Q2 thoughts

Interesting quarter. Float declined by $1 Billion, the first decline in quite a while. I wonder if that is somehow FX related?

Berkshire bought out Greg Abel’s interest in Berkshire Hathaway Energy, paying him $870 million (presumably in cash). Way to go Greg!

Only $1 Billion of share repurchases and little stock bought outside of the OXY shares we already knew about.

Insurance investment income up a lot with the rise in short term rates and higher dividends.

Berkshire is over 20% of AXP and will not be using the equity method.

Berkshire recorded a lot of income related to the fall of the Japanese yen vs. the US dollar since they have outstanding Yen denominated debt.

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Only $1 Billion of share repurchases and little stock bought outside of the OXY shares we already knew about.

I’m a little perplexed and disappointed by this. Considering how much cash was deployed in late February and March, I was hoping for more buying activity when the market sold off even more in the second quarter, especially in June.

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yes not a lot of buybacks… some more Apple and Chevron tho

Berkshire added slightly to its stake in Apple and Chevron CVX +1.65% in the second quarter, based on Barron’s analysis of the 10-Q. We calculate that Berkshire bought about four million shares of Apple in the period, bringing its stake to 915 million shares valued at $125.1 billion on June 30. It bought around five million shares of Chevron , lifting its stake to 164 million shares worth $23.7 billion on June 30.

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Only $1 Billion of share repurchases…

And none at all in April or May.

In June, the number of B shares purchased and the average price paid for them would be consistent with this order:
“Buy 0.5% of the volume traded at prices under $307.50”

Jim

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Buybacks are clearly disappointing and underwhelming. So much for some board participants expectation WEB would have accelerated buyback. I think WEB and Berkshire should provide some clarity and framework for buybacks so that investors know what to expect.

At the moment there is no clear strategy spelled out for the cash, it is like Warren knows best.

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Agree with you guys’ sentiments. Very pleased with op earnings growth across nearly every segment but pretty disappointed and also head scratching wrt limited buybacks IN June. July and net equity growth.

Very pleased BHE valuation of $87B, so looks like $7B or so to purchase the Scott estate position. Maybe later this year? Shame that Greg could not do a tax efficient exchange of BHE for BRKA vs. a cash buyout.

Looks like our Apple and CVX positions alone have increased $26+B since 6/30. Crazy Mr. Market!

Berkshire is over 20% of AXP and will not be using the equity method.

I think they will continue to use fair value reporting of AXP. Page 9 of report:

As of June 30, 2022, we owned 151.6 million shares of American Express Company …
representing 20.2% … Since 1995, we have been party to an agreement with American
Express whereby we agreed to vote a significant portion of our shares in accordance
with the recommendations of the American Express Board of Directors and agreed to
passivity commitments to the Board of Governors of the Federal Reserve System, which
collectively restrict our ability to exercise significant influence over the operating
and financial policies of American Express. Accordingly, we have not applied the equity
method of accounting with respect to our investment in American Express and continue to
record our investment at fair value.

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Did Buffett buy back at prices earlier in the year higher than prices available in Q2 or later?

Maybe a stupid question, I’m not up to speed on the available data.

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Yes.

I believe he paid up to $325 per share in Q1.

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Let us slightly rephrase the question, did Berkshire pay higher prices for A-shares?

Separately, for two months seems like no purchase, that indicates, probably Berkshire was looking at some deal in size, that they have to stop the re-purchase?

Berkshire bought out Greg Abel’s interest in Berkshire Hathaway Energy, paying him $870 million (presumably in cash). Way to go Greg!

As he owned “approximately 1%” of the firm, that transaction would imply a value for BHE of $87bn.
It was “pursuant to the terms of a shareholders’ agreement”, but it isn’t entirely clear whether the pricing formula was entirely predetermined or somewhat negotiated.
If the latter, those are pretty informed players on both sides of the table, so it’s an interesting view on fair value.
It’s 24.4 times trailing-four-quarters earnings, which were the highest to date.
Also 63% higher than what I usually value it at.

Jim

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Given 2 quarters of negative GDP growth.
Crazy used car prices on Geico.
Sharply higher rates impacting housing.

To have Q1 & Q2 demonstrating above recent trend growth performance is a strong positive for me.

Also nice to see the FX gains, that I was completely not expecting. I tend to view BRK as a mostly domestic organization.

Still hopeful that 2022 YE BV will exceed 2021.

I also like that Buffet piggy backed on me buying more apple and CVX. My memory is a little fuzzy on this one. Maybe I piggybacked on him. I am a little concerned about where oil is going in the short term. I worry every player is trying to squeeze out a little more volume. Will be interesting to see what happens when the SPR stops dumping oil.

O do anticipate the stock moving higher next week.

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I would think Buffett offered a premium to buy out Greg’s stake because Greg have to pay a very large capital gain tax and the buyout benefit Berkshire more. Web didn’t offer stock which means he think the stock is cheap, and maybe Greg think so too.

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I would think Buffett offered a premium to buy out Greg’s stake because Greg have to pay a very large capital gain tax …

That would probably be prohibited. Related party transaction purchase from a senior executive at above fair value?
You could probably worm your way out of it, but that would be a different question.

Jim

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The purchase was pursuant to the terms of a shareholders agreement between Berkshire, BHE and BHE’s noncontrolling shareholders.

My understanding is that these terms have been in place since the original purchase. And have been applied in past purchases of BHE. Maybe there is some negotiation on details?

Just my understanding.

Also:

Berkshire recorded a charge of $362 million to capital in excess of par value for the excess of the consideration paid over the carrying value of the acquired noncontrolling interest.

Analysis of this and past transactions may offer insights into how Buffett values BHE.

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Analysis of this and past transactions may offer insights into how Buffett values BHE.
Quarterly earnings call would have flushed it out.

Separately who advised Berkshire and who advised Greg?

Separately who advised Berkshire and who advised Greg

I am guessing Buffett advised Berkshire, Abel advised Greg, and the agreed valuation was given to Munger Tolles Olsen, to have the i’s crossed and the t’s dotted in lawyerlike fashion.

Do you seriously think there is anyone on earth better qualified?

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Do you seriously think there is anyone on earth better qualified?

Related party transaction, how do you establish fair price? I thought 3rd party would be involved in rendering fairness opinion.

https://pcaobus.org/oversight/standards/archived-standards/p…

Only $1 Billion of share repurchases and little stock bought outside of the OXY shares we already knew about.

I’m a little perplexed and disappointed by this. Considering how much cash was deployed in late February and March, I was hoping for more buying activity when the market sold off even more in the second quarter, especially in June.

Perhaps something big that we don’t know about was going to happen, but fell through or got delayed.