Philosophy of the Day
Monday, 17 November 2008
Buffett buys more ConocoPhillips
Figures just released by the SEC show that between March and September 2008 Warren Buffett bought around 66m shares in ConocoPhillips. At 30th September 2008 he therefore owns almost 84m shares representing approximately 6% of the company. The mystery I covered in my posting of 29th September is therefore solved. I was right.
Monday, 29 September 2008
The ConocoPhillips Mystery
I have two investments in common with Berkshire Hathaway; Glaxo and ConocoPhillips. As noted in my blog on 29th January 2008 ConocoPhillips was my first US investment and since then has performed well. But I was a little concerned when I read that Berkshire might have sold out of Conoco in the second quarter of this year since no holdings were disclosed in the 13F return to the SEC as at 30th June 2008. But on further examination the following statement appears in that 13F for Berkshire Hathaway which was filed 14th August 2008:
"Confidential information has been omitted from the Form 13F and filed separately with the Commission. Included in the confidential filing is information regarding Berkshire Hathaway's position in ConocoPhillips. At March 31, 2008, shares held in ConocoPhillips were included in Berkshire Hathaway's public Form 13F".
So it wasn't that there were no holdings in Conoco, rather than the holding hasn't been disclosed. Why might that be? From time to time Buffett gets a special dispensation to avoid public disclosures where this might be price sensitive leading to "copy cat" investing. But it wouldn't make sense to avoid disclosure where the stock had already been sold (unless the holding was in process of being sold down) so the more likely reason is that Buffett is actually buying quite heavily and intends to buy more.
"Confidential information has been omitted from the Form 13F and filed separately with the Commission. Included in the confidential filing is information regarding Berkshire Hathaway's position in ConocoPhillips. At March 31, 2008, shares held in ConocoPhillips were included in Berkshire Hathaway's public Form 13F".
So it wasn't that there were no holdings in Conoco, rather than the holding hasn't been disclosed. Why might that be? From time to time Buffett gets a special dispensation to avoid public disclosures where this might be price sensitive leading to "copy cat" investing. But it wouldn't make sense to avoid disclosure where the stock had already been sold (unless the holding was in process of being sold down) so the more likely reason is that Buffett is actually buying quite heavily and intends to buy more.
Banks Need Long Memories
Warren Buffett has just revealed a $5bn investment in Goldman Sachs, a very significant vote of confidence in a very fragile market.
Meanwhile I found myself reading some early Letters to Berkshire Shareholders for the period 1969-1976 and a couple of particular comments jumped right off the page at me. These were written in March 1973 about the banking subsidiary of Berkshire, The Illinois Bank and Trust Co and in relation to the year 1972:
"During 1972, interest paid to depositors was double the amount paid in 1969. We have aggressively sought customer time deposits, but have not pushed for large "money market" certificates of deposit although, during the past several years, they have generally been a less costly source of time funds".
In conclusion he writes: "Our subsidiaries in banking and insurance have major fiduciary responsibilities to our customers. In these operations we maintain capital strength far above industry norms, but still achieve a good level of profitability on such capital. We will continue to adhere to the former objective and make every effort to continue to maintain the latter".
These comments were made 36 years ago and yet it is the fundamentals underlying these concepts (a conservative capital position and less reliance on wholesale funding) which have been neglected by many financial institutions and which have subsequently led to their demise in this current crisis. If Buffett understood this in 1973, and has had a further 36 years to refine his thinking, no wonder he is the world's greatest investor.
Meanwhile I found myself reading some early Letters to Berkshire Shareholders for the period 1969-1976 and a couple of particular comments jumped right off the page at me. These were written in March 1973 about the banking subsidiary of Berkshire, The Illinois Bank and Trust Co and in relation to the year 1972:
"During 1972, interest paid to depositors was double the amount paid in 1969. We have aggressively sought customer time deposits, but have not pushed for large "money market" certificates of deposit although, during the past several years, they have generally been a less costly source of time funds".
In conclusion he writes: "Our subsidiaries in banking and insurance have major fiduciary responsibilities to our customers. In these operations we maintain capital strength far above industry norms, but still achieve a good level of profitability on such capital. We will continue to adhere to the former objective and make every effort to continue to maintain the latter".
