Warren Buffett first began purchasing shares of PetroChina (PTR) sometime in 2002 (because it was on a foreign exchange, we don’t know the exact date), and filed his first 13G on April 30, 2003. The following is a short case study of Berkshire Hathaway’s investment—from when the first purchase was made five years ago to when the entire stake was sold over the past month. For disclosure, oil companies like PetroChina are not in my circle of competence, so in this study I’ll stick to the very basic themes of the investment and simplified calculations of intrinsic value.
By the time Buffett finished buying in 2003, Berkshire’s total cost for the 2.3 billion shares was $488 million. This gives the investment an average cost per share of about $21 for the ADSS (for the rest of the post, all figures will be in US$ and refer to the PTR shares traded on the NYSE). On October 18, Buffett sat down with Liz Clayman for an interview on the Fox Business Network where she asked him about his investment in PetroChina. In addition to confirming they had sold the entire stake, Buffett mentioned that at the time of purchase he read through the annual report and pegged PetroChina’s intrinsic value at around $100 billion.
PetroChina was established in 1999 as the publicly traded arm of China National Petroleum Corporation (CNPC), the largest producer of oil in China. PetroChina is vertically integrated where it explores, refines, and sells oil and natural gas. Because of the company’s duopoly in China with Sinopec, PetroChina is the most profitable company in Asia. Continue reading “PetroChina: A Look Back”
After looking over the recently released Forbes 400 list (the richest 400 people in America), I noticed the list has included more and more individuals in the “Finance/Investments” category. The growth in assets managed by Hedge Funds and Private Equity companies has been a major cause of this increase. In the Forbes 400 magazine, it shows a graphic representation of each category since the first list in 1982 (25 years ago). In 2007, Finance and Investments had the largest number of members in the list. Below I list which categories have grown or shrunk over the years:
Higher: Service, Finance/Investments, Technology, Retail
Lower: Food, Oil, Media/Communications, Real Estate, Manufacturing, Other Continue reading “The Forbes 8 Value Investor Index”
For anyone who has read the book Fooled by Randomness by Nassim Nicholas Taleb, the name Victor Niederhoffer may sound familiar (if you haven’t read the book, check out this article by Malcolm Gladwell). “The Blow-Up Artist”, a great article in The New Yorker, discusses Niederhoffer’s most recent financial troubles. Although Niederhoffer and Nassim Taleb are friends, after the events of the last two months I believe that Taleb has the last laugh.
Victor Niederhoffer is a well-known hedge fund manager who got his start managing a trading firm in the 1980s. From 1982-1990, he partnered with George Soros and ran the Fixed Income and Forex divisions of Soros’ firm. Niederhoffer has published two books: The Education of a Speculator (1996) and Practical Speculation (2003). Since 2001 he has run Manchester Trading LLC, which manages three small funds with total assets under management of about $350 million at the end of June. Manchester’s main fund had returned 50% annualized through the end of 2006, earning it a prize for best performance by a Commodity Trading Adviser.
Despite the level of respect for him in the trading world, Niederhoffer is most well known for the blow-up of his hedge fund in 1997. After the Asian financial crisis and a 7% one-day drop in the Dow, Niederhoffer Investments lost a majority of its capital and was forced to close down. These losses wiped out virtually all of the gains the fund achieved racking up 35% annualized returns since inception. Continue reading “The Blow-Up Artist”
MAIR Holdings (MAIR) – $5.17
MAIR is a very low risk / high uncertainty opportunity that has identifiable catalysts to unlock value in a reasonable amount of time. MAIR is a holding company that at the moment owns a very small regional airline (Big Sky Airlines) but is a majority cash and investments. It previously owned Mesaba Airlines, which went bankrupt in 2005, and was subsequently sold to Northwest Airlines (NWA) in April of this year. The current valuation numbers are below: ($Millions)
|Cash & investments
|Receivable from Mesaba
|Payable to Northwest (shares)
|Restricted cash (see below)
||76.98 ($5.13 per share)
I look at this value as the downside, assuming management doesn’t do something stupid with the cash. There are two activist investors (owning over 14% of the company) pushing MAIR to distribute excess cash and sell Big Sky, so I’m hoping this helps things out a bit. The restricted cash account is collateral for a plane hangar MAIR guaranteed to Mesaba bondholders. As long as MAIR finds a sublessor for the hangar by March 2008, the $13mm will be released. Continue reading “Investment Idea: MAIR”
So I just finished watching the debut of Dancing With the Stars. I saw a bit of the last season, and I really didn’t like it. But as far as reality shows go, my dislike was nothing out of the ordinary.
