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It's likely Buffett sold more into strength. ''Chinese EV and battery maker BYD, the second-most profitable EV company after Tesla, told investors it expects to make about $2.4 billion to $2.5 billion in 2022. BYD makes more EV models at lower prices than Tesla, but Tesla is larger and far more profitable.''

It is possible that some of the share price strength is due to BHE pausing their selling. If BHE intended to sell down to the round number of 150 million shares, they wouldn't need to file another disclosure. So far, there has been no disclosure of interests filing since Jan. 3rd.

https://di.hkex.com.hk/di/NSAllFormList.aspx?sa2=a...

Hi, you are experienced with this form, what does this mean ? Thanks, Date of relevant event (dd/mm/yyyy) Interests in 3/1/23 ??

It's likely Buffett sold more into strength. ''Chinese EV and battery maker BYD, the second-most profitable EV company after Tesla, told investors it expects to make about $2.4 billion to $2.5 billion in 2022. BYD makes more EV models at lower prices than Tesla, but Tesla is larger and far more profitable.''

I wonder why Buffett is lightening up on this holding, given its primo positioning in a rapid growth industry? Geopolitical risk? Worried the CCP is going to take too much of the profit for the state?

I wonder why Buffett is lightening up on this holding, given its primo positioning in a rapid growth industry? Geopolitical risk? Worried the CCP is going to take too much of the profit for the state?

Valuation? The fact that the equity stake became very large and resides inside their energy subsidiary? Or maybe it wasn't a Buffett decision to buy and isn't now a Buffett decision to sell.

Hi, you are experienced with this form, what does this mean ? Thanks, Date of relevant event (dd/mm/yyyy) Interests in 3/1/23 ??

Not sure what you are asking exactly, but the link is to a list of all of the shareholding disclosures for BYD's Hong Kong listed shares (HK:1211), which is the class of shares that Berkshire Hathaway Energy owns. As of January 3rd, 2023, the most recent filing, BHE owned 153,332,500 H-shares of BYD (HK:1211).

A filing is required when the "whole number" of the percentage ownership of this specific class of shares (not the entire company, just the % of H-shares)changes. So the last filing was for a trade on 1/3/2023, when BHE's ownership percentage of this class of shares changed from 14.x% to 13.x%. The "no. of shares bought or sold" column is just the number of shares on that specific trading day - not the number sold since the last filing. That is why the media misreports the amount of stock sold each time they report on a new filing here.

The next filing (if they continue to sell) would be required when BHE's ownership of the H-shares goes from the current 13.xx% to 12.xx%.

If they stopped at a round number of 150 million shares, they will not be required to make a filing, since they won't have changed the "whole number" from 13 to 12.

Hope that makes sense.

Munger and Lu turned Buffett on to byb , it's definitely Buffetts trade. It's up big, Buffett might see margin pressure and more competition ahead. My guess is he continues to sell but we shall see.

BYD in talks to acquire an Insurance company

https://www.reuters.com/markets/deals/chinas-ev-gi...

Munger and Lu turned Buffett on to byb , it's definitely Buffett's trade.

Why do you conclude that?

It seems pretty clear that it was Mr Munger's original pick/suggestion.
It was certainly not an investment whose scale along screamed "Mr Buffett's pick", so that is no guide.
It wasn't a very big position to begin with, under $250m?

My guess has always been that the investment was pretty much entirely the action of (delegated to) Mr Munger and/or Mr Sokol.
It wasn't big enough for Mr Buffett to care that much, like any pick by T&T, and it was left outside his main portfolio within the insurance division.
Offhand, my impression is that Mr Buffett's involvement was limited to "I don't particularly object".

Once the capital at risk became appreciable after the gains, and with lofty valuation levels, taking the money off the seems more like a Buffett decision.
Especially, as others noted, with the high and increasing jurisdiction risk.

Jim

Jim, in consideration of jurisdiction risk, what are your thoughts on Apple and investing in general in such situations?

