Investing Warren Buffett Watch

  Tuesday, 22 Aug 2017 | 3:36 PM ET

Berkshire Hathaway no longer faces risk of S&P downgrade

Warren Buffett, chairman of Berkshire Hathaway Inc.
Adam Jeffery | CNBC
Warren Buffett, chairman of Berkshire Hathaway Inc.

Warren Buffett's failure to clinch a $9 billion takeover of the Texas utility Oncor prompted S&P Global Ratings on Tuesday to say the billionaire's Berkshire Hathaway is no longer at risk of a credit rating downgrade.

S&P affirmed Berkshire's "AA" rating, its third-highest grade, with a "stable" outlook after Sempra Energy struck an agreement with Oncor's bankrupt parent Energy Future Holdings on a $9.45 billion purchase.

The rating agency had put Berkshire on review for a possible downgrade on July 7, reflecting concern about how adding Oncor would affect leverage.

It said the stable outlook reflects Berkshire's solid profitability and significant cash flow, the strong competitive position of many business units, and Buffett's focus on boosting operating profit, which totaled $17.58 billion last year.

Few U.S. companies have credit ratings as high as Berkshire's, which itself carried a "triple-A" rating from S&P as recently as February 2010. Moody's Investors Service rates Berkshire "Aa2," equivalent to S&P's rating.

Barclays Capital analyst Jay Gelb said in a research report that the loss of Oncor leaves Berkshire with about $80 billion of cash for acquisitions, while leaving Buffett the cushion he wants for such things as payouts by Berkshire insurance units.

At Berkshire's annual meeting in May, Vice Chairman Charlie Munger suggested that the Omaha, Nebraska-based conglomerate might be capable of a $150 billion acquisition.

Buffett responded that he was more "conservative," though he has long expressed a preference for buying whole businesses over making smaller investments. He turns 87 on August 30.

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  Tuesday, 22 Aug 2017 | 11:07 AM ET

Billionaires like Buffett are chasing reliable income that comes from utilities like Oncor

Warren Buffett was poised to add Texas' largest electricity transmission and distribution network to Berkshire Hathaway's energy portfolio, but a quiet campaign by California utility Sempra Energy has spoiled the Oracle of Omaha's carefully laid plans.

The battle over Oncor highlights the value that billionaire investors like Buffett and Paul Singer assign to the businesses that move energy across America. This week, Buffett backed out of the deal after Sempra topped his $9 billion bid, a coup for Oncor bond investor Singer, who argued Berkshire's offer was too low.

The transmission and distribution business — linking power plants to businesses and residences via critical infrastructure — may not seem like the type of sector that would produce this sort of drama. But in a power industry that has been rocked by disruption from cheap natural gas and the adoption of renewable energy, the transmission business has proven relatively safe.

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  Monday, 21 Aug 2017 | 5:19 PM ET

Yahoo owes $5.5 million for backing out of NCAA tournament bracket deal, court says

People walk between buildings on the Yahoo headquarters corporate campus in Sunnyvale, California.
Noah Berger | Bloomberg | Getty Images
People walk between buildings on the Yahoo headquarters corporate campus in Sunnyvale, California.

Yahoo owes a prize promoter $5.5 million for backing out of a contract to pay $1 billion for predicting every winner in the 2014 NCAA men's basketball tournament, and entering a similar contract with Quicken Loans and Warren Buffett's Berkshire Hathaway, a court decided on Monday.

The 5th U.S. Circuit Court of Appeals in New Orleans said SCA Promotions was entitled to half of its $11 million contract with Yahoo as a cancellation penalty.

It rejected Yahoo's claim that Dallas-based SCA improperly leaked the promotion to Buffett and Berkshire, while trying to line up insurance coverage for the grand prize.

Berkshire is well-known for insuring against potentially costly events with long odds, such as picking a perfect "March Madness" bracket, as the National Collegiate Athletic Association tournament is known.

"Any information that SCA disclosed to Berkshire Hathaway was not confidential information," Circuit Judge Edith Brown Clement wrote for a three-judge panel.

