact that they added to that position though demonstrates that the considerations are not just today's price.
> Why pay $150/share on the open market today for something you want to hold if you can get it for much cheaper?
Did they pay much cheaper? If so, why wasn't someone else bidding up Allegheny?
But that still doesn't explain why you wouldn't sell if you think it's worth significantly less than $150. Even if you only paid $2! But if you think it's close to $150 then the other factors make sense.
Either way, I don't see how it matters what Allegheny paid for the stock.
> If so, why wasn't someone else bidding up Allegheny?
Because then they have to buy it?
> But that still doesn't explain why you wouldn't sell if you think it's worth significantly less than $150. Even if you only paid $2! But if you think it's close to $150 then the other factors make sense.
I think the issue is your assumption that they think it’s worth less than $150 and you aren’t factoring in time or potential business factors that will influence the price, or risk for a so citric portfolio size or exposure.
I would love to "have to" buy a bunch of apple stock at much less than the current trading price! Most companies would also love that.
> I think the issue is your assumption that they think it’s worth less than $150 and you aren’t factoring in time or potential business factors that will influence the price, or risk for a so citric portfolio size or exposure.
I'm not assuming that, I'm just wondering why they wouldn't buy more if they think it's worth much more.
If they think it's worth quite close to $150 I can see why they wouldn't bother. But that leads back to me being confused on why they bought more in this indirect way, because if they got a big discount I don't understand why.
> I would love to "have to" buy a bunch of apple stock at much less than the current trading price! Most companies would also love that.
…Sure but they also have to buy the other assets.
> I'm not assuming that, I'm just wondering why they wouldn't buy more if they think it's worth much more.
I’m not sure why you are insistent about ignoring factors such as portfolio risk, price targets, time horizons, and Berkshire’s own internal financial modeling.
I’m even more confused about your comment that
> But that leads back to me being confused on why they bought more in this indirect way, because if they got a big discount I don't understand why.
Is it because you’re forgetting that they acquired these assets by purchasing another company?
> …Sure but they also have to buy the other assets.
Which were already sold off, apparently. So I'm ignoring them in this calculation, as an offset against the purchasing price, to make it a pure matter of dollars per share of apple.
> portfolio risk
Clearly not enough of a factor if they're buying more.
> price targets, time horizons, and Berkshire’s own internal financial modeling.
How do those do more than tell you what the stock is worth? I'm talking about the output of those calculations, and what you should do with it based on where it relates to the current price.
> Is it because you’re forgetting that they acquired these assets by purchasing another company?
I'm not forgetting that. I'm saying that if a big company was acquired "much cheaper" than its assets, then surely other entities should have been bidding on it, driving up the price until it's close to the value of the assets.
Let's pretend Berkshire had sold the AAPL too. That would mean they bought a company, immediately sold off "everything but AAPL" for one pile of money, immediately sold off AAPL for another pile of money, and ended up making a big profit. That doesn't make sense. Who sold it to them for such a large loss instead of shopping around?
Berkshire is not unique in its ability to buy what you call "distressed" companies. The companies it buys are not usually distressed, but just undervalued by rest of the market. It's entrance into tech is fairly recent.
Overall strategy is simple to state but hard to execute over time consistently: 1) Actually read financial reports. Buy what you truly understand.
2) Don't buy stuff during bubbles or when overvalued (which is a lot of the time) and be happy with just sitting on your accumulated reserves,
3) Buy when you spot companies/stock that is undervalued relative to the market
4) Mostly HOLD forever.
The reason tech came relatively late is it failed Rule #1 of "buy what you understand", and vast majority of the time it fails Rule #2.
What not to do: Time Warner-AOL merger was worth $350 Billion. In 2015, Time Warner got sold for $78 billion.
They have many. In a lot of cases the original creator of the company stays on to run it, which would be extremely weird if they were forced into the situation. Why would you force someone into a bad situation and then let them run your newly bought company? It's like kicking them in the knee and then handing them a knife. Why would they take up the offer, except if they thought it was net positive for them? Why do many continue to run the business for many years, rather than cashing out and running?