Jim, in consideration of jurisdiction risk, what are your thoughts on Apple and investing in general in such situations?

I won't invest in Chinese companies or VIEs.
The Chinese exposure within Apple is huge, so as a Berkshire shareholder there is a small wrinkle in my brow.
Let's just say I wouldn't buy Apple beyond what I own via Berkshire.

It's possible that, even though the Apple position accounts to maybe 1/6 the value of a Berkshire share, Apple's China exposure might be the biggest risk within a Berkshire share.

At a guess:
If the worst scenarios happened, it would be an unpleasant but wholly survivable hit to a share of Berkshire-- and a really huge but not-quite-fatal hit to a shareholder of Apple.

Jim

So if you were his right-hand man and expert on China (Munger style) you'd advise Mr Buffett to sell out of Apple completely?

Yes, not Buffett's decision obviously but it will be considered his by most.

So if you were his right-hand man and expert on China (Munger style) you'd advise Mr Buffett to sell out of Apple completely?

No....
Because I'd be right hand man to Mr Buffett rather than anyone else, so I would defer to his judgment.
Jockey reasoning.

It's not just because he's famous, or his reputation for good portfolio performance.
Specifically, I am sure he has thought about this very issue, hard and often.
For example I would be very surprised if he hadn't read that specific FT article and pondered it at length.
And I know he has no hesitation to dump all of a giant position promptly if he no longer feels comfortable with it for any reason.
So if he still has the position, he's still feeling the love.

True, I doubt he is the most world's most insightful thinker on geopolitics.
But he is famously risk averse, and famously concentrated in the US because of its very predictability for owners.
If he is making steps that seem not to be in keeping with that, I am sure it is only after careful consideration of the upside and downside.

I believe his record stands: no portfolio he has managed has ever had a position which ended with a realized loss of over 1% of portfolio size.
Gosh, imagine how my portfolio balance would look if I had managed that feat over the years...

But I am not Mr Buffett.
So I am not making that same decision for my individual positions.

Jim

It's made me think again about concentration risk, including Berkshire. Indexing begins to look more and more attractive the more I learn that I know nothing the older and "wiser" I become....

As I also get older I've started to grasp the benefits of diversification... or rather, risks of concentration.

And while I appreciate the upside potential of "going all in" and compounding a portfolio at high rates for long periods of time, I think it's extraordinary difficult.

I was wondering if anyone could share their thoughts on proper positioning sizing while maintaining material exposure to high conviction ideas. For example, fellow members of the board have in the past stated they were comfortable with a 50% weight in Berkshire. Why 50%? What would an appropriate baseline weight be for say, GOOGL or MSFT?

I've been thinking that perhaps a fairly valued quality company would have a 5% baseline weight, up to a max limit of 10% if valuations are compelling enough. That way no single position, as compelling as it could be, would at least be kept in check I were wrong in my analysis. But I feel the percentages can vary so much depending on who you ask (some may say 5% is already too large a position, while others would argue a 5% position wouldn't do much).

"I was wondering if anyone could share their thoughts on proper positioning sizing while maintaining material exposure to high conviction ideas. For example, fellow members of the board have in the past stated they were comfortable with a 50% weight in Berkshire. Why 50%? What would an appropriate baseline weight be for say, GOOGL or MSFT?"

I'm in the camp that views BRK as a lot closer to an "index of profitable companies" than a single company. The outsized weight I give it (over 50%) is built on this premise, and I don't extend it to any other equities.

There are a lot of assumptions built into this belief, all of which I'm pretty confident in: the basic integrity of management; the legal structure of BRK is such that a bad bet or two won't sink the ship; the internal diversity of its profitable businesses (railroads, insurance, tech/consumer goods, etc.); the notion that tomorrow won't look too much different than today; etc

So I suppose I'd say I reject your premise somewhat. In my mind portfolio weight can and should take into account the entity behind the ticker, and there are no hard and fast limits for that reason.

