The Digest #100
Berkshire, Activision, Tom Murphy, Empty offices, Short sellers, Stolen Bitcoin
Berkshire’s Activision Investment
Yesterday was the deadline for hedge fund managers and other institutional investors to file 13F forms with the SEC disclosing equity positions held as of December 31, 2021. Despite important disclosure limitations and the six-week time lag that makes the data quite stale, many investors pore over these filings for ideas. Reviewing 13F filings directly is time consuming and does not highlight quarterly changes, so I recommend using Dataroma for review purposes.
Berkshire Hathaway’s 13F revealed that the company purchased 14,658,121 shares of Activision Blizzard during the fourth quarter of 2021. The position size, worth just under $1 billion as of December 31, almost certainly indicates that the purchase was made by either Todd Combs or Ted Weschler rather than Warren Buffett who typically initiates much larger positions.
Activision’s stock price has increased from $66.53 on December 31 to $81.50 at the close yesterday. Assuming Berkshire still owns the same number of shares that it held as of December 31, the investment is now worth just under $1.2 billion.
On January 18, 2022, Microsoft announced that it will acquire Activision for $95 per share in an all-cash transaction. The press release stated that the acquisition is likely to close in Microsoft’s fiscal 2023, which begins on July 1, 2022, and is subject to regulatory review and the approval of Activision’s shareholders.
If the deal closes as planned and Berkshire holds its Activision shares, Berkshire stands to realize close to $200 million in additional gains given the gap between the $95 per share deal price and the current stock quote of $81.50.
Although the Activision position was acquired prior to news of the Microsoft acquisition, there is clearly another “puff” in this cigar, so I doubt that Berkshire will exit the position prior to the closing of the transaction. Depending on Berkshire’s confidence in the transaction, it is possible that the position size might even increase in an effort to capitalize further in a merger arbitrage play.
Tom Murphy Resigns from Berkshire’s Board
Tom Murphy has resigned from Berkshire’s Board of Directors. Mr. Murphy, who is 96 years old, owned 695 A shares and 1,489 B shares as of the date of the 2021 proxy statement, a holding worth approximately $330 million at today’s share price. It will be difficult for Berkshire Hathaway to find a replacement with anywhere near Mr. Murphy’s business acumen and ownership interest in the company.
Warren Buffett’s statement from the press release:
“Tom Murphy has taught me more about running a business than any other person. We have been friends and mental partners for more than 50 years. My only regret is that I didn’t meet him earlier. Tom phoned me today and said that recovering from a recent bout with Covid convinced him that he would feel more comfortable ending his activities at Berkshire. I accepted his wish. He will continue as a major shareholder and friend.”
Twenty Years of Owning Berkshire Hathaway, February 15, 2020. My first purchase of Berkshire Hathaway stock was on February 15, 2000, which was exactly twenty-two years ago. Two years ago, I wrote this article recalling my original purchase. Berkshire Hathaway is often called a “cult” stock because of the personalities of Warren Buffett and Charlie Munger. If you’re going to be a member of a cult, you could pick a much worse one than Berkshire Hathaway. But jokes aside, there are many lessons one can learn from Berkshire in addition to the financial returns. (The Rational Walk)
Back to Earth or Temporary Setback? Revisiting the FANGAM Stocks by Aswath Damodaran, February 12, 2022. “In the midst of all the action, to no one's surprise, have been six stocks (Facebook, Amazon, Netflix, Google, Apple and Microsoft or FANGAM) that have largely driven US equities for the last decade, roiling the market with their most recent earnings reports. Netflix and Facebook saw drops of 20% or more in market capitalization, following negative earnings reports, but Amazon and Google beat market expectations. In this post, I will be valuing each of these companies, both to assess whether to invest in them individually, and to examine whether there are lessons for the market in their price entrails.” (Musings on Markets)
People Are Going Out Again, but Not to the Office by Peter Grant, February 14, 2022. This article describes a phenomenon that I have noticed for at least a year. While restaurants, bars, and entertainment venues have bounced back from the depths of the pandemic, office districts are still virtual ghost towns and commute traffic, including public transit, remains depressed. Why are people not going back to offices? Perhaps some are still worried about illness, but the restored popularity of all kinds of discretionary activities is grounds for skepticism. A better explanation is that people simply prefer remote work and employers dealing with labor shortages are not in a position to argue. The long-term implications for commercial office space and the supporting businesses in downtown districts could be severe. (WSJ)