Because SCA had kept Yahoo's $1.1 million deposit, the appeals court on Monday awarded it another $4.4 million.

The decision reversed a lower court ruling ordering SCA to return $550,000 of the deposit to Yahoo.

"It has been a long battle over what we thought was a simple contractual provision," Jon Patton, a lawyer for SCA, said in an interview. "We're pleased the court of appeals got this right."

Verizon Communications bought Yahoo's internet business in June, and put it in a unit called Oath.

Charles Stewart, an Oath spokesman, said the unit does not discuss litigation.

Berkshire and Quicken announced their "Billion Dollar Bracket Challenge" three weeks after Yahoo and SCA signed their contract, and Yahoo quickly agreed to co-sponsor it.

No one won the top prize.

Berkshire now sponsors a bracket contest for its roughly 368,000 employees.

This year, a West Virginia factory worker won $100,000 for correctly choosing winners of the tournament's first 29 games.

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  Monday, 21 Aug 2017 | 1:45 PM ET

The two oldest and biggest investor groups are battling on Wall Street right now

Posted ByTae Kim

There is an epic fight between the two major types of investors, which may determine whether the bull market can go on.

Raymond James explained how value investors, who strictly study fundamentals, and technical analysts, who only look at charts, see the world differently right now.

Market "battle lines are generally formed between those who practice more value-based fundamental analysis and those who practice price-based technical analysis," strategist Andrew Adams wrote in a note to clients Monday. "Both disciplines can obviously be used together, but most people in this business probably do lean either more one way or the other, hence the friendly friction between the two schools of thought."

Adams said fundamental value investors generally follow the philosophy of Columbia Business School professors Benjamin Graham and David Dodd, who wrote "Security Analysis" in 1934. He noted how Warren Buffett is the most famous "Graham & Dodd" believer.

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  Monday, 21 Aug 2017 | 1:37 PM ET

Warren Buffett's touching tribute to NYSE's James Maguire, 'world's greatest specialist,' dead at 86

Posted ByBob Pisani

James Maguire Sr., a titan of the Wall Street trading community, has died at age 86.

He served Wall Street for over 60 years beginning in 1949 (the Dow Industrials was 181 when he started), working on the New York and American stock exchanges.

Maguire ran the specialist firm Henderson Brothers for many years, which he sold to LaBranche around the run of the century, and was later a specialist for Barclays. He traded the stock of The Washington Post, but perhaps most famously he was the specialist for Berkshire Hathaway and was a good friend of Warren Buffett.

His kindness was legendary, which I experienced personally. When I came on the floor 20 years ago, he allowed me to stand next to him for hours to watch him trade Berkshire. He introduced me to Buffett at a time when Buffett rarely spoke to the press.

Here is what Buffett wrote to me Monday on Maguire's passing:

"As a very young kid, I was fascinated by the NYSE, an infatuation intensified by my visit there in 1940 as a 9-year-old. I read everything available about the operation of the Exchange, and even wrote a paper about the specialist system when an undergrad at Wharton.

"So when Dick Grasso came calling in the mid-1980s to talk about listing Berkshire, I was more than receptive. There were technical problems, involving a change in the 'round lot' rules, but, as you would expect, Dick found a solution. He then asked me who I would like as a specialist and after checking around it was obvious that the choice should be Jimmy.

"We immediately became the best of friends and I labeled him the 'World's Greatest Specialist.' He also was the world's greatest guy.

"Jimmy and [and wife] Diane would come out to the Berkshire annual meeting and we would have a blast. He would give me elaborate lectures — in front of Diane — warning me that she should be banned from our jewelry store. (In truth, he loved to buy her something special.) Diane likes to make customized belts and Jimmy proudly gave me a beautiful creation of hers featuring Berkshire products.

"Jimmy was an original and his passing leaves a big hole in the heart of everyone who knew him. I'll be singing 'Wait till the Sun Shines, Nellie' on New Year's Eve in his memory."

Maguire was widely respected for his wit, wisdom and leadership. He was renowned for his professorial demeanor, often wielding a baton to point to important stock information on the screen above him.

