Buffett Watch

• Berkshire Hathaway Portfolio Tracker

Shares of RH surged Friday after word that Warren Buffett's Berkshire Hathaway had bought a stake in the furniture retailer. What the crowd piling into the company formerly known as Restoration Hardware doesn't realize is that the Oracle of Omaha has been on a bit of a cold streak.

The good news for Berkshire fans is that the ever-patient and long-term focused Buffett may be getting a hot hand again, just as the value investing philosophy he popularized comes back into favor on Wall Street.

Following the stock picks of the Berkshire portfolio would have underperformed a market benchmark by 2.5% the last three years, according to Symmetric.io, a data firm that uses proprietary calculations of the quarterly filings to uncover the best stock-picking investors. Berkshire's stock itself has underperformed the S&P 500 over that time, perhaps reflecting the overall value bent of the conglomerate's private business portfolio as well.

But 2019 is shaping up to be a rebound for the longtime investor and his value-hunting partners. He's now beating the market benchmark by 1.2% over the last 12 months, according to Symmetric.

Sizable stock bets on financials like Bank of America, Wells Fargo and U.S. Bancorp, which saw negative returns of 15%, 21.8% and 12.3% in 2018, are breaking out this quarter. Only Wells Fargo — up 20.9% year to date including dividends and other income — is underperforming the broad S&P 500 in 2019. Berkshire slightly cut its stake in Wells Fargo, but kept its holdings pretty much the same with other big banks, according to the third-quarter filing.

Jeff Bezos out $107 billion. Warren Buffett short $77 billion.

That's how much the net worth of each man would have been cut since the 1980s if Sen. Bernie Sanders' tax policy had been adopted at the time, according to two University of California economists who study the growing concentration of wealth in the U.S.

Instead of his current net worth of $160 billion, Amazon CEO Bezos' fortune would only be worth $52.2 billion had Sanders' plan been adopted in 1982, according to the website. Buffett would be worth only $11.1 billion as opposed to his current $88.3 billion.

Democratic presidential candidate Sen. Elizabeth Warren's wealth tax would not generate enough money to make a dent in income inequality, said David Rubenstein, the billionaire co-founder of private equity powerhouse The Carlyle Group.

"I don't think all of a sudden a wealth tax, for example, would solve all of our society's problems, if one could ever actually be implemented," Rubenstein told CNBC's Leslie Picker on Tuesday from the Greenwich Economic Forum.

"If you tax the upper income, there aren't enough of those people to really make a wealth distribution effect that's going to be significant. There just aren't enough highly wealthy people," he added.

The Warren campaign was not immediately available to respond to CNBC's request for comment on Rubenstein's remarks.

The progressive Warren — running second in the Real Clear Politics national polling average — is proposing a 2% tax on household net worth above $50 million and a 6% tax on net worth over $1 billion. That, along with changing how investment gains are taxed for the top 1 percent of households, would generate more than $3 trillion over 10 years according to analysis from the New York Times.

Sen. Bernie Sanders, a democratic socialist, also supports a wealth tax. Joe Biden, the centrist former vice president who remains the frontrunner, has vowed to repeal tax cuts for the wealthy but has not called for a wealth tax.

Warren Buffett's Berkshire Hathaway reported earnings on Saturday and Wall Street is caught up on one key thing: its cash pile.

In the third quarter, the holding company's cash balance grew to a record $128.2 billion — up from $122.4 billion in the prior quarter and $23 billion a decade ago — leading analysts to wonder why the company isn't spending.

Berkshire's last entire company acquisition was Precision Castparts in 2015 and the company hasn't meaningfully accelerated its buyback program, which have both contributed to the ballooning cash balance.

The company reported earnings of $3.07 a share, which topped the Street consensus of $2.84, according to estimates from Refinitiv. Revenue also exceeded expectations, and Berkshire said it repurchased $700 million worth of stock in the quarter.

With no clear signs for why Berkshire is accumulating cash, a number of analysts wondered why the company isn't buying back more stock. This is especially true since the shares are up just 7% this year and on pace for their worst year in a decade.

By comparison, the broader market has been on a tear. The Dow Jones Industrial Average and S&P 500 surged to record highs on Monday, bringing their total gains for the year to 18% and 23%, respectively.

Morgan Stanley said that the share repurchase program pales in comparison to the company's cash balance, and that investors "may be dismayed by minimal share repurchases in the quarter."

Analysts at UBS echoed this concern, saying the buyback remains modest and that they were surprised that "the company has not been more aggressive with share repurchase" given "the discount to intrinsic value BRK's shares are currently trading at and its substantial excess cash balance."