These comments were made 36 years ago and yet it is the fundamentals underlying these concepts (a conservative capital position and less reliance on wholesale funding) which have been neglected by many financial institutions and which have subsequently led to their demise in this current crisis. If Buffett understood this in 1973, and has had a further 36 years to refine his thinking, no wonder he is the world's greatest investor.
Tuesday, 23 September 2008
Looking Back
I find it hard to believe it is now 4 months since my last post. Probably any readers (if there were any) have given up!
My original idea was to write down some investment ideas so that I could use the record to look back and so how those ideas turned out. Now seems to be a good time to do that.
In Between a Northern Rock and a Hard Place (19th November 2007) I suggested that Northern Rock shareholders would end up with very little. Following the subsequent nationalisation that seems very likely.
Renold Renewed (20th November 2007) was when I bought into Renold most heavily at around 86p. The price is currently still around that level or a bit below although the company continues to trade well and I'm happy with my position.
I've done well out of a few IT companies bought since the dot com crash and nCipher is one of them. See The Need for Data Security (22nd November 2007). I wasn't very happy about subsequent management changes but the company is currently in process of being bought at 300p a share giving me a nice profit.
Sold out of China (29th November 2007). This was an outstanding call. This was close to the top of the market and subsequently Chinese stock markets have fallen by almost two thirds and the particular funds I had invested in are down almost half from their peak. Note the funds I had money in were probably invested via Hong Kong and this market for Chinese shares didn't bubble up to the same extent as the local Chinese Stock Markets and hence hasn't fallen so far.
Royal Bank of Scotland (6th December 2007) didn't work out for me. RBS will survive, unlike the US investment banks, but I was shocked at just how hard the impact of the current crisis has been on financial institutions. But at least I recognised the weakness of Alliance & Leicester Business Model Broken (21st February 2008), which subsequently had to be rescued by Santander and the relative strength of Lloyds in Dull like a Bank is Supposed to be (22nd February 2008)
The Coming Oil Crisis (11th December 2007) however was spot on. Oil hit a peak of around $147 a barrel in 2008 causing a massive shock to the oil dependent economies and businesses. I wrote more about oil in 2008 and despite the recent pull back to below $90 a barrel I expect oil prices will rise again in the near future.
In The End of Disintermediation (29th January 2008) I had started to think about the impact on the banking model and investment banks in particular. I can't claim to have predicted their demise but made very clear my aversion and the fact that the investment banking model would need to be revised. A return to old fashioned relationship banking now seems ever more likely.
More to follow.
My original idea was to write down some investment ideas so that I could use the record to look back and so how those ideas turned out. Now seems to be a good time to do that.
In Between a Northern Rock and a Hard Place (19th November 2007) I suggested that Northern Rock shareholders would end up with very little. Following the subsequent nationalisation that seems very likely.
Renold Renewed (20th November 2007) was when I bought into Renold most heavily at around 86p. The price is currently still around that level or a bit below although the company continues to trade well and I'm happy with my position.
I've done well out of a few IT companies bought since the dot com crash and nCipher is one of them. See The Need for Data Security (22nd November 2007). I wasn't very happy about subsequent management changes but the company is currently in process of being bought at 300p a share giving me a nice profit.
Sold out of China (29th November 2007). This was an outstanding call. This was close to the top of the market and subsequently Chinese stock markets have fallen by almost two thirds and the particular funds I had invested in are down almost half from their peak. Note the funds I had money in were probably invested via Hong Kong and this market for Chinese shares didn't bubble up to the same extent as the local Chinese Stock Markets and hence hasn't fallen so far.
Royal Bank of Scotland (6th December 2007) didn't work out for me. RBS will survive, unlike the US investment banks, but I was shocked at just how hard the impact of the current crisis has been on financial institutions. But at least I recognised the weakness of Alliance & Leicester Business Model Broken (21st February 2008), which subsequently had to be rescued by Santander and the relative strength of Lloyds in Dull like a Bank is Supposed to be (22nd February 2008)
The Coming Oil Crisis (11th December 2007) however was spot on. Oil hit a peak of around $147 a barrel in 2008 causing a massive shock to the oil dependent economies and businesses. I wrote more about oil in 2008 and despite the recent pull back to below $90 a barrel I expect oil prices will rise again in the near future.