"We used to call him 'The Chief,' because he always knew the answer to everything," UBS' Art Cashin, a friend of his for many decades, told me Monday morning.

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  Sunday, 20 Aug 2017 | 10:52 PM ET

Rare Buffett loss as bankrupt company chooses rival Sempra Energy's $9.4B offer

Bankrupt Texas utility Energy Future Holdings will abandon a deal to sell power transmission company Oncor to Warren Buffett's Berkshire Hathaway for $9 billion and will accept a $9.45 billion bid for Oncor by Sempra Energy instead, people familiar with the matter said.

The development represents a rare blow for Buffett, who avoids bidding wars for companies and had swooped in two months ago to buy Oncor after two previous attempts by Energy Future to sell it were blocked by Texas regulators.

Energy Future's board decided to make the switch on Sunday after Sempra also offered assurances it could get its acquisition of Oncor approved by Public Utility Commission of Texas (PUCT), as well as a U.S. bankruptcy judge, the sources said.

Berkshire offered to allow Energy Future to keep an Oncor dividend, but that proposal was not enough to bridge the gap in price, the sources added.

The sources asked not to be identified because the decision has not yet been officially announced. Sempra, Oncor and Berkshire did not immediately respond to requests for comment.

Hedge fund Elliott Management, which is Energy Future's biggest creditor, had opposed the sale to Berkshire, arguing it undervalued Oncor and threatening to veto the deal. Elliott had also been trying to put together its own bid for $9.3 billion to buy Oncor.

Elliott has indicated it would support Oncor's sale to Sempra, one of the sources said.

Berkshire had told the PUCT it would accept "ringfencing" on its acquisition of Oncor, restricting its ability to extract cash from the company or add more debt to it. Sempra has now indicated it will also accept some form of ringfencing, according to the sources.

Dallas-based Oncor delivers power to more than 3.4 million homes and businesses through roughly 122,000 miles (196,000 km) of transmission and distribution lines.

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  Friday, 18 Aug 2017 | 3:31 PM ET

Mystery third bidder said to challenge Buffett, Singer over Texas power company

Posted ByLiz Moyer
A shift supervisor checks levels in the Oncor Mountain Creek control room which handles their entire grid for Texas in southwest Dallas.
Ron T. Ennis | The Fort Worth Star-Telegram | AP
A shift supervisor checks levels in the Oncor Mountain Creek control room which handles their entire grid for Texas in southwest Dallas.

Warren Buffett likes to buy companies without any competition, but he has found himself in the middle of a fight for the hottest power company in Texas.

A mystery third bidder has emerged for Energy Future Holding's Oncor, Dow Jones reported on Friday, citing comments picked up at a court hearing. The new bidder is offering $9.3 billion, Dow Jones reported, citing an unnamed source.

Buffett's Berkshire Hathaway has an all-cash offer on the table for $9 billion and has been battling for Oncor with fellow billionaire Paul Singer's Elliott Management, which is Energy Future Holdings' largest creditor. Last month, Elliott said it was trying to put together a group to offer $9.3 billion for the Texas-based power transmission company. It hired the deal advisory firm Moelis to help put the bid together.

In July, U.S. bankruptcy court judge in Delaware pushed back a hearing on the approval of the Berkshire offer, giving Elliott more time to solidify its bid. The hearing is now scheduled for Monday.

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  Friday, 18 Aug 2017 | 7:00 AM ET

The investment philosophy popularized by Warren Buffett may be about to make a comeback

Posted ByFred Imbert

An investment strategy made popular by Warren Buffett could be back in vogue soon, according to Strategas Research Partners.

In a note to clients Thursday, Strategas pointed out that returns stemming from growth investment strategies have reached a point where they could start to underperfom. This opens the door for value investment strategies, which have been popularized by Buffett throughout his long and successful investing career.

Value investing consists of finding stocks that are underpriced relative to peers and the market according to a fundamental metric, such as the price-to-earnings ratio. After identifying undervalued stocks, an investor could expect to benefit from an increase in value. The strategy was developed by Benjamin Graham, who was Buffett's teacher.

