Provided to subscribers May 21st.
Here’s the latest from Canadian Value Investors!
Berkshire AGM update
Todd Combs interview
A beginner’s guide to researching microcap stocks
A reminder that interest rates are not actually high
The dangers of concentrated sales and big bets
Berkshire Hathaway AGM Update – What is Buffett buying and selling anyway?
We had the opportunity to once again attend the Berkshire Hathaway AGM in Omaha, Nebraska! Buffet and Munger were in top form (for two gentlemen in their 90s). If you missed the event, you can watch it here - https://www.youtube.com/live/UKw_NjWtg5w
That’s a lot of finance nerds.
We have watched so many of the AGMs (back to the 1990s thanks to YouTube) and so for us here at CVI it is really just going back to church to remember the basics. However, every year there is an interesting nugget or two. This year two were:
-Buffett on the previous small sale of Apple shares. It was tax advantageous for the capital gain that year but “a dumb decision”.
-The Japanese bet on five companies (see our previous post; table provided again below) was supported by the Japanese yen notes they issued. https://www.bnnbloomberg.ca/warren-buffett-s-berkshire-sells-1-2-billion-of-yen-debt-after-big-japan-bets-1.1907592 Buffett spoke remarkably plainly about the trade – to paraphrase Buffett they are getting a 14% earnings yield in yen vs borrowing at 1% in yen, and now have a potential door into doing larger deals with the Japanese keiretsus. Not a bad trade.
What are they buying and selling today over at Berkshire anyway?
The key highlights for us were:
Buffett is quite bearish on banks (after having a big bet for a number of years). He made comments about his negative outlook for banks in general at the AGM, and has been exiting pretty much everything except for Bank of America.
Full exit of Taiwan Semiconductor - “I don’t like its location, and I’ve re-evaluated that. I feel better about the capital that we’ve got deployed in Japan than in Taiwan. I wish it weren’t sold, but I think that’s a reality.” We never made a position either due to the Taiwan issue.
Buying a bit more Paramount, trimming Activision, fully exited RH – We had RH (Restoration Hardware) on our list of companies to look into. We have taken it off…
Todd Combs: Meeting Munger, Buffett and Joining Berkshire
Coinciding with the AGM, Todd Combs (one of two money managers working at BRK under Buffett) did a great interview for I AM Home. A call to Charlie Munger ended up with him getting a job at Berkshire 6 months later.
Todd is multi-billion-dollar investment manager with Berkshire Hathaway and is also the President and CEO of GEICO. Today, we’re sitting down with Todd to talk about all the things that led him to Berkshire Hathaway. From sitting in a lecture hall at Columbia University listening to Warren Buffet give a lecture to meeting Charlie Munger in the California Club to accepting the job at Berkshire Hathaway.
A Beginner’s Guide to Researching Microcap Stocks
Just starting in investing? Check out this presentation by Ian Cassel and Michael Liu, “A Beginner’s Guide to Researching Microcap Stocks”.
A reminder that interest rates are not high, they are just higher than they have been recently.
Inflation is also running hot in Europe still (and much stickier here in Canada too than the Bank of Canada’s original “transitory” view…
The dangers of concentrated sales and big bets – Structurlam
We came across this Chapter 11 / CCAA and find it to be a good reminder – beware of companies making big bets or beholden to large contracts. Structurlam is based in B.C. and has been around since 1962, but a big bet on a building contract with Walmart blew up the business.
They are a leading North American mass timber manufacturer and entered US Chapter 11 proceedings on April 27 with a connected Canadian filing. The company was involved in various headline projects across North America, such as the University of British Columbia Brock Commons (tallest wood structure at the time at 18 stories), Microsoft Silicon Valley Campus, and several Google campuses. These sound like the kind of high-profile projects you want. However, Structurlam entered a contract with Walmart in 2019 worth about $100 million, leading to a liquidity crisis when Walmart terminated the contract in January 2023 due to manufacturing problems. Long history and lots of experience, but the project was a bet the company type of deal and they lost.
https://www.alvarezandmarsal.com/structurlam
Initial filing here - https://www.alvarezandmarsal.com/sites/default/files/canada/Filed%20Petition%20%28S233209%29.pdf