Warren Buffett Just Made a Huge $6.7B Investment.

June 11, 2024

Warren Buffett Just Made a Huge $6.7B Investment.

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Video Transcript

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over the past few months Warren Buffett has been hiding something a secret stock a secret position that was deliberately not disclosed to the public in his periodic 13f filings and the SEC let him do it they gave Buffett permission to buy up a stock and keep the news away from the prying Eyes Of Us fellow value investors now this is not typical but occasionally the SEC has granted birkshire hathway privacy privileges so that they can get their money into a position before the buffet effect takes hold they let Buffett do this back in 2020 with Verizon and Chevron as well and if you don’t know the Buffett effect is essentially the fact that as soon as it becomes public knowledge that Burkshire is buying a stock the shares instantaneously rise quite a bit because investors flood in simply due to the fact that they know Warren Buffett is buying he’s basically got a money printing superpower at this point but it also makes sense that Buffett thus likes to keep these new stocks under wrap so that he can get all of his money into the company before it becomes public information so that’s what’s happened this time around but this one was extremely secretive even before the Burkshire meeting just a few weeks back this is actually on the list of topics that CNBC particularly wanted to grill buff it on but on the day nothing mysteriously emitted no mention of it well now the cat is out of the bag because Buffett has recently released his q113 F filing and in it he disclosed the position which is actually the ninth biggest holding in the Burkshire portfolio what is it the stock in question is chub limited leading up to the Burkshire meeting some people had guessed it might have been an insurance company because actually if you look at berkshire’s q1 filing where they detail the cost bases of their Investments you can see the cost bases for banks insurance and finance positions Rose by a few billion dollars whereas the other categories all shrunk from Q4 to q1 so some Keen eyed followers did see something coming but of course we didn’t know for sure but now we do so what is chub and why is buff buying it well chub is a global insurance company that provides a broad range of insurance products and services including commercial and Personal Property and Casualty Insurance personal accident and supplemental health insurance reinsurance and life insurance they’re all rounders as well serving big multinational corporations as well as midsize and small businesses and individuals as well they are as I said before a global company with operations in 54 countries however when we look at their insurance premiums by GE graphy you can see that 52% of their revenue comes in from the United States with Asia in second place at 19% and Europe the Middle East and Africa at 17% so a lot of their revenue comes just from the US now I also want to show you a little bit of business performance as well to show you maybe some of the positives Buffet saw in this stock but in doing so I do need to remind you that this is general advice only and it may not be right for you and in discussing these facts I do not at all intend to imply a buy hold or sell recommendation on the business but with that said why might have Buffett been interested in this business well it obviously passes the first hurdle of Circle of competence Buffett started his career buying insurance companies like National Indemnity and Geico and these businesses have really been at the core of Burkshire haway ever since he gets insurance it’s in his wheelhouse and he can understand it so that’s the first check it’s also a large enough business to shift the needle for burer that’s the other important thing burshire in many ways is hamstrung these days due to the size of the company they’re looking to invest billions of dollars at a time which naturally limits the total pool of companies out there that will shift the needle for Burkshire for example if chub had a market cap to say a few billion Buffet simply wouldn’t bother looking at it because any investment simply wouldn’t impact Burkshire enough but luckily chub has a market cap of just over hundred billion so yes it is big enough tick but then the other thing I noticed just on my quick analysis on the company is that this company has been growing revenues have been growing really consistently over time showing a compound annual growth rate of 11% over the past 10 years operating income is up and to the right as his net income which shows the 13.65% compound annual growth rate over the last 10 years even turning to the present in q1 their net income was up 13.3% year-over-year Property and Casualty premium written were also up 13.3% year-over-year Commercial Insurance up 11.1% and Consumer Insurance was up 19.3% PNC underwriting income was up 15.4% life insurance premiums written R 26.3% so all the major parts of their business are humming at the moment and that leads me to the other reason I can imagine Buffett liked what he saw it’s also very consistent some companies can grow well over a 10-year period but in between the start and the end you know the shareholders go on a bit of a roller coaster ride that’s never been Buffett’s style he likes predictability and stability and looking at the 10year numbers you definitely get that with chub then beyond growth they also have a really strong balance sheet the company consistently maintains healthy of capital and liquidity which ensures it always has the ability to not only meet the policy holder obligations but it can also withstand Financial shocks as you can see from this Slide the company has total assets at 234. n billion including total Investments of 14.4 billion with net loss reserves of 61.2 billion that’s the money the company sets aside for future claims and that’s always what Buffett focuses on when he talks about burk’s cash position he notes that while it’s more than it needs to be he will always keep at least 30 billion on the sidelines and even more in us treasuries to protect the company from a major shock where a lot of claims need to be paid out at once so all in all I’m certainly no insurance expert but chub seems quite aligned with Buffett’s circle of competence and investment philosophy as well then the last thing from there is really the valuation which despite the stock being at then alltime highs clearly didn’t phase Buffett I can’t really add much flavor on valuation because insurance companies are well outside my area of expertise but I did want to shout out my friend Daniel pron who recently did a video on this topic as well and he noted that chub’s price to earnings of around 11 is low versus