• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Stocks

You Still Can't Hold a Candle to Buffett

But despite my great respect for the Oracle and BRK's strong chance of a come back from 2020's setbacks, I never owned Berkshire stock. Here's why.
By JIM COLLINS
Sep 03, 2020 | 02:00 PM EDT
Stocks quotes in this article: AAPL, BAC, KO, AXP, BRK.A, KHC

The great one turned 90 on Sunday.

Here's my belated best wishes to the Oracle himself. Those of us who study stocks for a living are truly blessed to have been (virtually) in the presence of Warren Buffett for so long. In doing the research for this column, though, I actually read Berkshire's second quarter 10-Q. With Buffett's decision to go whole hog on Apple AAPL, Berkshire owned $91.5 of (AAPL) shares June 30, a figure that, barring selling, would have easily crossed the $100 billion mark in August's amazing rally for Tim Cook's colossus. AAPL is a much larger holding for Berkshire than the other three (Bank of America (BAC) , Coca-cola (KO) , American Express (AXP) ) individually-mentioned holdings combined, and Warren has clearly caught the zeitgeist of this tech-infatuated market.

But then I read the other 53 pages of Berkshire's 10-Q, and the stock's relative underperformance actually made sense to me. This year  (BRK.A) shares have fallen 2.3% in 2020 vs. the 8.8% gain posted by the S&P 500. Berkshire's operating businesses have been hit hard by the pandemic, and the company's operating cash flow turned negative (-$25 billion after capital expenditures vs. a positive cash flow of $14 billion) in the first half of 2020 after a solidly positive performance in the first half of 2019.

What's more, it is clear that Buffett and his lieutenants and potential successors lack the faith in the current market rally. Berkshire sold stock heavily in the second quarter. The cost basis of Berkshire's Investments in Equity Securities dropped to $96.1 billion at June 30 from $110.3 billion at year-end 2019. It is by analyzing the cost basis that an investor can truly see changes in the portfolio over and above appreciation and depreciation. Warren Buffett sold, and history has told us that he did not correctly time this most recent market rally.

But the real problem with Berkshire is the decision not to sell its Kraft Heinz (KHC) stake. Warren waxed lyrically about his Brazilian private equity buddies at 3G when the KHC deal was consummated in 2013. But KHC stock has been an absolute dog in the past few years, and, obviously, the pandemic has not helped. Berkshire owned 325 million KHC shares -- 26.6% of the total outstanding -- as of June 30. As Berkshire's 10-Q notes:

As of June 30, 2020, the carrying value of our investment in Kraft Heinz exceeded the fair value based on the quoted market price by $2.7 billion (20.6%).

Berkshire noted its reluctance to write down the value of its KHC stake from an accounting perspective, and KHC shares have actually eked a small gain this year and sit today at $34.63. Remember, though, this stock was threatening the $100 level in early 2017, and clearly the Street has decided that the value of the company has been substantially eroded in the period in which Berkshire has been its largest shareholder.

Similarly, Berkshire actually did take a write down on its holding in Precision Castparts, its last major acquisition, which occurred in August, 2015. Berkshire wrote down the value of PCC by $10 billion in the second quarter. This is a substantial portion of the $37.2 billion (including debt) Berkshire paid for PCC in August 2015.

So, that's the conundrum, and that's why, despite my great respect for the Oracle, I have never owned Berkshire stock.

There is a torrent of content in financial media composed of folks yelling at Warren to spend some of Berkshire's cash. That cash pile amounted to $143 billion as of June 30, and has grown from $125 billion a year-end 2019. But, aside from buying more and more and more Apple, investing in public companies in 2020 has not been easy. The writedown on Precision Castparts shows the consequences of buying an aviation supply company into the greatest pandemic the world has seen in 100 years. The Kraft Heinz non-writedown, however, shows Berkshire's bizarre love for a consumer products company that has very, very little appeal these days.

So, as much as it may have seemed so in August, investing is not easy. I like Warren Buffett's chances to come back from 2020's setbacks, just as he has done consistently for the past 60 years. I am focusing my investing resources elsewhere, though, and I would love to see more nimble portfolio management from those that would look to be in contention to take over at Berkshire from 90-year-old Warren and his 96-year-old "wingman," Charlie Munger.

(AAPL is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells this stock? Learn more now.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Jim Collins had no position in the securities mentioned.

TAGS: Investing | Stocks | Food & Drink | Technology | Warren Buffett

More from Stocks

A REIT With Large Total Return Potential and a Generous Current Yield

Paul Price
Jul 4, 2022 9:00 AM EDT

The safe route is to buy shares, collect the generous dividends and reap the rewards when valuations revert back to normal.

Bearish Bets: 3 Stocks You Should Consider Shorting This Week

Bob Lang
Jul 3, 2022 10:30 AM EDT

These recently downgraded names are displaying both quantitative and technical deterioration.

This Energy Play Should Turn Out A-'OKE'

Bret Jensen
Jul 3, 2022 7:30 AM EDT

Let's learn how to make an enhanced yield trade in Oneok.

Let's Shine a Light on Lucid Motors as It Slides Downhill

Brad Ginesin
Jul 2, 2022 1:00 PM EDT

LCID's market cap has been deflated, so is it now a bargain, or can it slip further?

Stop Wishing, Hoping and Praying and Take Control of Your Investing

James "Rev Shark" DePorre
Jul 2, 2022 10:00 AM EDT

The most powerful thing an investor can do is embrace the idea that they don't know what the future holds.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 07:34 AM EDT PAUL PRICE

    A $525,000 Vote of Confidence on Macerich (MAC)

  • 09:49 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Stop Wishing, Hoping, and Praying and Take Control...
  • 07:59 PM EDT PAUL PRICE

    Very Good Quarterly Numbers From Bassett Furniture (BSET)

    Bassett Furniture blew right through analysts es...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login