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From the Charlie Munger interview with Becky Quick:

https://www.cnbc.com/2023/11/30/munger-and-buffett...

“We have $160 billion in cash, plus a great credit rating we deserve. And who in the hell has that? Not very many,” Munger said in CNBC’s special “Charlie Munger: A Life of Wit and Wisdom,” which aired Thursday.

“It can’t be anything too small because it doesn’t matter how good it is, we’re of a size now where too small just doesn’t move the needle very much. So we need something big to come along and use up all our cash, and some borrowing,” he told CNBC’s Becky Quick in an interview conducted shortly before his death this week at age 99.

Use up all our cash, and some borrowing??

"Use up all our cash, and some borrowing??"


Let us pray but I doubt it. Warren is super conservative and will always keep cash. I say $70billion is the floor.

I've heard WEB mention 90% index and 10% cash before. If he applied the same to BRK with assets 948bn that'd be 94bn. I can imagine him being more conservative than not.

""Use up all our cash, and some borrowing??"


Let us pray but I doubt it. Warren is super conservative and will always keep cash. I say $70billion is the floor."

Yes, I assume he meant all the spare cash and not including the cash buffer pile they deliberately keep for insurance/ emergency needs. They appear to have plenty of capacity to borrow and probably strong enough options for cash generation to pay down quickly if needed.

Yes we know Warren won't "use up all the cash" and he has said so explicitly. One of the nice aspects of landing a large elephant is that at a company like Berkshire and the usual required time to close a large acquisition, tens of billions of dollars will be generated just through operations. Add in some sales out of the equity portfolio (remember we sold the other railroad stocks and that partially funded BNSF for example), BRK corporate bond issuance, shorter term borrowing from the next couple years type borrowing, and you can come up with a very large number even if BRK stock is not part of the consideration. If BRK shares are reasonably valued at the time and the merger partner insists on a small equity option, the buying power gets even larger.

A big reason BRK will not "use up all the cash" is that a large chunk of the "cash" is actually the bond portfolio inside the insurance companies. Berkshire is unique that their bond portfolio is so short in duration that almost all of it is classified as "cash equivalents," "t-bills" and "damn-near t-bills, wait a couple months" on the balance sheet.

But Charlie's point on buying power for the right deal stands - Berkshire has access to the money to pay for an acquisition if opportunity knocks. Charlie doesn't believe in taking a small plate to the pie counter when you get that invite.

I've heard WEB mention 90% index and 10% cash before. If he applied the same to BRK with assets 948bn that'd be 94bn. I can imagine him being more conservative than not.

That suggestion was for his very wealthy and elderly wife's retirement portfolio.
Not quite the same set of criteria for Berkshire's liquid assets.
As in, "nothing at all in common", as far as I can tell.

Jim

But Charlie's point on buying power for the right deal stands - Berkshire has access to the money to pay for an acquisition if opportunity knocks. Charlie doesn't believe in taking a small plate to the pie counter when you get that invite.

There remains the minor point of what's available to buy that's big enough to soak up that much cash and borrowing?

Among private US companies there are only Cargill and Mars. Among non-US companies there's the issue of different legal systems and government involvement. And really big guys would probably want stock, not cash. In the stock market, he doesn't do hostile takeovers and they would also want stock to minimize tax hits.

I don't have any suggestions - does anyone?

My SWAG is that it might be a premier luxury goods firm controlled by a family dynasty in a favorable tax environment. But that's just a feeling - the great company at a fair price thingy. I don't have anything concrete to offer.

Yep, wasn't saying he does, "if".

Hopefully there'll be some bargains next year and he can deploy funds.

Has BRK ever owned Hershey's previously?

"Has BRK ever owned Hershey's previously?"

I believe Hershey is complicated by Trust ownership

Has BRK ever owned Hershey's previously?

I dunno, maybe someone else does?

But FWIW, based on simple trailing P/E (which is pretty smooth for Hershey), at $187.93 today it's 23% cheaper than the average valuation level since 2001.
It has been cheaper than this, on this simple metric, less than 1% of the time.

EPS rose 9.37%/year in the last 22.7 years. Add dividends to get the notional value generation rate.
Maybe their days of being a big success are over, but I suspect not.

Jim

There remains the minor point of what's available to buy that's big enough to soak up that much cash and borrowing?

I don't know but we can all hope it isn't some piddling indignity like owning a puny sub-6% of a $3 Trillion dollar company. That's just embarrassing.

I don't know but we can all hope it isn't some piddling indignity like owning a puny sub-6% of a $3 Trillion dollar company. That's just embarrassing.

nola

Speaking more seriously, I agree with your basic point. Why stop at 6%? And aren't there other great such companies? Is Google really at that much risk long term of being displaced?

BRK itself is probably the largest great company at a reasonable price with a predictable future. But it trades in such low volume that you can't spend enough buying a low percent of daily sales. You have to make an offer to buy back a large chunk at a reasonable price that could attract sellers.

These options are obviously known to Buffett and - so far- he has chosen none of such. What can we conclude except that he's waiting for a better deal?

I guess "We only serve who only stand and wait."