Here's a chart illustrating the potential leveling off from growth investment strategies relative to value. The chart also shows how value investing outperformed growth investing from the late 1990s until after the financial crisis.

Source: Strategas Research Partners

Growth investing has been leaving value in the dust in recent years, especially in 2017. As of Thursday's close, the information technology sector — which includes growth stocks like Facebook, Netflix and Apple — is up 22.4 percent for the year, easily outperforming the rest of the market.

However, signs of a shifting tide are popping up.

Andrew Folsom, senior investment analyst at the Wells Fargo Investment Institute, said in a note Thursday that 68 percent of active U.S. large cap value managers outperformed their respective benchmark during the first half of 2017, the best among U.S. active managers.

Strategas recommended investors look at stocks like Pilgrim's Pride, MKS Instruments and Diamond Offshore drilling as value investing gets set for its return.

Buffett's Berkshire Hathaway also revealed some value plays in a regulatory filing released Monday, including Synchrony Financial. The filing also showed Buffett added to his stake in other financial names, like Bank of New York Mellon. Financials have risen 6 percent this year, but are among the worst performers of 2017.

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  Friday, 18 Aug 2017 | 5:43 AM ET

Analysis: Gary Cohn faces worst dilemma of his career

Gary Cohn is facing the most difficult investment dilemma of his career. The former Goldman Sachs president helped steer the bank to safety during the financial crisis. Now he's under pressure to abandon President Donald Trump, whom he serves as chief economic advisor. Remaining could hurt his reputation, but he's been a moderating influence on trade and he's also a point man on tax reform. Losing his Wall Street savvy would further damage the White House — and the country.

Cohn built his career at the fast-paced trading desks of Goldman, where risk is often calculated in seconds. As No. 2 during the economic meltdown, he helped lead the bank in preparing for the mortgage market's decline as competitors were bulking up on those assets. Goldman still needed a $5 billion infusion from Warren Buffett's Berkshire Hathaway but it survived in better shape than its competitors, some of whom disappeared.

His Wall Street reputation made him an attractive candidate for Trump, despite his Democratic Party affiliation. Centrists welcomed Cohn as director of the National Economic Council as a moderating force. He's been a strong counter to Chief Strategist Steve Bannon, who in an interview with American Prospect talked of fighting with Cohn and an "economic war" with China. Cohn helped to indefinitely delay steel tariffs that could spark a trade battle with Beijing. He is also a point man on Trump's push for tax reform, where his deal-making skills will come in handy with Congress. But he wasn't able to persuade Trump to stay in the Paris climate agreement.

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  Thursday, 17 Aug 2017 | 8:00 AM ET

Warren Buffett's partner Charlie Munger says there are '3 rules for a career'

Warren Buffett's longtime business partner Charlie Munger has made a name for himself as one of today's most successful investors.

But investing wasn't always in the cards for Munger, vice chairman of Berkshire Hathaway: He studied math at the University of Michigan before training as a meteorologist at Caltech Pasadena. He then went on to graduate magna cum laude from Harvard Law School.

Today, at age 93, Munger is worth an estimated $1.5 billion and claims to be an even better investor than he was at age 50.

In "The Tao of Charlie Munger," author David Clark collected timeless Munger quotes on life, business and building wealth. Munger, who doesn't mince words, also offers some straightforward career advice, like this: "Three rules for a career: 1) Don't sell anything you wouldn't buy yourself. 2) Don't work for anyone you don't respect and admire. 3) Work only with people you enjoy."

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About Buffett Watch

  • Warren Buffett is arguably America’s most-admired and most-followed investor. Buffett is the largest shareholder and CEO of Berkshire Hathaway and one of the world’s most famous and most generous philanthropists. Legions of investors - from all walks of life - follow Buffett's homespun investment philosophy: invest in what you know, invest in value. Here on CNBC.com's Warren Buffett Watch, we’ll keep you up to date on what the “Oracle of Omaha” is doing by following Buffett's trades, words and deeds.