FRI., APRIL 14, 2023
For the first time since February 2020, Warren Buffett did a live, three-hour interview on CNBC's "Squawk Box" this week.
He sat down with Becky Quick in Tokyo to talk about Berkshire's investments in Japan, the recent U.S. bank failures, toxic railroad derailments, and more.
Photo: CNBC | Lacy O'Toole
Buffett gets bigger in Japan
Warren Buffett came to Japan to highlight Berkshire Hathaway's growing investments in the country's five biggest "trading houses," large companies that "import goods and services across multiple industries vital to the nation's economy, from automobiles to infrastructure to clothing."
After initially buying stakes in 2020 of slightly more than 5% in Itochu Corp., Marubeni Corp., Mitsubishi Corp., Mitsui & Co., and Sumitomo Corp., Buffett revealed this week that Berkshire now owns 7.4% of the companies' outstanding shares.
In his "Squawk" interview, Buffett said when he first invested in them, he was "confounded" that he could buy into companies with strong earnings and growing dividends at what he considered a "ridiculous" price, especially when compared to the near-zero interest rate at the time.
He has not been disappointed, telling Becky Quick, "It's turned out to be better than I thought it would be."
Stock price gain is calculated using June 1, 2020 to illustrate the increases since around the time Berkshire began buying the shares. When Buffett first revealed the holdings in November 2020, he said they had been purchased over a roughly 12-month period.
Another plus for Buffett is that he "generally understood what they did" since they "were similar to Berkshire in that they owned lots of different interests."
He and Greg Abel, Berkshire's vice chairman for non-insurance operations and Buffett's designated successor as CEO, had a "terrific" time meeting with top executives of the five firms and "we couldn't feel better about the investment."
While Buffett has promised not to buy more than 10% of any the companies' shares without their permission, he did indicate there may be more purchases to come.
And Abel said that in their meetings, they promised to give a quick response (Buffett will "answer the phone on the first ring") if the companies come up with any incremental opportunities, "the bigger the better."
Monex Group’s Jesper Koll told CNBC's "Street Signs Asia" that "for Japanese institutional investors, this really is now the stamp of approval that Japan can deliver superior returns."
"He’s got the track record globally, but now he’s got a very positive track record in investing in Japan."
Koll also says that since the Japanese trading houses will have "superior intelligence and superior access" to any new business ventures in the region, they will give Berkshire "a unique antenna into the future view in Japan as well as the Asia-Pacific."
Investor Mark Mobius is not enthusiastic about the Japanese trading houses because he thinks the prices are now too high.
But in an interview on "The Exchange," Mobius suggested Buffett has "plans for something else ... a big deal ... that may need the help" of the trading companies.
He points out that Berkshire has been selling bonds denominated in yen, including a new $1.2 billion offering this week with yields "nearly seven times higher" than what the company paid when it started selling yen debt in 2019.
Berkshire paid for its trading house shares using the yen it has been borrowing to protect itself from the risk of a big currency move, but the bond sales have also raised speculation the money could also be used for other purchases.
Buffett told Nikkei it's "always a matter of consideration."
"At the moment, we only own the five trading companies. There are always a few I'm thinking about."
Buffett: More banks will fail but depositors will be OK
Buffett said the nation's banks "haven't made the same sort of mistakes that they made back in 2008 or 2009," but some, like Silicon Valley Bank, did not protect themselves against investment losses produced by higher interest rates.
After its failure, "All of a sudden everybody was worried about [banks] all over the country."
But Buffett says even though banks will continue to "go bust" in the future, "People shouldn't be worried about losing their money and the deposits they have in an American bank."
He is confident that the federal government will continue to guarantee deposits larger than the stated $250,000 limit just as it did with SVB and Signature Bank, even if it means Congress will have to give its approval.
Photo: CNBC | Lacy O'Toole
Buffett is even willing to bet $1 million of his own money that no American depositor will lose money from a bank failure over a one-year period, with the pot going to charity.
One common objection to having the government explicitly guarantee all deposits is that it will encourage bank managers to take excessive risks.
Buffett has an answer to that "moral hazard" problem.
Even though he thinks his friends in the banking world may not like the idea, Buffett argues that any CEO of a bank "that screws up and costs shareholders a lot of money should get no pension from the bank... They don't deserve anything special."
"I think they handled it terribly"
Buffett was very critical of Norfolk Southern's response to the early-February Ohio derailment of one of its trains that was carrying toxic chemicals.
"I don't know the person personally, the CEO, or anything, but they were tone deaf. And I don't think they're necessarily bad people or anything of the sort...
"Looking with hindsight, the CEO of Norfolk Southern, if he'd gotten there and drank the first water and said we're going to do whatever it takes to restore your life as it was before this happened ... that's the way to behave.
"I've done a lot of things I'd rather have do-overs on, too... But I sure hope we don't do that ever at BNSF, I'll put it that way."
Katie Farmer, the CEO of Berkshire's BNSF was praised by Minnesota's governor for quickly coming to the scene of a fiery derailment late last month.
Buffett on the sales of two China-related stocks
Buffett acknowledges that it was his decision, not a move by one of Berkshire's two portfolio managers, to sell almost all of the company's Taiwan Semiconductor stake, roughly $4 billion of stock, just months after the shares were purchased.
He called it "one of the best companies in the world" ... a "fabulous enterprise" ... but he "reevaluated" the geopolitical risk posed by Beijing's claim that Taiwan is part of China.
"I think there isn't any question that conditions change. I just don't know what the results are of conditions changing...
"It's a dangerous world."
Berkshire has also been steadily reducing its stake in BYD, an electric carmaker in China, that it first purchased in 2008.
Buffett says 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 its most recent filing on BYD, Berkshire revealed it has cut its stake by almost 47% since the end of 2021.
Things are already beginning to change at Berkshire
Buffett says Greg Abel, who is designated to be Berkshire's next CEO, "gets it the same way I get it, but the difference is that he likes to work, and I like to sit around."
Specifically, "He's probably tougher than I would be in terms of getting things done" and as a result, Buffett said with a laugh, the management of Berkshire has "already improved dramatically."
Abel says because he's learning about the businesses, "there's going to be an active dialogue with the managers" to "discuss their businesses and expectations around it." And he says, "They like that type of input."
Buffett adds, "Our managers like autonomy, but they also get lonesome."
"I give them the autonomy, but Greg gives them both, and he gets somewhat more discipline out of the managers ... than I would get."
Photo: CNBC | Lacy O'Toole
Buffett also revealed that Ajit Jain, who had been seen in the past as a possible CEO successor, loves running the "one-of-a-kind insurance company, which he built himself," and "never wanted to run Berkshire."
As a result, "You didn't have two guys competing for the same job or anything like that."
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BERKSHIRE'S TOP U.S. STOCK HOLDINGS - Apr. 14, 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:
The full list of holdings and current market values is available from CNBC.com's Berkshire Hathaway Portfolio Tracker.
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-- Alex Crippen, Editor, Warren Buffett Watch