“” Has BRK ever owned Hershey's previously?“” As we all know, big pharma is working aggressively to suppress appetites. It’s hard to believe any product can successfully reduce my, need, for chocolates in large quantities, but it’s certainly a serious risk factor going forward.

big pharma is working aggressively to suppress appetites. It’s hard to believe any product can successfully reduce my, need, for chocolates in large quantities, but it’s certainly a serious risk factor going forward.

I think there is a narrative that it might be a risk factor, but I'm not buying it.
Among many other things, most chocolate isn't consumed because of hunger, it's to seek the joy of the flavour experience.

I think the much bigger risk factor for the chocolate industry is the supply chain. Most cacao is grown by extremely poor smallholders. That will change, and the supply chain with it. I imagine prices will rise a lot, and artificial flavours have got pretty much nowhere despite decades of effort.

Similarly, the current economics of coffee beans probably doesn't make sense in the long term. It's way too labour intensive.

Still great businesses, but I think those are the biggest risk factors.

Jim

Good morning Jim, I'm sure you know the excess health care expenses due to obesity, diabetes, high blood pressure etc. Once these drugs are proven to be safe and effective, insurance companies will incentivize the insured to take these appetite suppressant's. Americans are especially unhealthy. I would rather see uncle warren buy the maker of these block buster drugs or a group of them. Stay healthy bud.

I think the much bigger risk factor for the chocolate industry is the supply chain. Most cacao is grown by extremely poor smallholders. That will change, and the supply chain with it. I imagine prices will rise a lot, and artificial flavours have got pretty much nowhere despite decades of effort.


I am more concerned about the general trend towards "off brand" consumption in the food business. I see more and more store brands combined with highly local products; less the traditional products that we used to get. Amazon/WF has been very successful in this approach as has Costco and I see the trend accelerating in the future. Likely not an immediate existential threat to Hersey, but a head-wind for sure.

I hope that the lessons learnt on Kraft/Heinz are not forgotten...

tecmo
...

most chocolate isn't consumed because of hunger, it's to seek the joy of the flavour experience.

That sounds very sophisticated but for overweight chocolate etc. eaters the truth is plain and simple: Sugar is addictive.

There remains the minor point of what's available to buy that's big enough to soak up that much cash and borrowing?

Among private US companies there are only Cargill and Mars. Among non-US companies there's the issue of different legal systems and government involvement. And really big guys would probably want stock, not cash. In the stock market, he doesn't do hostile takeovers and they would also want stock to minimize tax hits.

I don't have any suggestions - does anyone?

Just curious why you restrict your U.S. survey to private companies. Weren't the last three elephants -- BNSF, Lubrizol and Precision Castparts -- all public companies?

Given your background in the energy business, what do you think of the idea that Mr. Buffett and/or Greg Abel might pursue an elephant or two for BHE, particularly mid-stream companies with irreplaceable infrastructure assets carrying high debt loads made more problematic by the sudden rise in interest rates?

Just curious why you restrict your U.S. survey to private companies. Weren't the last three elephants -- BNSF, Lubrizol and Precision Castparts -- all public companies?

I didn't restrict it to only private US companies. I was just pointing out that there aren't many elephant size private companies to chase if you're trying to use up a big chunk of the cash and borrowing power.

That's why I moved on to the stock market and companies outside of the US.

And, really, BNSF, Lubrizol, and Precision Castparts aren't that big. Plus only BNSF has worked out well so far.

As for the BHE type companies, financing with their own loans is primarily used for regulatory reasons. I can see BRK being a loaner to BHE with carefully crafted terms. But I don't know the industry well enough to know how regulators would view that. My background is in O&G, not the electric power industry. I'm sure mid-stream companies at the right price would interest them. But who of them are big enough to chew up $100-150 billion?

Buffett and T&T have a real challenge in placing really big money. Especially with a shareholder base that doesn't want taxable dividends. I'm hoping some of you guys have better ideas than I do.

I am more concerned about the general trend towards "off brand" consumption in the food business.

Maybe not that big a risk here -- a connoisseur might consider Hershey to be an "off brand" : )

Jim

Maybe not that big a risk here -- a connoisseur might consider Hershey to be an "off brand" : )


Thought the same thing!

First time in the USA I bought a Hershey bar. It tasted so odd I thought there was something wrong with it.
Bought another at a different store. Nope, that's just the way it is. I guess you have to grow up with it :-)

I grew up with UK Cadbury's and still enjoy it, so I'm not a chocolate connoisseur by anybody's definition!

Hershey's isn't very good, and I grew up with it. You know what else isn't that good? See's. It is okay, but you can do way better on the luxury end.

I love See's. We have a relative who brings a box over every few years, tastes awesome 👍

I tried some Hershey's and it grew on me and now I like it, acquired taste perhaps? Some prefer Coke some prefer Pepsi, some prefer the McDonald's Burger, some the BK. I prefer Wendy's.

When it comes to Meta I deleted my FB account many years ago as I can't stand it (all the annoying posts and adverts) I prefer LinkedIn. However like Hershey's people love FB, WhatsApp and Instagram be it to connect, show off, whatever they do 🧐. I like to use LinkedIn as a black book of contacts for business as people seem to move round all the time and I cannot keep track of them!

If you look at the numbers HSY and Meta are good moat like businesses with customer retention, just because "I or you" don't like it doesn't mean others don't. The numbers don't lie. At the right price I'd hold both, I already have Meta.

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