If you have a distressed company, that's not his fault. You create the situation, he merely offers you one of 100 options, you can choose that one or absolutely any other from the other people knocking on your door, who would presumably pay a premium for the company Buffett has just said is worth the money by virtue of having offered you a price.
Shortly after I joined a company it was acquired by Birkshire. I witnessed how they transformed operations and streamlined processes and trained/equipped employees. I was quite taken back by how good they were at their job and that's when I realized the value of good management. They were very customer oriented and wanted to make employees happy. I was in the Real Estate industry, my biggest complaint was how they bought out brokers, title, insurance and mortgage companies and they would engage in an incestuous relationships that IMO broke the fiduciary duty that a broker has with a client.
As a gigantic insurance company, a lot of the money they invest is not money they own, but insurance premiums that have not been paid out as claims yet. I think this has some favorable tax implications for them.
The TSMC move was notable because they ditched most of their holdings. One theory is that they did so because of concern over geopolitical risk, given TSMC's primary location. However that was arguably present to the same extent or more when they made the investment recently also, so this is not clear. It is out of character for them to jump in and out of investments quickly in this manner.
The AAPL move was miniscule in comparison and hardly worthy of note.
The Register had a direct quote from Charlie Munger on this question.
...Munger isn't keen on semiconductors because they're too capital intensive.
"The semiconductor industry is a very peculiar industry: you have to take all the money you've made and with each new generation of chips you throw in all the money you previously made, so it's compulsory investment of everything … to stay in the game," he said.
"Naturally I hate a business like that. At Berkshire we like a whole lot of surplus money to come in that we can do something else with."
Asked about Taiwan Semiconductor Manufacturing Company Limited (TSMC) – which just delivered Berkshire Hathaway a fast and tidy profit – Munger said he thinks the company "may be a good buy at these prices."
Berkshire holding AAPL and/or TSMC is kinda against what Berkshire does anyway, it's the index-fundification.
Their real value is when they can buy a successful company and provide effectively zero percent debt for that company to thrive. And that trick has been hard to differentiate on for the last dozen years with interest rates so low.
So perhaps they're getting the warchest full again and the band back together.
Could be based on an update to their risk model. Apple and TSMC are relatively closely tied together so having both TSMC and Apple increases risk concentration for example if TSMC butchers a node release Apple will suffer for at least a year or two. Berkshire probably decided they were no longer comfortable with the risk concentration of having both.
TSMC is making a lot of investments that won't see ROI anytime soon. Couple that with geopolitical risks and you can see how while buying might not be a bad idea, holding for short term gains would be very risky.
Samsung and Intel exist and can serve TSMC clients for bleeding edge nodes. More fabs exist at older nodes. So if something happens to TSMC, there are options.
Though it would require significant work to move. And the alternatives may not perform as well. And there 100% would be supply shortages.
So overall pretty bad but I think Apple could survive it.
Samsung and Intel aren’t capable of making chips that either Nvidia or Apple use. Intel isn’t even set up to do contract manufacturing and their entire software and hardware design tool chain is not industry standard and is geared toward their own chipsets.
Intel’s first major announcement for its foundry is manufacturing 16nm chips for MediaTek. This was state of the art for TSMC back in 2013
Its also notable they did the same thing recently with Verizon. I thought both VZ and TSM made a lot of sense. Adjacent to Apple and completely different business profiles. When they pulled the trigger on Verizon buy I thought it made total sense as a risk mitigation to waning iPhone upgrades. Once the upgrade volatility declines, Verizon bleeds less handset promotion money. Users might not buy the next phone, but will keep paying bills. It was really surprising to seem them sell so quickly.
I always thought the advantage of BRK-X was not that they were good investors, per se, but that they chose companies that were struggling or undervalued, brought them into the fold and multiplied their value.