Morgan Stanley has an equal weight rating and $217 target on the stock. UBS has a buy rating and $242 12-month target.

Buffett has traditionally not been in favor of buying back a lot of Berkshire Hathaway's stock, although in 2018 he did make future buybacks easier by eliminating a restriction.

"It is challenging to estimate Berkshire's pace of potential future share buybacks, which we now believe could be at a modest level going forward. We still view a shareholder dividend as unlikely for now," Barclays analyst Jay Gelb said. "Berkshire now has over $100 bn of immediately deployable cash for accretive acquisitions to supplement organic growth as well as for investments and share buybacks," he added. Barclays has a neutral rating on the stock.

While Buffett hasn't been buying entire companies lately, he has been buying stocks. As of the latest round of SEC filings, Berkshire's top holdings by value are Apple, Bank of America, Coca-Cola, Wells Fargo, American Express and Kraft Heinz.

"In recent years, the sensible course for us to follow has been clear: Many stocks have offered far more for our money than we could obtain by purchasing businesses in their entirety ... Charlie and I believe the companies in which we invested offered excellent value, far exceeding that available in takeover transactions," he wrote in his 2018 annual report.

Earlier this year, Berkshire announced a $10 billion investment in Occidental Petroleum for the Anadarko takeover, and in 2017 the firm acquired nearly 40% of truck stop operator Pilot Flying J.

Earlier this week California Governor Gavin Newsom pulled the utility sector equivalent of Financial Crisis bailout pleas: with wildfire-bankrupted PG&E facing widespread outrage for its power shutdowns in the face of another fire season in California, Newsom practically begged Warren Buffett to buy the utility.

Buffett made some shrewd moves during the worst of the financial crash and its aftermath to shore up confidence in companies including Goldman Sachs, General Electric and Bank of America, but the Berkshire Hathaway chairman and founder has previously denied any plans to make a bid for PG&E (rumors have been swirling since the PG&E crisis began that the distressed utility could be a Buffett's acquisition target). But PG&E does not exactly have the backstop of the U.S. government that the largest banks had, and PG&E is not just a distressed asset.

No matter what it says about the reasons for its bankruptcy as a means to manage wildfire claims, the utility is going through an existential crisis with no clear way out — some say the state needs to step in and take over the company, or that a single, large utility will no longer be able to exist in the wildfire future of Northern California.

Buffett's own existential crisis, in an era when beating the index fund gets harder and harder, is what master dealmarket Buffett's company Berkshire Hathaway symbolizes if it can't find ways to spend the cash that is piling up on the balance sheet in a way that increases return to shareholders. In 2009, Berkshire had roughly $23 billion in cash. Since then, the company has added over $100 billion in cash and short-term investments, according to S&P Global Market Intelligence data through the second quarter. Berkshire's third quarter 2019 earnings on Saturday morning showed its cash pile growing to $128 billion.

Being in the enviable position of having that much cash to spend seems unenviable at the moment, as far as Berkshire shareholders, and maybe even Buffett, are concerned. Buffett's company is currently on pace for its worst annual stock performance since 2009.

"He pinned himself into a corner a few years ago, saying I can't have $150 billion in cash in three to four years and say that's alright," said Greggory Warren, a Morningstar analyst who covers Berkshire Hathaway.

Underperformance versus the index, deals that have not worked out well, such as Kraft Heinz (thought it showed signs of life in its most recent earnings), and increasing willingness on Buffett's part to consider share buybacks, all point to the the importance of moving that cash into investments that generate a return.

Berkshire Hathaway's edge has always been about generating huge amounts of cash from its insurance operations and finding ways to generate higher returns on that cash, either through acquisitions or into capital-intensive businesses, such as the utilities it owns. Berkshire Hathaway Energy is a huge utility market player in the U.S. serving more than 10 million customers, as well as controlling transmission infrastructure and renewable energy projects across many states.

The lack of big deals — or as Buffett has referred to them in recent years, the "elephant gun" hunting — has started to have consequences among shareholders. A long-time Berkshire Hathaway holder and fund manager, David Rolfe of Wedgewood Investments, recently sold his entire stake in Berkshire. While a relatively small stake, Rolfe's concerns do get to the heart of the cash matter, and he turned Buffett's own words on him in a letter to clients discussing his decision, saying Buffett was "thumbsucking."

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"Their utilities business (Berkshire Energy) needs continued acquisitions to restart utility growth," Rolfe wrote. Of the cash hoard he wrote, "Rather than our previous hard expectation of a valuable call option on opportunity in the hands of one of the most elite capital allocators extant. Further, the efficacy of putting this cash pile to work (plus +$25 billion in annual operating cash flows in Omaha) will be paramount if Berkshire Hathaway is to once again regain their former status as a meaningful grower over just baseline U.S. GDP growth."