Ideally a 10 x 10%. The problem I have is finding suitable opportunities outside of my top 3, I start to lose conviction. So perhaps 50% S&P and c5 individual holdings.

At the moment BRK is my S&P, if the index falls closer to long term valuation averages I may add this rather than sell BRK.

Other than that I'm BABA 15% Alphabet 15%, Meta 7%, Tencent 7% and smaller holdings of Prosus, Dis and Intel.

Berkshire Hathaway Energy has filed an update with the HK exchange to show the further sale of another 11.715 million BYD (hk:1211) shares as of 1/27/23.

https://di.hkex.com.hk/di/NSAllFormList.aspx?sa2=a...


You can safely bet that press reports will show "Buffett sold 1.554 million BYD shares and owns 12.9% of the company"...

Thanks,for sharing the form, once we drop below 10 % is this filing no longer required?

Thanks,for sharing the form, once we drop below 10 % is this filing no longer required?

The form is required when BHE is above 5% of this specific share class, the "H-shares" traded in Hong Kong - so much less than 5% of the total company.

So you soured on your interest in BABA? Both BABA and BIDU have recently become profitable for me.

I sold BIDU and put that into Meta. I've gone off BIDU. It's not in the same league as Tencent or BABA. (Growth prospects)

Still hold BABA at an average of c150. I've sold some of it down recently @ 118 (a tranche purchased @80) to purchase a VW Golf GTI.

I have tranches of shares across dealing, SIPP and ISA accounts. I sold the dealing gain in BABA because our Mr Hunt is abolishing the tax free element of capital gains tax. So thought it a good time to do so.

The portion remaining I plan to put into our Lifetime ISAs post April and get the Gov top up.

I won't invest in Chinese companies or VIEs.
...
So you soured on your interest in BABA?

Not exactly--I always had a very strong opinion that it didn't ever meet Rule #1, so it was never suitable for a large position size.
Just to begin with, BABA paper doesn't represent shares in the well known Alibaba business in China.
The bullish notes were limited to the notion that I thought there was a pretty good chance that the price would be much higher in a couple of years.
Even the prices things with dubious firm value can go up a lot.

So I bought some calls as a gamble: heads I'd win quite a bit, tails I wouldn't lose much.
Not very long term, as I didn't want to commit much cash, and it bought time to let the clouds clear to make a better decision.
I rolled them once (no new cash into the position).
But the probabilities of upside versus downside outcomes seem increasingly unlikely to me, so the maximum position size has continued to shrink.
So I still don't want to put new cash into the position, so I'm letting them expire.
Barring a last minute big pop, the cost of the calls will have been a dead loss.
But trivial as a percentage of my portfolio, and the outcome is not wholly unexpected.

I did a couple of rounds of BABA trades in the past that were profitable, so I'm up overall on the ticker. Just not as much as I was : )

Jim

Oops I thought you'd asked me, Jim's strategies are far more interesting.

Jim can I ask which are your favourite stocks in the current top 10 most purchased by the Superinvestors.

https://www.dataroma.com/m/g/portfolio_b.php?q=h&o...

Jim can I ask which are your favourite stocks in the current top 10 most purchased by the Superinvestors.

Sure. Just Alphabet.

Also I wish I had bought Costco years ago, though it's not anywhere on that list.
Every year I wonder if it's too late, and don't buy. I've never owned it.
Next time the market is covered with red ink, I might finally think about buying.
Earnings are so smooth that old fashioned P/E doesn't make a bad yardstick.
I'd love to be in under 30x recent earnings, but it has rarely been under 35x in the last 3.5 years.
Even the old normal used to be the 26-33 range.
Luxury goods tend to be expensive.
But...it's remarkable how well they have done, and how reliably they've beat the market over any rolling 5 year period.
For the simple reason that they make a whole lot of old fashioned profit, and the profit per share has risen at a rate both formidable and steady.
Extrapolation is dangerous, but at least that's a very good omen.