Investing in the company already valued the highest in the market seems odd from the old version of BRK that I thought I understood.
Actually, they said in one of their yearly reports that "it's better to buy a wonderful company at a fair price, than a fair company at a wonderful price."
I think Berkshire is very willing to pay a premium for a company that meets their requirements in generating excess capital while maintaining some sort of advantage (moat) over their competitors.
That is a shift over the last few decades. The company made its early money by buying undervalued companies at a low price, but came to understand over time that long-term, it is almost-irrelevant at what price you buy a truly wonderful company. Furthermore, the financial world took notice of the outperformance of the Graham-and-Dodd approach, meaning that few true bargains sit on the modern market for long, if ever.
The challenge in the past decade or so for Berkshire has been that everything has, from a value-investor perspective, been substantially overpriced, making deploying new cash challenging.
AAPL was one of the exceptions -- at the time that they bought it, as I recall, it had a P/E of 9 and a substantial competitive moat. The geopolitics risk remains, however, scary.
Berkshire has also grown so large that it is not worth their time to identify undervalued mid-cap companies. They are not pursing companies in the class of See's Candy any longer.
The Munger article on the Register offers his opinion of the Taiwan situation:
Speaking of China, Munger offered his opinion that the prospects of the Middle Kingdom invading Taiwan have fallen greatly since Russia's illegal invasion of Ukraine. In Munger's estimation, China felt Russia's invasion would succeed, but has changed its assumptions after Ukraine's successful defense.
"I think it's off the table … for a long, long, time," he said, and that makes investment in China more attractive.
It also means worries that China could disrupt global semiconductor supply chains are reduced. But Munger isn't keen on semiconductors because they're too capital intensive.
>, but that they chose companies that were struggling or undervalued, brought them into the fold and multiplied their value.
Fyi... That's the opposite of Warren Buffet's preferred approach. He's made it known that he's not a "turnaround artist" that buys distressed companies and fixes them. Some private equity firms specialize in that type of buy-and-flip but that's not Berkshire's preferred method.
Warren's approach is to buy great companies generating free-cash-flow and with excellent management already in place.
BRK is way bigger now. Also, value investing has done poorly as of late, compared to in the 80s and earlier. The era of tiny, undiscovered value companies going up 10x or more has largely ended. There is no need to buy tiny , undiscovered but risky companies when large companies like AAPL , V, or MA can generate even better returns and with more stability. Compare the long-term returns of MA or V...you will be hard pressed to find any company that beats those.
I share your same viewpoint. My take is that Berkshire's historical value proposition which you described is falling apart and its traditional investments are giving way as it gradually transitions to kind of just being another hedge fund plus a handful of other golden geese like BNSF.
Honestly Berkshire's management of the companies it wholly owns has been surprisingly bad lately. They've been taken over by narcissistic internal parasites, the same people who always chase prestige and money. Buffett and Munger have lost control of the ship and are not able to prevent the internal rot. This isn't reflected in their share price because SO much of their share price is just AAPL (currently APPL composes 20% of their market cap, was even more before AAPL prices dropped in the tech crash)
Look at Lubrizol, with three CEO's in less than a year. Berkshire installed Chris Brown, formerly the COO of Detroit for <2 years (both "Detroit" and "<2 years" are very strong anti-signals...). He got into yelling matches with front-line lowest-level engineers over tiny projects (<$3 million) that he wanted to micromanage and was quickly let go for what people presume were "HR issues" (bit of a euphemism there, his replacement is a woman). His behavioral issues and "emotionally charged leadership" with all types of employees were obvious -- front and center, constantly.
The damning part is how did Berkshire appoint a guy that bad? Where are the internal controls?
