Dave Stern retired 20 years ago as a World-Herald manager and showed his stock market acumen in January by correctly predicting Exxon-Mobil as a future Berkshire Hathaway Inc. holding.
Is he a winner in our “elephant” contest to name the next big company that Warren Buffett would “bag” as Berkshire’s chairman, CEO and chief investment hunter?
Ten months after Stern’s pick, Berkshire reported buying 40,087,371 Exxon shares at a cost of $3,449,290,000.
Even though he figured Exxon was a good stock, Stern said, “I was quite surprised when he finally bought some” because Buffett had sold Exxon shares in 2011.
When Stern made his prediction, Exxon’s price was $89.61 a share. Berkshire’s purchase price, an average of $86.04 per share, indicates purchases as recent as October, but the price also dipped to $86 a share last May and in December 2012. Filings can come months after a purchase.
On the day of the Berkshire filing, after-hours traders sent Exxon’s stock price up 84 cents a share, less than 1 percent. That’s not a huge “Buffett bump,” as sometimes happens as investors follow Buffett’s lead.
“I thought a lot of people would be climbing aboard, but it hasn’t happened,” Stern said.
Buffett-bumps tend to involve little-known stocks or out-of-favor businesses or industries. Investors who are surprised may jump in after him, many for the first time, sending the stock price up.
But Exxon is well-known to investors, usually the biggest company on the stock market, and a leader in the closely watched energy sector. Millions of people already own Exxon shares, indirectly through mutual funds or directly, and already had opinions of Exxon’s value.
In any case, Exxon’s share price closed Friday at a record $95.65 a share. For Berkshire, that’s a paper gain of $385 million or 11.2 percent.
Last spring Scott Thompson, managing director of Intrinsic Value Capital Management of Minneapolis and a Berkshire shareholder, looked at 557 publicly traded companies with values of $20 billion or more.
Thompson highlighted 20 of the companies with low debts, high profits and other qualities — and lack of negatives — that would appeal to Buffett. Exxon was one of the 20.
So, what about the elephant contest?
We invited people to email or snail-mail one prediction of a company Buffett would buy for $5 billion or more. Contestants could change their choices but keep only one choice at a time. The first to match the next elephant wins.
Stern’s guess was ambitious. Buying Exxon outright, at a market value of $415 billion, would be a stretch even for Berkshire. Buffett made an investment, not a purchase, and at any rate less than $5 billion unless he has invested more recently.
But Stern was certainly on the right track. Thompson also was wise to include Exxon in his list of Buffett-attractive stocks.
So the elephant contest, and the prize of bragging rights plus a World-Herald/Berkshire messenger bag, is still awaiting a winner.
Buffett might be interested in a deal involving Fannie Mae and Freddie Mac as the huge mortgage securities businesses move to privatize, TheStreet.com said last week.
Now in government conservatorship, the two “government-sponsored enterprises” are looking for private capital. Fairholme Capital Management is offering to infuse $52 billion into its securities insurance business, a field that is familiar to Berkshire.
One proposal would liquidate Fannie and Freddie and recapitalize them through two new state-regulated private insurers.
Antoine Gara wrote that Berkshire might be interested in backing the private insurers, which would replace the government’s backstop of Freddie and Fannie.
Berkshire has a history with the housing market and with government-sponsored enterprises, Gara pointed out. But the future of the two mortgage organizations is still up for debate in Congress.
Berkshire had owned shares in Fannie and Freddie in the 1980s and 1990s. Later, Buffett criticized Freddie Mac’s managers for dealings beyond its mandate, which contributed to the 2008 housing market crash.
BYD, the Chinese electric auto and battery company part-owned by Berkshire, is introducing its second-generation plug-in hybrid sedan, the Qin (pronounced “cheen”), in Costa Rica, part of a Latin America expansion effort.
Cori Motors in San Jose will distribute the sedan. BYD also has supplied all-electric cars for taxi fleets in Colombia and is testing electric cars and buses in Chile and Uruguay.
The Qin is named after China’s first emperor, who unified the country and started the first dynasty.
About 800 customers of NetJets Inc., Berkshire’s fractional jet aircraft company, were expected to celebrate the company’s 12th anniversary as a partner in Miami Beach’s Art Basel show of modern and contemporary art.
Customers and their guests were treated to “an expanded, exclusive and private NetJets lounge” at the show, with VIP access including the “Preview Opening and Vernissage,” a private showing.
About 200 NetJets flights were to fly in and out of Miami during the show, which concludes today.
The Miami event, featuring works from more than 4,000 artists and 250 galleries around the world, is one of the most prestigious and important in the world, NetJets executive Adam Johnson said, providing “an unmatched experience” for customers.
The company also supports Art Basel in Switzerland and the Aspen Art Museum’s summertime artCRUSH show.
Count Berkshire-related investment officer John Gilbert as among those warning that the Federal Reserve’s low-interest-rate policy may be creating a stock market bubble and other problems, Bloomberg reported.
Gilbert is chief investment officer of General Reinsurance-New England Asset Management, a Berkshire division. He wrote about the Federal Reserve’s policy of buying $85 billion in bonds each month to keep interest rates low and stimulate the economy.
Fed Chairman Ben Bernanke has defended the policy, saying it helps the American middle class, strengthens financial markets and supports economic growth and jobs.
But Gilbert said the low rates encourage too much borrowing in emerging-market countries, and currencies are weakening in Russia, Brazil and other nations that depend on the U.S. dollar as the world’s “reserve currency.”
The central bank’s governors “have created a systemic risk in the world financial system for which they take little or no responsibility, because that which happens outside the U.S. is not their assignment,” Gilbert wrote. “But as custodians of the reserve currency, it ends up that way.”
The low rates also encourage investors to buy stock at prices higher than might be warranted, such as Twitter’s initial stock sale, he said, which could lead to investment losses later.
Buffett has little nostalgia for the original Berkshire Hathaway headquarters, a dilapidated office building in New Bedford, Mass., the Wall Street Journal reported.
Buffett acquired control of the textile business in 1965 and adopted the name for his investment conglomerate, only to see foreign producers take over the textile industry.
Buffett has said buying Berkshire was his worst deal, even though it provided some cash that he was able to invest successfully.
New Bedford Mayor Jon Mitchell sees historic value in the vacant 86-year-old building and persuaded the owner to delay plans to level it for a parking lot while he looks for a buyer. The roof leaks, and thieves have torn away its decorative copper molding.
“This is where the Berkshire Hathaway empire was launched,” Mitchell told the Journal. “It has a very significant connection not only to New Bedford’s history but to the life and times of Warren Buffett.”
The mill closed in 1985 and Berkshire sold the 18-acre complex in 2000 for $215,000 to a military parachute maker who now wants to lease part of the property to grow marijuana as part of the state’s medical marijuana industry.
Buffett isn’t interested in buying the property, he told the Journal. “I don’t know what you’d do with that place.”
The Omaha World-Herald is owned by Berkshire Hathaway Inc.