Morningstar's Warren said he would have preferred to see a more regular run rate of share repurchases and it could be done without impacting the "dry powder" for acquisitions.

Analysts historically more skeptical of Berkshire's valuation are more patient on the share repurchase strategy: "To the extent that Berkshire isn't leveraging its massive cash hoard and 'overpaying' to buy back its stock, that seems like a good thing (although the benefits will hopefully only emerge in the long-term)," said Meyer Shields, KBW analyst.

Buffett did state in the 2018 annual letter to shareholders that it "is likely that – over time – Berkshire will be a significant repurchaser of its shares."

Sen. Elizabeth Warren is picking the wrong billionaire in Leon Cooperman as an example of why America needs a wealth tax, CNBC's Jim Cramer said Friday.

Cooperman is the "wrong whipping boy," said Cramer, praising the Omega Advisors founder — son of a Bronx plumber who became one of Wall Street's most successful investors — for being charitable with his wealth. The Democratic presidential candidate has the "wrong guy here," the "Mad Money" host added.

The Warren campaign was not immediately available to respond to Cramer's remarks, which came a day after CNBC reported on a letter Cooperman sent to Warren, challenging the assumptions behind her case for the need to tax household net worth over $50 million at 2%. On Friday, she doubled her billionaire wealth tax to 6% from 3% to help pay for her "Medicare for All" proposal.

"The substance of the letter is unbelievable," Cramer said on "Squawk Box." "It's not an incendiary letter. He's debating their math."

"It's not a name-calling debate," he added, referring to the part of the 2,600-word letter getting a lot of attention, in which Cooperman wrote that he feels like the liberal Massachusetts senator treated him as a child in her call for him to "'pitch in a bit more so everyone else has a chance at the American dream.'"

Defending the contributions successful Americans make to society, Cooperman wrote, "For you to suggest that capitalism is a dirty word and that these people, as a group, are ingrates who didn't earn their riches through strenuous effort and (in many cases) paradigm-shifting insights, and now don't pull their weight societally indicates that you either are grossly uninformed or are knowingly warping the facts for narrow political gain."

Cooperman, whose net worth is estimated at more than $3 billion, also wrote, "As a result of my good fortune, I have been able to donate in philanthropy many times more than I have spent on myself over a lifetime, and I am not finished; I have subscribed to the Buffett/Gates Giving Pledge to ensure that my money, properly stewarded, continues to do some good after I'm gone."

The Giving Pledge, created by Bill Gates and his wife Melinda Gates and Warren Buffett, invites the ultra-wealthy to give away more than half of their fortunes to help society.

Warren responded to Cooperman's letter in a tweet, saying: "Leon is wrong," adding the investor "can and should pitch in more."

TWEET

Last week, in a Politico interview, Cooperman unloaded on Warren's bash-the-rich rhetoric. "What is wrong with billionaires? You can become a billionaire by developing products and services that people will pay for," he told the website Politico. "I believe in a progressive income tax and the rich paying more. But this is the f-----g American dream she is s------g on."

On CNBC last month, Cooperman said, "If Elizabeth Warren is elected president, in my opinion, the market drops 25%." Cooperman's concern about the senator's policies highlights the angst that Cramer first described in September that he was hearing from executives on Wall Street and in corporate America about a Warren presidency.

Presidential hopeful Elizabeth Warren's wealth-tax is not the right idea when it comes to raising government revenue and reducing income inequality in America, billionaire Ron Baron told CNBC on Friday.

"I don't think Elizabeth Warren would be successful ... if she were chosen president in getting through the policies that she's proposing," Baron, a lifelong Democrat, said on "Squawk Box," speaking from his annual investment conference in New York.

"It's pretty nuts," Baron said, though he did not say which candidate he planned to support for the Democratic presidential nomination.

Democrat Warren's wealth-tax plan calls for a levy of 2% on families' net worth of above $50 million and 3% on household net worth over $1 billion.

"Warren says if you're successful because this country has allowed you to be successful ... then you shouldn't be as successful as you are. You should have some of your money coming back, which just means you are taking jobs you would have created otherwise and give them away," said Baron.

Representatives of the Massachusetts senator's presidential campaign did not immediately respond to a CNBC request for comment.

Rather than a wealth tax, Baron suggested a value-added tax, which has been adopted in many European countries and puts levies on goods and services during each stage of production and sale.

Entrepreneur and Democratic presidential hopeful Andrew Yang is proposing a 10% VAT, targeting companies such as Amazon and Alphabet.