It wasn't just the CEO either. Berkshire ended up replacing basically the entire C-suite in less than a year. [2] vs. [3]. Don Grafton as head of Operations was also a complete disaster for similar reasons, minus the rumored HR violations. He constantly refused common sense ROI improvement proposals and critical maintenance projects, but approved and championed really dumb high-capital, low ROI work and micromanaged down to the level of "The storage tank needs to be this size and shape." At no other large company would the projects that he micromanaged even have been reviewed for approval by the C-suite. They were shockingly low-level, low-impact work, far below what C-suites should even be aware of, let alone spending half their time on.
I've heard better things about the current CEO but Brown was so bad that "better" is pretty relative.
Plus the new CEO has very little to work with at this point due to truly unbelievable attrition. The C-suite told everyone in an all-hands sitewide roundtable "We're not adjusting salaries for inflation, if you feel you're underpaid then find another job". About 1/3rd of the Lubrizol engineers took them up on that and now its pretty bleak inside their plants with a huge loss of expertise and nothing replacing it. Multiple people who worked there (people from both their HQ in Ohio and also in their largest chemical plant in Texas) have told me they can't come up with a single colleague that they professionally respected who didn't leave and move on.
They've had two huge industrial accidents in that time which, in this case, was a direct result of top-level mismanagement and failure to invest in maintaining equipment and failure to retain any of their top talent. Rouen, France [0]. Rockton, IL [1]. It's not clear that France will even let them re-open the plant, its rumored they've lost their "license to operate" there. "License to operate" isn't a literal technical thing, its an industry term for the confluence/totality of all political and regulatory barriers to proceed with construction and operation of facilities in a particular jurisdiction.
It doesn't reflect well on the board of directors at all.
I will say the new CEO is focusing hard on attracting new top talent and looking at grand improvement projects and potential restructuring deals to change up ownership of particular production units. She's making the right moves now but it's a really, really tough place to begin from.
> Plus the new CEO has very little to work with at this point due to truly unbelievable attrition. The C-suite told everyone in an all-hands sitewide roundtable "We're not adjusting salaries for inflation, if you feel you're underpaid then find another job".
Perhaps a bit concerning when Buffett has been telling everyone that if they just sharpen their skills and work to be the best in their field, they won't have to worry about inflation. Either his companies don't hire very well, or he doesn't want to have to pay to retain good, experienced workers.
“If you’re the best teacher, if you’re the best surgeon, if you’re the best lawyer, you will get your share of the national economic pie regardless of the value of whatever the currency may be,” the then-78-year-old said [in 2009].
For better or worse, this is the stuff you need personal connections with industry insiders to get the scoop on. The chemical industry doesn't have anything like [0] to get internal scoops so these stories are not published anywhere.
It's one of those "go to the right school and know the people in the room" things. Everything I've mentioned is stuff that tons of low-level people are fully knowledgeable about and commonly known to the chemical engineering community around Houston, but I also know people who work with the C-suite and these issues are absolutely reflecting in the top-level business reporting as well. Which I could be bullshitting because when you see "The direct economic consequences resulted from companies partially ceasing their activity (e.g. neighboring chemical manufacturers in the area, and/or customers, or suppliers, etc) and farmers that had to destroy their harvests." in Wikipedia, any business intelligence service could do some research to estimate the potential damages and obviously these things "would reflect in the top-level business reporting as well", whatever that means.
One of BRK's huge advantages is its ability to obfuscate individual company performance in combination with its historical reputation for excellence. Its quarterly reports don't break out how well each company performs so if AAPL goes up 25% it makes up for a lot of mismanagement and performance issues across BRK's portfolio companies. So people just assume its constituent subsidiaries are continuing to be managed well.
But BRK has a huge influence on rail regulation, and we can also see how forward-thinking they are there as well. Inferences can be made from the risky practices they're implementing and what reliability innovations they're resisting. Who in the upcoming generation are going to want to go into the rail industry? Even for the degreed civil or transportation engineers, the rail industry lifestyle is now unappealing when compared to other markets they can apply their talents. The pay absolutely doesn't make up for the constant travel and lack of any social life, unlike, say oilfield engineering compensation which has a similar lifestyle.