Jim

I have to say I concur.

I've also been looking at some of the old school favourites too like Nestle and Unilever (definitely not on the list), steady as she goes and consistent reliable earnings at reasonable valuations.

We used to get really excited on the Fool board about the 3G partnership days.....I even purchased and read their management handbook 😂 all seems a bit passe now and doesn't get mention in the news or at the annual meetings, conveniently forgotten chapter?

I still like those types of companies, it's not all about technology. Although looking at my portfolio views would differ. I like entry points to such companies at c15 x earnings, tech 20 or below.

Also I wish I had bought Costco years ago, though it's not anywhere on that list. Every year I wonder if it's too late, and don't buy

Cost has 850 locations. Target has 2,000, which is not a perfect metric, but closer than comparing to WalMart, which has gazillions. OTOH, Sam's only has 600, but that's not a focus of their business, I think.

Anyway, we have a Costco and 2 Sam's and they both exist nicely in our relatively small market.

There is lots of runway ahead, but (obviously) they remain vulnerable to the same kinds of macro trend of retail as anyone else, maybe a little less so since they're so well run.

(Not commenting on current valuation; haven't looked, don't need to. Had it for years.)

Costco.

An interesting one. I've not actually done a fag packet on this one so I just have!

Last 5 yr EPS growth c13%
Average last 3 years eps 11.14.

11.14 @ 13%pa x 10 years=37.82 eps. x 20 times earnings = 756.4 @ 10% discount rate equates to an intrinsic value of $291 a share and a current share price of $520.

What am I missing?

I own Alphabet for many years and it is a continual favorite here on the Berk board. Other than advertising, what are their profitable sectors?

11.14 @ 13%pa x 10 years=37.82 eps. x 20 times earnings = 756.4 @ 10% discount rate equates to an intrinsic value of $291 a share and a current share price of $520.
What am I missing?

I think 10% is a laudable goal but not very useful as a discount rate.

A different angle of attack.

Earnings per share have risen at inflation + 10.5%/year in the last 13 years.
Let's pencil that in as a starting point for our projections...a bit optimistic, but it's a start.
Let's say they're coining it at the rate of about $13.80/share/year at the moment, eyeballing forward and backward numbers.
That gives earnings 5 years out at $22.75 and 10 years out at $37.45, in today's money.
The average 5-10 years out is $29.60 in today's money.

My usual rule of thumb is that you do nicely (average or better) if you pay less than 12 times the average EPS 5-10 years later, which would be $355.
And you generally do very well if you pay no more than 10 times that number, which would be $296.
These rules work for high-growth firms, low-growth firms, and currently profitless firms.
The built in assumption is that growth further out than a decade can not safely be assumed to be high, so neither can the terminal multiple be.

My rather offhand comment further up the thread was that I'd at least like to get it at under 30 times earnings.
30 times $13.80 is $414, which isn't in that rule of thumb range, so not good enough.

Or:
Another rule of thumb is that I'm rarely willing to consider any currently profitable firm to be worth more than 21 times cyclically adjusted earnings.
(the often are, but I never assume so).
Even the targets from the <12 and <10 rule of thumb above would be 21.5 to 25.7 times current earnings, past my usual upper bound.
High because of the optimistic assumption of continued growth at recent rates.

So...fab firm, but if you're unwilling to make the assumption of a brilliant (rather than just very good future) you don't want to pay more than $290ish these days, being a multiple of 21.
(rising with the earnings trajectory)
Surprisingly close to your number!
But not an opportunity which seems likely given the current price of $517.

Great firm.
But it's clear why I've never bought...it always seems to expensive for me.
Paying a rich price makes sense if the future comes out as bright as current shareholders seem to expect. Which it might.
Or not.

Jim

But it's clear why I've never bought...it always seems to expensive for me.

Har, har.