"It's not my job to figure out what policy should be," Baron said. He added that policies should encourage people to invest and "make it as fair and equitable in all business as possible."

Warren, who has been rising in Democratic presidential polls, has made cracking down on banks and taxing the rich central to her campaign — striking fear in the hearts of Wall Street and Big Business.

In an interview published this week, another billionaire investor, Leon Cooperman, unloaded on Warren's wealth-taxing proposal and rich-bashing rhetoric.

"What is wrong with billionaires? You can become a billionaire by developing products and services that people will pay for," the Omega Advisors founder told the website Politico. "I believe in a progressive income tax and the rich paying more. But this is the f-----g American dream she is s------g on," said Cooperman, son of a Bronx plumber who became one of Wall Street's most successful investors.

Cooperman has never been shy about how he believes that a Warren presidency would be bad for America, telling CNBC last week: "If Elizabeth Warren is elected president, in my opinion, the market drops 25%."

According to the Real Clear Politics national polling average, Warren was second in the race, with 21.8% support, as of Tuesday. Former Vice President Joe Biden was ahead at 27.2%. Sen. Bernie Sanders was in third with 17.3%.

Billionaire investor Carl Icahn is moving his office from New York to Florida early next year, and plans to eventually hand over the hedge fund to his son, Brett.

The 83-year-old activist hedge fund manager, who founded Icahn Enterprises, has no plans to retire, but told The Wall Street Journal that his son is the "leading candidate" to take over his firm.

"I'm not going to give up making the real decisions," Icahn said. "I'm still in charge, but he'd get a piece of the action."

Brett, 40, would likely rejoin the company in the next few months after a more than three-year break, and would oversee a small new investment fund. For over a year, Icahn and his son have been negotiating the terms of the agreement, leading to a roughly 90-page contract, according to The Journal.

"I don't think anybody can fill his shoes the way he fills them," Brett said. "But I look forward to continuing to make him a lot of money and continuing to develop my career."

Brett worked with his father for over 15 years as an analyst, but recently took a break. He remained involved as a consultant and now represents his father on the board of Newell Brands Inc., the maker of Sharpies and other products. He previously ran a more than $6 billion fund at Icahn Enterprises.

After joining Icahn Enterprises, Brett steered the firm toward profitable investments like one in Apple. Icahn said he wouldn't have considered that investment because it lacked an activism angle.

"The activism formula is a great formula for increasing shareholder value. My father has proven that," Brett said. "But I don't think you absolutely need to have activism for there to be a good risk-reward ratio in an investment."

At the new fund, Brett would need to put a percentage of his own money into every investment, and is thinking about buying $25 million worth of Icahn Enterprises shares.

Icahn, whose personal wealth is estimated at $17.5 billion, employs roughly 50 people in New York. More than half of his staff, including some of his lawyers and portfolio analysts, will move to the new office near Miami.

Icahn has long told associates that work excites him and he has no plans to stop.

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Billionaire investor Leon Cooperman slammed Democratic presidential candidates Elizabeth Warren and Bernie Sanders on their proposals to put an additional tax on the richest Americans.

"Stop portraying billionaires as criminals," Cooperman said Wednesday on CNBC, the morning after Warren and Sanders in the latest Democratic debate cast themselves as the hard-liners on tacking wealth inequality.

"They make it sound like rich people don't pay taxes," the Omega Advisors founder said on "Squawk Box."

Warren's plan calls for a 2% tax on families' net worth of more than $50 million, which she has turned into a rallying cry for the rich to pitch in 2 cents for every dollar above that threshold.

"You make it to the top, the top one-tenth of 1%, then pitch in 2 cents so every other kid in America has a chance to make it," Warren said at Tuesday night's debate in Ohio.

The Massachusetts senator also wants to put a 3% tax on household net worth over $1 billion.

The wealth tax from Sanders, a Vermont democratic socialist, would be progressive, starting at 1% for household net worth of more than $32 million and ending at 8% on wealth over $10 billion.

Cooperman said he would rather see the government look into raising the federal income tax rate or the capital gains tax rate — paid by people who buy or sell assets, like stocks or homes.

"I believe in a progressive income tax structure. I believe rich people should pay more. I have no problem with that. This wealth tax is baloney," he added.

Paraphrasing late British Prime Minister Winston Churchill, Cooperman said that "you don't make poor people rich by making rich people poor."

Cooperman is not alone among wealthy Americans who believe rich people should be taxed more.

Billionaires Warren Buffett and Bill Gates have also said for a long time that taxes should go up on the wealthy. But they, too, believe there are better ways to make the tax system more fair than a wealth tax.

CNBC has reached out to the Warren and Sanders campaigns for comment.