That said, do I think BNSF is at risk for losses? No. They clearly fit the BRK model of a business with a "natural moat" and in these times of extremely constrained shipping capacity, they will be able to charge whatever they need to, in order to maintain healthy BNSF profitability. The point is more:
1) This is a concerning pattern in how BRK manages its subsidiaries. Some of its other holdings won't be able to tolerate it and stay above water.
2) Some of the individual things are so bad and reflect on BRK so directly (appointment of obviously terrible C-suite leaders) that it's prima facie evidence of BRK deterioration. We would need strong counter-evidence to reject that conclusion.
I attended the annual meeting last year and though I historically love the company, came away less than impressed. I can see how people in the past would take a pay cut to work closely with WB or have him invest in their company. But does Greg Abel really have anywhere near the kind of gravitas necessary to attract top talent or get good deals? I don't see it. Lots of bland corporatespeak from him.
> Investing in the company already valued the highest in the market (AAPL) seems odd from the old version of BRK that I thought I understood.
Just because Apple has the highest market cap does not mean it’s overvalued. I added AAPL at $125 and $127 in early January because I thought the market was undervaluing Apple, just like Berkshire. Today it’s trading at $151/share.
On the one hand this is a little disturbing because it suggests they might be worried about near-future Chinese aggression towards Taiwan. But then, AAPL is the last company I'd invest in if I thought that someone was literally going to declare war on the semiconductor sector. Not sure what to think about this move.
Could it just be that investing in Apple could be seen as "I get all the upside of any benefits I would get in investing in TSMC, with the additional upside of getting exposure to all of Apple's product decisions in non-chip related markets ( eg financial, content, et al )?" Like, if TSMC invented a new fab process tomorrow that was amazing, that'd be cool, but it'd be unlikely to make a substantial increase in stock prices in its future as that sort of is how TSMC normally behaves. That's their whole business. But Apple has a history of unlocking new markets and adding new cash flows, plus doing a pretty good job maintaining their current cash flows, so you get more upside on Apple, plus a hedged exposure to TSMC?
I say all that with full acknowledgement I'm just like, playing a guessing game at professionals here.
It might be a case of overthinking it. BRK announced the position Nov 2022, and TSM has appreciated 50% since then. That is an easy $2B profit in less than 6 months, and it may have been Ted/Todd, who are a little less beholden to traditional BRK investment timeframes.
BRK doesn't try to guess right in global macro. They are fundamentally business analysts. I wouldn't try to read into it a political forecast. They would disclaim any expertise themselves.
Yes it’s very different. The competencies needed to design a chip and manufacturer a chip at scale reliably takes a different set of competencies.
Even designing different types of chips require different competencies. Apple couldn’t just design a graphics chip to compete with Nvidia and infamously, Intel couldn’t design a modem chip to compete with Qualcomm
Yes, every Berkshire annual report has a chart comparing Berkshire's stock performance to the S&P 500's performance, year by year. See the table near the start of https://www.berkshirehathaway.com/2021ar/2021ar.pdf . From 1965-2021, looks like the S&P 500 gained 30000% and Berkshire gained 3,600,000%. Of course, they don't beat the index every year.
TSMC has a great business today, but world governments are dumping around a few hundred billion dollars in subsidies towards local TSMC competitors (e.g. ~$25B-$75B from the CHIPS act alone depending on how you count)
TSMC's moat isn't enough to withstand that much subsidized competition. All of those new competitors will chase market share and destroy the profitability of the market.
Yeah, chip market is very likely to go from boom to bust. There was an incredible amount of investment as governments realized that chips needed to be commodity cheap with guaranteed supply or the modern economy could collapse. Expect silicon to be more like wheat and oil moving forward, heavily subject to government investment, regulation and controls to ensure a steady supply.
It doesn’t matter how much money governments are throwing at competitors. The expertise required is tied up in Taiwan everything else is just to get political brownie points.