However, I have two reasons for watching this season: the first being Mark Cuban. Cuban is an interesting guy. I don’t follow his adventures in the sports world, but I like his blog and think some of his posts are right on the mark (no pun intended). Obviously, I don’t agree with everything he says but I like alternative points of view. It will be interesting to see him on the show. He certainly doesn’t fit in with the other male contestants — but I guess if he enjoys himself that’s all that matters. The second, being Josie Maran — for obvious reasons.
I think the biggest problem with reality TV at the moment is lack of originality. Every show is either a direct copy or a “rhyme” of another (usually successful) show. Is it because the networks are too afraid to take a chance on something new? Or have the creators/writers truly run out of ideas? I have the tendency to believe it’s the former rather than the latter. And that’s just one reason why eyeballs are moving away from traditional media sources and on to new media. More original, more creative content. If and when the big guys do get it right (it happens every once in a while), they have the talent and the resources to do a fantastic job.
Outside the bureaucracy of the large content generators, it’s easy and cheap to try new things. Throw it out there, quickly gauge the public’s response, and either make the necessary adjustments or continue to expand the content. Maximum tinkering and survival in small niches of content on The Long Tail. In my opinion, a combination of both these features — being nimble/innovative and having the resources of a large content generator — would produce the best results (another reason why Google (GOOG) is so successful).
See’s Candies, Warren Buffett and the perfect investment.
William Ramsey, an executive at Blue Chip Stamps, stood in the office of Robert Flaherty as they both awaited a call. Moments earlier, Flaherty attempted to persuade Warren Buffett, majority owner of Blue Chip, to consider purchasing See’s Candy Shops Inc., a popular West Coast candy maker. Buffett turned them down—up until then, he was used to buying boring businesses on the cheap: banks, textile mills and insurance companies. Ramsey however, thought See’s was a great buy, and desperately tried to get Buffett back on the phone. Their secretary finally got hold of Buffett at his home in Omaha. He had reviewed the numbers, and liked what he saw.
After consulting with Charlie Munger, Buffett’s friend and business partner, they were willing to make an offer. This would be Buffett’s biggest investment to date, and he wasn’t one to overpay for anything—the deal almost fell through during negotiations, but the sellers finally accepted their proposal. The final price was $35 per share. With one million shares outstanding and $10 million in cash on the books, the net purchase price was $25 million. Blue Chip Stamps now owned 67.3 percent of See’s Candy Shops, with the remainder purchased from about 2,200 public holders in the months after. But one thing remained unfinished: who would run the company? Buffett made it clear upfront that they wouldn’t be calling the shots at See’s. Suggested by the previous owner, Buffett, Munger and a friend named Rick Guerin met with Charlie Huggins—executive vice president and twenty-year veteran of See’s. After three hours of discussion, Buffett knew that Huggins was the man for the job.
Continue reading “Quality Without Compromise”
By Max Olson
There is no question that Warren Buffett is one of the greatest investors of all time. To study his investment methods, there are the Berkshire Hathaway annual letters, biographies, and dozens of other books written on the subject of value investing. But, Buffett’s specific investments are rarely examined within the context of the time he made the purchase—and without the benefit of hindsight. To more fully understand Buffett’s past successes, “reverse engineering” his purchases is essential. One investment in particular interested me, both because I like the business and because it is one of the only investments Buffett made where he disclosed an estimate of intrinsic value. That business is The Washington Post Company.
Buffett began acquiring shares of the Washington Post in early 1973, and by the end of the year held over 10 percent of the non-controlling “B” shares. After multiple meetings with Katherine Graham (the company’s Chairman and CEO), he joined the Post’s board in the fall of 1974.
According to Buffett’s 1984 speech The Superinvestors of Graham-and-Doddsville, in 1973, Mr. Market was offering to sell the Post for $80 million. Buffett also mentioned that you could have “…sold the (Post’s) assets to any one of ten buyers for not less than $400 million, probably appreciably more.” How did Buffett come to this value? What assumptions did he make when looking at the future of the company? Note: All numbers and details in this article are from the 1971 and 1972 annual reports and “Buffett: The Making of an American Capitalist” by Roger Lowenstein.