The Compound and Friends - What will Warren Buffett do next (with Michael and Josh)

Episode Date: March 27, 2019

Bloomberg reporter Tara LaChapelle asks whether or not Warren Buffett will complete one last "elephant-sized" deal before calling it a career. He's 88 years old, so the clock is ticking. Join Michael Batnick and Downtown Josh Brown as they discuss the possibilities and a recent history of Buffett's acquisitions. Please jump in with your comments too, we'd love to hear what you think! You can read the full article here: https://www.bloomberg.com/opinion/articles/2019-03-25/warren-buffett-s-next-berkshire-hathaway-deal-will-be-crucial Start every day The Compound News https://www.thecompoundnews.com/ Follow us on Twitter: https://twitter.com/RitholtzWealth Follow us on Facebook: https://www.facebook.com/ritholtzwealth/ Talk to us about your portfolio or financial plan here: http://ritholtzwealth.com/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, welcome to Live from the Compound. I'm Josh Brown here with Michael Batnick. There's an article today on Bloomberg Opinion about Warren Buffett's next big quote-unquote elephant-sized deal. Madison Square Garden. Alright, hold your horses. We don't know who the next big elephant-sized deal will be. Tara LaChapelle, the reporter, thinks that whoever it is, it might be his last. We'll get into that in a moment. Stick around. Okay. Mike, you read the article as one of your last five free articles on the Bloomberg site. March 26th. Time to binge. You have four days left. You know, does Buffett have a history of buying companies with an inverted yield curve in action?

Yeah. In this economy? I don't know. I don't know. I don't know. Yeah, in this economy? Yeah, I don't know. Do you want him to do an elephant-sized deal? I don't know. I don't know. Well, Warren Buffett's last deal was in 2016. He bought Precision Cast Parts, which he had already owned stock in. And it was a $30-some-odd billion deal, which is pretty big.

But it was not like a splashy brand name that everyone knows. It wasn't like investing in Coke. By the way, do you know he has 400 million shares of Coca-Cola? Yeah. He's like, 400 million. It's a nice even round number. Like literally 400 million. Nice dividends.

You know how many people have told him to sell that or have said, why own Coke? And he just doesn't really care. So anyway, he's got $110 billion in cash, give or take. So anyway, he's got $110 billion in cash, give or take. And now the new rumors are saying that because he's the largest shareholder in the top four airlines, I think that's the number, or the second largest shareholder, that he'll probably just buy one. Would you ever have assumed Buffett would buy an airline in a million years? Well, he owns Delta, 9.6% of Delta, 8.7% of Southwest. He owns a shit ton of banks. He owns them all. He owns United Continental.6% of Delta, 8.7% of Southwest. He owns a shit ton of banks.

He owns them all. He owns United Continental. He owns American Airlines. Maybe he'll take down all of Coindesk. I don't know if he could afford that. He said- His biggest position, this is wild, Apple. Well, of course it is. What do you mean, of course it is?

Of course his biggest position. Why do you say of course? Because everyone knows how much Apple he's been buying. But you don't think that's just amazing? What, that he owns so much Apple? $40 billion. It's insanity. And he paid $36 for it, so it's not all appreciation.

I don't even know if he's overweight Apple, though, relative to the S&P. Is it still 6% or 7% of the S&P? It's 5.4%, so I don't think it's that big. It's not that big in the index? I think it's like two or three. Oh, because Microsoft has gotten so much better. So people have called them a closet index. Imagine in 10 years Berkshire is like the Qs.

Yeah, it looks just like the Qs. Yeah. Well, so what I wanted to ask you is, you remember when Buffett was saying that somebody should go back in time and assassinate the Wright brothers because of how much money has been lost collectively in the airline industry. And I guess he probably made that comment in the 90s.

No, I think it was Munger. Munger? Okay, same thing. So times have changed. It's interesting to see somebody like Buffett, after eschewing airline investments for 40 years. Oh, and the facts change. Right, but then going from owning no airlines to owning the largest stake in the big four

and possibly acquiring one, that's a pivot that not a lot of people talk about. That's a bigger pivot than investing in Red Hat or whatever. To me, that's a lot of money. Do you think that, let's say the last deal he does So Tara LaChapelle is the reporter And she's saying He probably doesn't want to leave his successor

With a hundred billion dollars To have to worry about Because it's like Why? I don't know if I'd buy that Her argument is He's going to pull the trigger So that the conundrum of that much cash Isn't something that the company has to face

In his absence Is that a good reason to do an acquisition? I don't know if I like that. Come on. Isn't it easier to have too much cash than not enough or a bad merger? Yes, of course. So she gave a list of companies that are Buffett E, Berkshire E. What?

Home Depot. 3M, Boeing, Caterpillar, Cummings, Deere, Delta, Emerson Electric. These all – I mean Home Depot. So he had a stake in Deere and I think he sold it. But I would have thought that that would be a no-brainer. It's just like the huge American agricultural brand that sells all over the world. Not a ton of competitors. Like it seems like it has a moat.

I feel like we're killing him a little. I mean he's only 88 Give him another decade I think if he does do a big deal It's not like he does one every year But he's spoken He's said a few things That he's having trouble finding value

But then he's also like Did he say in the latest letter that he's Sort of close to an elephant Did he tease it I don't remember He came close, right? Maybe. But the most interesting thing I remember him saying this spring is that the public market valuations are better than the private ones. And he's done some private deals. He bought Flying J or whatever that's called, the truck stops. And he bought one of the biggest

used car dealership chains in the country. Those are private deals. But he's saying the valuations on private are terrible. And in public markets, there are big deals worth doing. Is he just talking his book because he has to do big deals? Or you think there's maybe something to that? I don't know. All right.

Well, listen, let us know what you think Warren Buffett's next big elephant-sized deal is. We'll link to the article in the show notes. Use it as one of your 10 free articles this month. Let us know what you think. Leave us your feedback. We love your subscriptions. Go ahead and smash that like button for us as well, and we will talk to you soon.