the business’s average PE of 15 over the past decade and this does seem favorable especially considering the current growth of the business and the other metric he noted is the earnings yield which tells us what percentage of the share price gets covered by the business’s earnings and that is up around 9% which is obviously favorable compared to us treasuries at around 55% and just looking at burk’s buy prices clearly it was good enough for buff it between the price of around 29 which was the average Buy price in Q3 2023 and around 229 which was the high price in Q4 where he bought the vast majority of his shares overall bsha bought 8.1 million shares worth 1.7 billion by the end of September 2023 the position was then increased to 20.1 million shares valued at 4.5 billion by December 23 and by the end of March 24 Burkshire had amassed nearly 26 million shares of chub totaling 6.7 billion which represents approximately 6.4% of chub’s total market cap all in all the stock now sits as Buffett’s ninth largest holding so overall it was a pretty big one so that’s a bit of a look into why Buffett may have potentially bought into chub but I think beyond all the statistics it also just comes down to the business model Buffett loves insurance companies and there’s one overarching reason behind it and it’s the concept of float in Insurance the business is you take people’s money up front then you get to invest it and turn that upfront money into even more money for yourself and a lot of the times you don’t even have to give the people their money back yes some claims will obviously be made but if you’re disciplined in the underwriting process and you keep that under control well for the most part you’re being given free money to invest it’s great and that’s what Buffett has called the engine room of bur hathway in the past it’s the insurance float that has really Ed that business along for a very long time so beyond the numbers and the analysis I think the number one reason Buffett bought chub is because he loves the business model and it expands bur’s portfolio of insurance businesses so that was definitely the number one takeaway from Buffett’s 13 F filing other notable changes include that 13% reduction of Apple but I’ve course covered that in a dedicated video when I was in Omaha so the link for that should be coming up on your screen now Buffett’s thinking here is that he is quite wary of big rises in the corporate tax rate potentially coming soon so he’s happy to lock in some profits now at the 21% rate while Apple’s stock price is pretty high versus whatever the tax rate might be hiked to in the future and the reason he’s so okay with locking in profits now and actually reducing his stake is because he said himself that he’s happy holding on to more cash right now I know that’s not a very Warren Buffett like take but he did say that with everything going on in the world at the moment he’s happy to sit on more cash he didn’t elaborate to explain what in particular is worrying him he did mention that the fiscal deficit worries him but that was more talking about the expected hikes in the corporate tax rate but he did indeed say that he’s happy holding on to more cash right now at a time where he’s already sitting on $189 billion so that was what he had to say on the 13% reduction in apple in other news Buffett also added 51% to his Liberty Series XM series C position and 62% to his series a position so he seems to be doubling down on that risky Arbitrage opportunity which again I covered in a dedicated video which I’ll Chuck up on screen now the quick rundown on this one is that it was announced late last year that Sirius XM Holdings and Liberty serus XM which is one of the tracking stocks of Liberty Media that actually owns 83% of Sirus XM Shares are going to merge to simplify the ownership structure of Sirius XM in that situation with the subtle differences in market cap between Sirius XM and Liberty serus XM it makes sense that as those two entities merge into one that value Gap will close and Burk just stands to capitalize on that and it’s either Buffett or Ted wesler that are overseeing that play I’ve heard a lot of speculation that this one was in fact Ted who actually got to meet in Omaha this year which is pretty cool but yes overall time will tell how that one plays out for Burkshire and then from there the last notable change in the Burkshire portfolio this quarter was the 88% reduction in Paramount Global which interestingly was actually addressed has bu buffer himself during the burshire meeting a few weeks back because he wanted to take full responsibility for what has been a pretty terrible investment oh incidentally I I should just throw this out since there’s been speculation on we’ve sold AI was 100% responsible for the paramont decision I read speculation that either Ted or Todd had some involvement in that no it was 100% my decision we sold it all and we lost quite a bit of money and that happens in this business too actually owning Paramount made me think even further about the whole question of what people do with their leisure time and you know what the governing principles are of running an entertainment business of any sort whether it’s sports or movies or whatever it might be and I think I’m smarter now than I was a couple years ago but I also think I’m poor because I acquired the knowledge in the manner I did but I just want to be very clear that hey we lost money on Parma and B and know I did it all by myself folks so Buffett first bought Paramount in q1 of 2022 likely somewhere between $30 and $40 today the shares sit at just 12 so definitely as they say a learning experience for Warren Buffett but that’s also why I like Buffett so much as a manager he didn’t have to address this he could have just let it go and you know probably the blame in the media would have gone on Ted or Todd but no he deliberately wanted to address it to take full responsibility for that investment himself that’s why I like waren Buffett so much as a manager but anyway guys overall they are the key takeaways from Warren Buffett’s 13 F filing this time around hope you enjoyed the video was a bit more of a deep dive than usual definitely leave a like on it if you did enjoy it and subscribe to the channel if you’ve not done so already if you’re interested in learning the Warren Buffett approach the actual investing approach that he follows from start to finish we’ve got introduction to stock analysis which is available over on new money education 6 hours of professionally edited and scripted content teaching you the full Buffet approach including three valuation methods so definitely check that out if that’s something of interest but apart from that guys thanks very much for watching and I’ll see you all in the next video [Music] [Music]

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