Berkshire Hathaway’s exemption from the usual disclosure rules has allowed it to quietly make a substantial new purchase over the past six months, whilst the identity of the investment still remains a secret.
So, what might the mystery stock be?
First, we should consider both recent and past words and deeds for clues and second, remember the type of business that Berkshire likes to own.
It was often said in the past that both Warren Buffett and his late partner, Charlie Munger, were mistrustful of technology investments as fortunes could change very fast from one year to the next. But in recent times (about 10 years in Berkshire’s perspective) attitudes have altered somewhat. Shares in Apple were first bought in 2016 and it is currently the company’s largest holding.
More significantly, a slow changing of the guard is underway at Berkshire, with Todd Combs and Ted Weschler credited with driving the Apple investment decision. One must assume (with Charlie sadly departed and Warren aged 95) that the younger pair now have more influence, making the tech sector a more appealing prospect.
Berkshire Hathaway's annual general meeting, often described as a 15,000 person ‘Woodstock for capitalists’, takes place over the May holiday weekend in Omaha. Tinged with poignancy this year, following the death of his long-time partner, surely this will be the stage for Buffett to announce his final ‘big deal’ before perhaps stepping down? If so, then I think it might be into one of two companies.
Towards the end of 2022, Berkshire Hathaway sold almost its entire holding in Taiwan Semiconductor (TSMC).
So what? Well, quite a lot actually, since Berkshire had only bought it three months earlier. That short-term change of heart was a very unusual move for Buffett, whose mantra is “if you are not willing to own a stock for 10 years, do not even think about owning it for 10 minutes”.
During the Q&A session with shareholders at last year’s meeting, the very question of ‘how come you changed your mind and sold it so quickly’ was put to the great man. His answer was full of effusive praise for its management and the wonderful business that is TSMC, but that he had reassessed the risk inherent with investing in Taiwan.
Taiwan produces approximately 80% of the world’s most advanced semiconductors and thus is surely the worst case of ‘eggs in one basket’ that the world has ever gambled upon. With the twin risks of China and earthquakes ever present, it makes both economic and political sense to diversify and there is finally more than just desire in the US to bring production back home.
Step forward Intel, with the full force and backing of the US government. On 21 March 2024, president Joe Biden stood at the site of its new plant in Arizona and announced the company would receive $8bn of grants: $11bn of loans described as “generous” by Intel, plus tax credits against construction activity that will amount to about 25% of the capital expenditure.
All being well, from 2025 Intel will start producing the most advanced semiconductors with Microsoft announced as the first confirmed customer.
Intel is one of only three companies in the world with the scale to be a leading-edge foundry. As such, it won’t matter whose chips win the artificial intelligence (AI) war – Intel will manufacture them anyway. Whilst there are risks in reaching that goal, Berkshire Hathaway is a long-term investor and, patriotism aside, that’s the type of ‘moat’ that Buffett craves.
His final words explaining the sale of TSMC was that he loved the business but “wants to find it in the United States.”
If I am wrong about Intel, then I think it will be because Berkshire has decided to pursue more exposure to the US consumer, rather than rely on corporate spending. In which case, my hunch is it is buying into a company that is as American as apple pie, a global brand with the stature of Coca-Cola, Gillette or Apple (all owned by Berkshire at some point) and one that is seven years older than Buffett himself.
He has owned shares in this company twice previously, originally in 1966, and has described selling as a “huge mistake”. For various reasons the company has floundered over the last few years and massively underperformed its peers, leading to what Munger would have told Buffett was an “opportunity to buy a great business at a fair price”. Buffett has previously admitted he had a wish to own the entire company and though unlikely, Berkshire Hathaway could now afford to do just that!
And that stock is… Disney.
Julian Wheeler is a partner at Shard Capital. The views expressed above should not be taken as investment advice.