Are Activist Short Sellers Misunderstood? by Michelle Celarier, February 12, 2022. Short sellers have never been popular, and many observers believe that they play a role in market manipulation. “Those beliefs have also led critics of activist short sellers to propose S.E.C. rules that they say would stem such abuses. These include forcing the activists to hold their positions for at least 10 days or, failing that, to disclose when they cover their shorts. Some have petitioned the S.E.C. to change the rules so that rapidly closing a short position can be considered a form of market manipulation.” While market manipulation should be illegal, we should not lose sight of the role short sellers play in financial markets and refrain from caricaturing them as villains. (NYT Deal Book)
How a Young Couple Failed to Launder Billions of Dollars in Stolen Bitcoin by Ed Caesar, February 14, 2022. This is an account of the crazy story of a 2016 theft of 119,754 bitcoin and the extreme difficulty of converting the cryptocurrency to fiat currencies without being caught. “The case against Morgan and Lichtenstein, as detailed in the affidavit, describes a big crime followed by a series of frustrations. After the hack of Bitfinex, in 2016, the stolen bitcoin was transferred to an outside wallet. The government has not said that Lichtenstein and Morgan hacked the exchange; they are charged only with laundering the proceeds of the hack.” (The New Yorker)
8 things on the $4.5B Bitcoin heist by Trung Phan, February 12, 2022. The married couple accused of laundering the stolen bitcoin have very interesting backgrounds and colorful personalities. What a strange story this is … “It gets weirder from here: the husband (Ilya “Dutch” Lichtenstein, 34) is a tech entrepreneur and Y Combinator alumni while his wife (Heather Morgan, 31) runs a few software businesses, writes for Forbes…and, oh, is an amateur rapper that goes by the name of Razzlekhan!!” (SatPost by Trung Phan)
Putting Ideas into Words by Paul Graham, February 2022. Tomorrow marks the thirteenth anniversary of The Rational Walk and I can completely relate to Paul Graham’s essay regarding the importance of writing down your ideas: “Writing about something, even something you know well, usually shows you that you didn't know it as well as you thought. Putting ideas into words is a severe test. The first words you choose are usually wrong; you have to rewrite sentences over and over to get them exactly right. And your ideas won't just be imprecise, but incomplete too. Half the ideas that end up in an essay will be ones you thought of while you were writing it. Indeed, that's why I write them.” (PaulGraham.com)
Why Peter Thiel Searches for Reality-Bending ‘Secrets’ by David Perell, February 2022. “His definition of secrets isn’t the one you grew up with. He’s not talking about spreading gossip or talking behind people’s backs. Rather, Thiel defines secrets as important truths about the world that other people don’t yet realize. They are keys into hidden chambers of knowledge, free from the distortions of lies and propaganda.” (Perell.com)
Expectations Investing with Michael Mauboussin, February 10, 2022. “In this episode, we discuss Michael’s early career working under the tutelage of Bill Miller, his introduction to the Santa Fe Institute and how it shaped his investing style, the three steps of what Michael calls expectations investing, the concept of reflexivity, the problem with investing based simply on multiples, the rise of intangibles, what are they, how to look through them, the golden rule of share buybacks and why they are controversial to some, how to calculate a company’s competitive moat, how Michael has updated the Security Analysis course at Columbia, how to determine your own cost of capital, and so much more.” (We Study Billionaires)
Joey Levin - Building an Anti-Conglomerate, February 15, 2022. “IAC is a unique business in that it's a holding company which builds world class digital businesses. Since Barry Diller created IAC, it has produced 11 public companies, including Match Group, Expedia and Live Nation. Today, the business is comprised of category leaders, like Angi, Dotdash, Meredith and care.com. Joey joined IAC in 2003 and became CEO in 2015. We talk about why he tries to avoid centralization between businesses, what he's learned from Barry Diller, how he approaches capital allocation and so much more.” (Invest Like the Best)
The Daily Journal Annual Meeting featuring Chairman Charlie Munger will take place tomorrow, Wednesday, February 16 at 10:00 am Pacific Time. According to the company’s proxy statement, the meeting will not have a live audience due to precautions related to the COVID-19 pandemic. However, the meeting will be live streamed on Yahoo! Finance. I cannot find an active link to tomorrow’s livestream, but presumably the main Yahoo! Finance website will have a link tomorrow morning.
Two Arrows by Thomas J. Bevan. This is a great short story about a hitman who is hired to do a “double job” and an interesting twist regarding the nature of the job and final outcome. I can’t say much more without spoiling the plot. (The Commonplace)
Copyright, Disclosures, and Privacy Information
Nothing in this newsletter constitutes investment advice and all content is subject to the copyright and disclaimer policy of The Rational Walk LLC.
Your privacy is taken very seriously. No email addresses or any other subscriber information is ever sold or provided to third parties. If you choose to unsubscribe at any time, you will no longer receive any further communications of any kind.
The Rational Walk is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.