Category: Missives

After listening to the Berkshire Hathaway Annual Meeting on April 30, 2022, we thought it would be appropriate to frame the aggressive buying of Occidental Petroleum (OXY) and Chevron (CVX) in the first quarter of this year. Buffett and Munger bought around $27 billion of shares in these two companies at around $52 per share on Occidental and around $160 per share on Chevron. […]

[…] This leaves investors heavily committed (29.5% of the S&P 500 Index) to a narrow group of stocks dominated by tech darlings even as bombs are dropping on almost all other tech companies as a category. In other words, tech Generals are marching forward, and few troops are following. As history teaches us, the S&P 500 Index returns could well be prepared to produce “stock market failure” in the form of negative ten-year returns. As always, fear stock market failure.

[…] As a firm, we refrain from delving into politics and political debates. However, the climate change fundamentalists have put our body politic into an energy bind, exacerbated by Russia’s attack on Ukraine. They have moved oil from an economic discussion into a political football and are attempting to defy the laws of supply and demand. […]

The news of Berkshire Hathaway’s purchases in Occidental Petroleum (OXY) has been seismic in our minds, but to most investors it has been but a whimper. We believe there are two main reasons for this. First, Buffett hasn’t had a hot hand in recent years, so the normal copycats aren’t quick to repeat Buffett’s actions. Second, he’s buying an oil company. Oil has been a three-letter swear word to most investors. Therefore, it’s been much ado about nothing. […]

Totally Addressable Markets (TAM) are at the heart of what Charlie Munger calls the biggest euphoria episode he has ever seen in his career. We believe that the coming stock market failure emanating from the over-pricing of the U.S. stock market is closely tied to TAM. What is a totally addressable market? When is it useful to think about TAM? Answering these questions could tell us a great deal about where to be invested in the common stock market over the next five years. […]

[…] Buffett wondered if there was something in the water in Omaha. We know it wasn’t the waters of the Pacific. It was the people and their traditions. They practiced a craft that was learned from others, who had mastered it before them. Like these traditions, great investors have left behind things for us to study and refine the same practices they used, applied in today’s world. This is not dissimilar to what the people groups of the Pacific did. They migrated people, customs and culture toward a destination using mastered skills despite unknowns along those journeys. We are blessed to understand their story that helps contextualize our role from the teachings of people like Graham, Buffett, Templeton, Lynch and other great investors. We know this accomplishment may be against the odds perceived by the western world.

In our recent media engagements, we have been asked if the Russian invasion of Ukraine is the cause of the carnage in the stock market this year. Many of the investors suffering stock market failure and financial media participants are looking for some comfort from the declines. They’d like to think that their portfolios have been hit by a Molotov cocktail and that the stock market will repair itself like it did when the pandemic crushed stocks two years ago. The facts appear to say the invasion is only a catalyst for what was already going on. […]

Warren Buffett released his 2021 Berkshire Hathaway Annual Letter on Saturday, February 26, 2022. He seemed to want to talk about almost anything besides the stock market. Corporate income taxes, whole company purchases in Lubbock, Texas (TTI, BNSF), Berkshire Hathaway (BRK) stock buybacks and excitement of throwing the in-person annual meeting in April of 2022 topped the list. […]

[…] In my 15-year career in the investment business, I don’t think there has been nearly as much weight to making money as there has been in limiting volatility. This creates a good picture of what investors will focus on. It also leaves the stock markets with a problem. If stocks have more volatility than in the recent past, investors will pay less for a broad basket of stocks like the S&P 500 Index, regardless of its underlying economics. Again, they’ve only been trained to pay for or reward strategies and assets with less volatility. […]

We operate under the premise that alpha can be generated by stock selection, courage, concentration, and long-duration holding periods. In today’s missive, we will talk about long-duration holding periods through the lens of our current concentrated position in the oil industry. […]