It was 'too expensive' when I bought it a decade ago, too. Lord of the Markets willing, it still will be when I go to sell it, if ever.

Other than advertising, what are their profitable sectors?

One could rephrase.

Other than making beeeelions of dollars each year by totally dominating the global advertising market, what else do they do?
Hey, maybe that's enough.

At that level of penetration, even additional intrusive regulation is usually a positive.
It's harder for smaller incumbents to follow new tighter rules than it is for the fat monopolist.
The banks are the best recent example of this effect.
Even forced breakups are usually good for shareholders.

They're making about $5 a share at the moment, give or take.
Down a fair bit from recent peaks.
On trend, it was about $1 a share seven years ago.
5^(1/7)= 25.8%/year compounded.
That isn't a prediction, but it's the reason many of us are impressed.

I'm fine if they blow 10% of owner earnings on lottery tickets that usually fail. Or always fail.

Jim

Regarding retailer stocks. The Financial Times did an article about a week ago, looking at the interesting puzzle of UK retailers.

https://www.ft.com/content/ba9a9e6f-c243-4d61-88fe...

"Why investors have largely shelved retail shares - Shoppers have profited, but very few shareholders have"

It's paywalled, but if you have a local library, university access etc you can access it, perhaps sign-up for a free trial. (The FT is also worth paying for, it's probably the best English-language daily newspaper around - the finance coverage is just a bonus.)

Anyway, the thing is - long term, too much competition and poor margins have ruined profits for most UK retailers. This may not translate to US retailers, but if you're considering a big investment in US retailers then perhaps the article is worth a look, or the idea is worth a think.

Thinking of that FT article, also reminds me of an interesting comment by Charlie Munger:

"Over the years, we've tried to figure out why the competition in some markets gets sort of rational from the investor's point of view so that the shareholders do well, and in other markets, there's destructive competition that destroys shareholder wealth."

"If it's a pure commodity like airline seats, you can understand why no one makes any money. As we sit here, just think of what airlines have given to the world ' safe travel, greater experience, time with your loved ones, you name it. Yet, the net amount of money that's been made by the shareholders of airlines since Kitty Hawk, is now a negative figure ' a substantial negative figure. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business."

"Yet, in other fields'like cereals, for example ' almost all the big boys make out. If you're some kind of a medium grade cereal maker, you might make 15% on your capital. And if you're really good, you might make 40%. But why are cereals so profitable ' despite the fact that it looks to me like they're competing like crazy with promotions, coupons and everything else? I don't fully understand it."

"Obviously, there's a brand identity factor in cereals that doesn't exist in airlines. That must be the main factor that accounts for it."

"And maybe the cereal makers by and large have learned to be less crazy about fighting for market share ' because if you get even one person who's hell-bent on gaining market share'. For example, if I were Kellogg and I decided that I had to have 60% of the market, I think I could take most of the profit out of cereals. I'd ruin Kellogg in the process. But I think I could do it."

"In some businesses, the participants behave like a demented Kellogg. In other businesses, they don't. Unfortunately, I do not have a perfect model for predicting how that's going to happen."

So I suppose my question is, is Costco like a cereal business, or an aeroplane business, and will it remain that way across all the most likely economic futures?

Nice snapshot of the UK.

https://www.telegraph.co.uk/business/2022/11/09/al...

The interesting thing about Lidl and Aldi is that they they have very few product lines and buy in bulk c4000 lines vs 40,000. They work off very thin margins and reinvest in their estate, they fill in gaps everywhere and saturate towns. They own mostly freeholds, so like McDonald's are a large real estate company that sells beans IMO. I've met both of their property teams and have been involved in some site finding for them both. They have maintained a large roll out of new sites while the big 4 have stagnated and it's no longer viable for them to open new stores with many sites mothballed or in sold them off for housing.

Asda and Morrison are now owned by Private Equity and struggling, Sainsburys next. Walmart saw the writing on the wall and sold out (Asda) Tesco the former powerhouse (owned by Berkshire at one point is a shadow of its former self) avoid investment IMO.