In The End of Disintermediation (29th January 2008) I had started to think about the impact on the banking model and investment banks in particular. I can't claim to have predicted their demise but made very clear my aversion and the fact that the investment banking model would need to be revised. A return to old fashioned relationship banking now seems ever more likely.
More to follow.
Tuesday, 13 May 2008
Thursday, 1 May 2008
No regret over Oil & Gas
BP and Shell both reported on Q1 this week and stunned the market with strong results. For example Shell Current Cost profit for Q1 was 12% up on the prior year, for BP the increase was 48%. The BP result was pretty exceptional but otherwise I'm not sure why there was so much surprise given that the current record oil prices are well known about. Under typical Production Sharing Contracts (PSCs) high oil prices have the effect of reducing volumes so it is wrong to look at production volumes in isolation without adjusting for this. The FT was grudging in it's appreciation commenting that without high oil prices it would be a very different story. But then, for me, the high oil price is the story.
As some of my friends know I have been predicting high oil prices for some time now. Over the past 12 months oil has more or less doubled to around $120. The head of OPEC Chakib Khelil has just warned that oil could hit $200. I think so too (just don't know when) and continue to invest accordingly.
As some of my friends know I have been predicting high oil prices for some time now. Over the past 12 months oil has more or less doubled to around $120. The head of OPEC Chakib Khelil has just warned that oil could hit $200. I think so too (just don't know when) and continue to invest accordingly.
Fuel Cells - Nearly here
Yesterday I attended the "Low Carbon and Fuel Cell Knowledge Transfer Network" (bit of a mouthful that) seminar on Fuel Cells. Four listed companies presented with others exhibiting. Interesting technology but despite low share prices (CMR Fuel Cells is valued at half it's cash holdings) I came away a little disappointed from an investment standpoint.
The fuel cell concept is not new having originally been invented in 1843 and, whilst used in the Apollo moon project, it is only now that commercial products are on the verge of being made available. There was a lot of talk at the show about how difficult they are to engineer for volume manufacture and to reduce the size of the devices to match modern requirements.
Ceres Power and Ceramic Fuel Cells both produce Combined Heat and Power (CHP) systems but on examination these are really just more efficient boilers, still running on natural gas, and producing a bit of electricity as well as heat. In the case of Ceres Power volume manufacturing is 3 years away, it is likely to be an expensive "top end" item which saves about 25% of fuel bills. OK in time that will make a significant dent in domestic fuel consumption but to my mind these need a Government subsidy (or much higher fuel prices) to make them really fly.
CMR make fuel cells for portable devices, laptops being the prime market targeted, but again a commercial product is still 3 years away.
I will continue to follow this sector but mostly through curiosity since I clearly have no way of being able to evaluate these companies technically nor come to any view on their ultimate profitability and hence current value. The OEMs themselves seem only to be cautiously investing in some of the companies, no doubt reflecting their uncertainty as to which technology will eventually succeed.
The fuel cell concept is not new having originally been invented in 1843 and, whilst used in the Apollo moon project, it is only now that commercial products are on the verge of being made available. There was a lot of talk at the show about how difficult they are to engineer for volume manufacture and to reduce the size of the devices to match modern requirements.
Ceres Power and Ceramic Fuel Cells both produce Combined Heat and Power (CHP) systems but on examination these are really just more efficient boilers, still running on natural gas, and producing a bit of electricity as well as heat. In the case of Ceres Power volume manufacturing is 3 years away, it is likely to be an expensive "top end" item which saves about 25% of fuel bills. OK in time that will make a significant dent in domestic fuel consumption but to my mind these need a Government subsidy (or much higher fuel prices) to make them really fly.
CMR make fuel cells for portable devices, laptops being the prime market targeted, but again a commercial product is still 3 years away.
I will continue to follow this sector but mostly through curiosity since I clearly have no way of being able to evaluate these companies technically nor come to any view on their ultimate profitability and hence current value. The OEMs themselves seem only to be cautiously investing in some of the companies, no doubt reflecting their uncertainty as to which technology will eventually succeed.
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