Losch Management Company
Client Letter March 2004
|
Losch Management Company Client Letter March 2004
|
|
Asset Allocation at Berkshire Hathaway
Haywood Kelly of Morningstar wrote a column last week on
Berkshire that included a table showing changes in the holdings of the
company's different asset classes.
I have taken his table and added a couple of columns on
the left side to cover the period that included the 1996 acquisition of
GEICO. The result is a dramatic representation of Buffett's move away from
the equity market. The move is very Buffett in that the shift is massive,
but it was handled in such a way that unless you are really paying attention
you would not notice. This table tells us better than mere words what is
going on in Buffett's mind.
Notice the sharp increase in cash in 2003 year and a
dramatic sell-off of the company's holdings of debt. This is a very clear
indication of Mr. Buffett's feelings about the bond market. The large
holdings of cash (that yield less than 1%) must be painful to some one that
likes to get 10% after-tax, and so speaks volumes about present lack of
attractive investments.
An unhappy change from 2000 – 2001 is that the rally in
small cap stocks has apparently meant that Buffett can no longer find small
companies attractively priced for acquisition.
Table OneBerkshire Hathaway Asset Allocation
Asset Class by Percent
In 1995 the total value of the equity portfolio was
$21 billion compared to something north of $35 billion today. But as you
can see from table one, Buffett has been able to drastically reduce
Berkshire's exposure to the risk of a decline in the equity market.
Table two indicates that 2002 was the first year of
on-balance stock purchases since 1996, but the amount of purchases were
not significant; it was mostly caused by lack selling. The main reason
for the lack of sales in 2002 was probably the market decline. In last
years annual report he said that stock values where still not
attractive, but his actions show that in 2002, while he still was not
buying, at least values where such that he had just about stopped
selling.
Buffett's method of fashioning this radical
restructuring of Berkshires assets is very complicated but fascinating.
There has been some liquidation of equity positions. Table two indicates
that Berkshire liquidated, on balance, about $10.2 billion in equities
since 1995.
Table TwoBerkshire Hathaway - 16 Year Equity Purchases
But, the major influence on the change in the asset
balance has been the acquisition of GEICO and GenRe with their large
bond portfolios, and the acquisition of complete companies in the last
five years.
List of Holdings
We have completed our update of the list of
Berkshire's holdings for 2003 taken from the companies 13F filings with
the SEC. The list shows a small but steady liquidation of the equity
portfolio in 2003. People have said, and I agree, that most of the
buying and selling that appears now on Berkshire's 13Fs are the work of
Lou Simpson. In any event, the year-long rally in 2003 appears to have
driven Berkshire back to being a net seller.
In the 4th quarter Berkshire sold the last of its
positions in Dunn & Bradstreet, Duke Energy, and Level 3.
|
Last modified: March 16, 2008 |