Just like when the TSMC factory does come online and is fully operational in the US, there will still be a huge dependency on Taiwanese manufacturing.
It’s the same thing you saw when Cook prostrated himself to Trump showing Apple “bringing Mac manufacturing to the US”. All they did was bring final assembly of Mac Pros that sold in low volumes back.
Apple did the same in the UK and other countries to make the politicians look good.
Sorta remarkable he switched to tech after abstaining from it earlier. It shows even at the age of 90 and regarded as the greatest investor of all time, he still has stuff to learn. But even Geico can be considered a tech company now. Same for American Express. Tech has merged or is imbued with everything else.
The issue with TSMC seems to be there is demand for their leading node but not enough demand for their 7nm. Also the cost of build the next bleeding edge node is getting higher and higher and at some point even though Physics of building lets say 0.5 node feasible but the economics wont be there. That means their rivals can catch up with them in 5 year span.. while they remain stagnant.
TSMC only has one rival: Samsung. Intel is not really a rival, no matter how good their process is, they cannot win big contracts with Apple, Nvidia, AMD.
> "I am very happy that we were able to add a leading cloud, edge, and datacenter solutions provider as a leading-edge customer for Intel 3," said Pat Gelsinger, Intel CEO. "Including prior customers such as MediaTek, we now have a lifetime deal value of greater than $4 billion for IFS."
Hmm, I wonder what "leading cloud, edge, and datacenter solutions provider" that would be? /giant thinking emoji
What's NVIDIA got coming in 2024? Any tegras, or Mellanox, or heck that's also their next consumer graphics window.
If it's not NVIDIA that's a pretty short list. Maybe Tesla? Broadcom? Are those companies working at leading-edge?
Anyway:
> Intel's IFS has been steadily gaining momentum. The foundry unit has already signed Qualcomm and Amazon Web Services (AWS) as initial customers and won a contract from the U.S. Department of Defense. In addition, Intel says it is actively working with many of the largest fabless chip designers on specific engagements, which is quite an achievement for a contract chipmaker that has been in the business for less than two years.
> "We also have an active pipeline of engagements with seven out of the 10 largest foundry customers coupled with consistent pipeline growth to include 43 potential customers and ecosystem partner test chips," said Gelsinger. "Additionally, we continue to make progress on Intel 18A, and have already shared the engineering release of PDK 0.5 (process design kit) with our lead customers and expect to have the final production release in the next few weeks."
Regardless of what you think, this time is different. It's do-or-die for Intel, their design teams can't be relied upon to keep the foundries busy anymore, and the design teams can't rely on the foundries to execute flawlessly every node either. It's in everyone's best interests to disambiguate these, you can't rely on P(FAB_SUCCESS) * P(DESIGN_SUCCESS) when every other fabless company or foundry has a success probability of merely P(DESIGN_SUCCESS) or P(FAB_SUCCESS) individually. You can't stake the fabs on the design groups executing well and keeping them busy, and you can't stake the design teams on the fabs not fucking up and bottlenecking your release pipeline.
The fabs can still be a huge moneymaker (see: TSMC) but it's time to go arms-length between the business groups.
And yeah it's gonna be a huge shift for everyone involved - that's part of why Sapphire Rapids stalled out for 12 steppings or whatever. Intel 4 is actually ready to go and the design teams can't get their shit together in a world where they can't go down the hall and have the fab team fix their shit, that's why you're seeing some of these products spin out to ridiculous numbers of steppings. So who's gonna fill all that fab capacity that's sitting there idle? Not Intel products, that's for sure. And that's the call Gelsinger is making, these are now two arms-length business groups who use a lot of each others' services, but they do business with other companies for those services too.
Samsung does the same model FYI, they sell custom foundry to their own competitors (famously, Samsung vs TSMC SOCs in iphones). So does LG and many others. For example sometimes Apple products or other brands will end up with better displays than the actual LG or Samsung products - cause they're distinct business groups and LG Electronics just happens to buy a lot of LG Display panels.
