Buffett And Bank Stocks; A Bullish Indicator For Berkshire

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Whitney Tilson’s email to investors discussing a bullish indicator for Berkshire; Buffett and bank stocks and interview with Stanley Druckenmiller.

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Q1 2020 hedge fund letters, conferences and more

A Bullish Indicator For Berkshire

1) Multiple people have sent me this negative article about Berkshire Hathaway (BRK-B) CEO Warren Buffett: Dud stock picks, bad industry bets, vast underperformance – it's the end of the Warren Buffett era. Excerpt:

But now, after profoundly underperforming the S&P 500 throughout the entire 11-year bull market, it's fair to ask whether Buffett is still, well, Buffett. Even at the company's virtual annual meeting, held in Omaha on May 2, some questions by shareholders, curated by CNBC's Becky Quick, struck this listener as unusually sharp...

No wonder shareholders asked about how Berkshire will fare without Buffett and Munger at the helm.

These people have added comments like:

He definitely has lost his fastball... always felt he was overrated. Time to retire.


How about his corporate governance? Disgraceful.

Here was my reply to one of them:

No disrespect, but over the past 25 years, whenever I see articles like this and lots of smart guys echo them, it's been a great buy signal on the stock!

As I showed in my May 4 e-mail, I conservatively peg Berkshire's intrinsic value at $373,000 per A-share, 47% above Friday's closing price of $253,501.

Berkshire continues to be America's No. 1 Retirement Stock in my opinion...

Buffett And Bank Stocks

2) Here's a take from my friend Doug Kass of Seabreeze Partners on Buffett's latest moves:

Wells Fargo (WFC) investors will likely be relieved (on Monday) that Berkshire Hathaway sold none of its shares according to its just reported 13-F. (There were vague rumors that Buffett was selling).

Berkshire liquidated most of its Goldman Sachs (GS) position, a small portion of its JPMorgan Chase (JPM), but added to PNC Financial (PNC).

On Goldman, in 2008 Berkshire invested $5 billion in a perpetual preferred (which paid a 10% dividend) and included the receipt of (five-year) warrants to buy $5 billion (or 43.5 million shares) of GS stock at $115/share. Goldman Sachs redeemed the preferred in 2011 (and paid an additional $500 million early repayment fee). In 2013, Goldman and Berkshire renegotiated the warrants and GS paid Berkshire $2 billion in cash and Berkshire received 13.1 million shares of Goldman Sachs stock.

The GS sale is not surprising as Berkshire had previously sold over six million shares of Goldman Sachs in the fourth quarter last year. It ended 2019 with about 12.4 million shares of Goldman Sachs.

Early in the first quarter of this year, GS shares traded as high as $250/share and my guess is that Berkshire likely sold the shares in late February or early March after the stock began to sell off from its January highs.

Interview With Stanley Druckenmiller

3) And speaking of investing legends, I really enjoyed this 45-minute interview with Stanley Druckenmiller. Here's an article about it: Why Stanley Druckenmiller says the risk-reward of investing in stocks has never been worse. Excerpt:

Stanley Druckenmiller has seen a crisis or two in his storied career.

The famed former hedge-fund manager, who with George Soros famously broke the Bank of England by shorting the pound in 1992, says "the risk-reward for equity is maybe as bad as I've seen it in my career."


Druckenmiller says it doesn't make sense that financial markets surge on news about the Gilead Sciences intravenous anti-COVID-19 drug remdesivir. "I don't see why anybody would change their behavior because there's a viral drug out there," he said.

Druckenmiller also revealed he's a big fan of Amazon, saying he gets emotional when the online services giant is attacked.

His super bearish views mirror what I'm hearing across the hedge-fund sector... For more on this, read: Billionaires: Wall Street's ‘rich guys' say U.S. stocks are vastly overpriced.