I found not read the article because it's behind a paywall. Does it mention any of the TJX retail outlets in the UK? They own TKMaxx and HomeSense in the UK.

They have a somewhat niche model - offering quality merchandise that was purchased "opportunistically" in the market - at a discount price.

Thanks,
'38Packard

Also I wish I had bought Costco years ago, though it's not anywhere on that list.
Every year I wonder if it's too late, and don't buy. I've never owned it.

I got into Costco more than 20 years ago before I had even heard of value investing. Because I had small sums to invest and discount brokers charged $15 per trade, I enrolled in free dividend reinvestment. The accumulation and compounding has paid off handsomely. I would probably not have bought any more shares after the initial purchase. Now the decades old DRIP shares look like bargains, though they were probably overvalued by PE measures.

Almost all great successful growth companies spend most of the time near all time highs. Constellation Software, a 100 bagger since IPO has been a 15 bagger over the last 10 years. Presumably it has been overvalued most of the time. It's current PE is 78. PCF is 30 and Free CF growth is projected at 12.6%

'Berkshire continues steady sales of BYD shares
Berkshire Hathaway disclosed this week that it sold another 11.7 million shares of the Chinese electric car maker BYD since early this month.

As of January 27, it held 141.6 million shares, which is 12.9% of BYD's outstanding shares. At today's close, they are worth $4.6 billion.

BYD shares are up around 32% on the year, so despite having fewer shares, Berkshire's stake is worth $100 million than it was on January 13 when we reported on the previous sales disclosure.

If Berkshire had held on to all 225 million shares, they would be currently be worth $7.3 billion.

This most recent reduction brings the total sales to 83.4 million shares since the first batch was disclosed late this summer, reducing the 225 million shares stake Berkshire bought in 2008 for $230 million by a bit more than 37%.'

My usual rule of thumb is that you do nicely (average or better) if you pay less than 12 times the average EPS 5-10 years later ....... And you generally do very well if you pay no more than 10 times

And then regarding favourite stocks you mention only Alphabet? Because the poster limited it to "favourite stocks in the current top 10 most purchased by the Superinvestors". Otherwise I think according to your own rule your list has to contain many more companies, like

BABA (deleted for reasons you repeatedly explained)
META (same)
KMX
VZ
PYPL
WRB
MKL

And only "just" BRK.

Has your view on KMX changed?

brgds

My usual rule of thumb is that you do nicely (average or better) if you pay less than 12 times the average EPS 5-10 years later ....... And you generally do very well if you pay no more than 10 times
...
And then regarding favourite stocks you mention only Alphabet? Because the poster limited it to "favourite stocks in the current top 10 most purchased by the Superinvestors".
Otherwise I think according to your own rule your list has to contain many more companies, like
BABA (deleted for reasons you repeatedly explained)
META (same)
KMX
VZ
PYPL
WRB
MKL

Simple enough explanation:
The question posted was about the top 10 on the link posted.
Most of your list aren't in their list, at least not in the default sort order I saw, which I think was number of buys.
The top 10 list at the link was:
META
MSFT
AAPL
GOOGL
CRM
GOOG
BKNG
PYPL
V
GNRC

A couple I don't know, a few fine firms I don't fancy at current valuations, one on my "don't invest" list.
And Alphabet.
Paypal did make it further up my watch list last summer.

There are certainly plenty of other good firms I like that aren't on that top 10 list.
Carmax is certainly one of them. The dollar stores, when they're at attractive prices.
But whether or not a firm makes it onto the "rule of thumb" list is primarily a function of the answer to the question:
What level or real earnings, average 5-10 years from now, am I "pretty darned sure" they'll achieve?
The world's economy has been teaching me for many years to be less than pretty darned sure about things.
I'm pretty darned sure Berkshire will still be around, and still making money.

Jim

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