24/7 Wall St.

Berkshire Hathaway Inc. (NYSE: BRK-A) is closely watched because it is the company run by Warren Buffett. This makes any key holding of Buffett closely watched. Sometimes he gives hints and notes on why he is making share purchases in public companies, and sometimes he is very vague.

On Tuesday, Buffett gave some key clarifications on recent common stock purchases during a CNBC interview, regarding International Business Machines Corp. (NYSE: IBM) and Phillips 66 (NYSE: PSX). These were both very controversial holdings because the changes were not reflected in the latest holdings. 24/7 Wall St. wanted to go beyond Buffett’s actual statements and update the status of these two holdings, since we just covered the 20 most dominant Warren Buffett investments.

Buffett hinted yet again about getting to buy stocks cheaper on down days, but without being specific. 24/7 Wall St. recently noted which of the five stocks he likely has bought during the sell-off. Tuesday’s move cannot go without considering the $37 billion price tag for Precision Castparts Corp. (NYSE: PCP), due to what this does to his available cash. 24/7 Wall St. also identified what it was that made Precision Castparts so valuable to Buffett versus other buyers.

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On IBM, Buffett said previously that he had acquired more shares. That was after the cut-off of the second quarter, and the second-quarterly filing of holdings did not reflect that more IBM shares had been bought. Buffet said he made a mistake when he alluded to buying more IBM — buying in the first quarter, and then buying more IBM shares in the third quarter, but not in the second. He even said that he thought Berkshire Hathaway had bought shares in the second quarter, but he was wrong.

On the recently disclosed Phillips 66 huge stake of $4.5 billion or so, Buffett said that Berkshire Hathaway was able to buy it on a tax-advantaged basis. He said that they bought as the price became right.

Buffett clarified that Berkshire Hathaway was not buying Phillips 66 as a refiner. He also clarified that this was buying because he likes the management team and likes where the company is placed. On whether Berkshire Hathaway would ever just acquire Phillips 66, Buffet said: “That would be a long stretch from here … we think they would be very happy to be independent.”

24/7 Wall St. noted recently what Buffett sees in Phillips 66 that the rest of us might not see. Another consideration on why Buffett would not likely acquire Phillips 66 outright: its market cap is $42 billion today. When you add in a premium, it is way above and beyond what would leave Buffett with a $20 billion cash cushion, when you consider the Precision Castparts acquisition tally of $37 billion.

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As a reminder, Berkshire Hathaway’s prior stake in IBM was listed as roughly 79.5 million shares. That was worth $12.9 billion as of June 30, but the $146.00 price on Tuesday would generate a value of only $11.6 billion. As we do not know how many more shares of IBM Team Buffett have bought, we cannot speculate on the real value.

Select quotes from the Becky Quick interview of Buffett on CNBC are included on a second page, with verbatim Buffett comments. These pertain to IBM and Phillips 66 only.
Leading up to buying more shares in IBM:

QUICK: HAVE YOU SEEN THIS RECENT PULL-BACK AS A REASON TO BE BUYING?

BUFFETT: WELL WE, WE’RE BUYING BECAUSE WE LIKE WHAT WE’RE BUYING IN RELATION TO ITS LONG-TERM PROSPECTS IF WE LIKED IT AT X A FEW WEEKS AGO AND IT’S 95% OF X NOW, I LIKE IT EVEN BETTER AND IF IT GOES TO 90% OF X I’LL LIKE IT STILL BETTER?

QUICK: WHAT STOCK ARE YOU TALKING ABOUT?

BUFFETT: WELL YOU PROBABLY KNOW THE NAME, BUT I WOULDN’T TO BORE YOU WITH IT.

QUICK: WHEN WE SPOKE WITH YOU ON THE PHONE BACK ON AUGUST 10 I THINK IT WAS, YOU KIND OF HINTED THAT YOU MIGHT HAVE BEEN BUYING MORE SHARES OF IBM IN THE SECOND QUARTER. THOSE FILINGS CAME OUT AND KIND OF SURPRISED US. THAT THERE WEREN’T ANY ADDITIONAL PURCHASES IN THE SECOND QUARTER

BUFFETT: WELL I OWE YOU ONE ON THAT BECAUSE I THOUGHT I WAS BUYING IT IN THAT QUARTER WE BOUGHT IT IN THE FIRST QUARTER.  AND NORMALLY I WOULDN’T TELL YOU THIS, BUT WE BOUGHT SOME IN THE THIRD QUARTER. I ACTUALLY THOUGHT THERE WAS PURCHASES IN THE SECOND QUARTER. I WOULDN’T HAVE SAID THAT UNLESS I THOUGHT THE NUMBER WAS GOING TO BE A LITTLE BIT HIGHER. BUT I WAS WRONG. SO I HAVE TO TELL YOU THAT WE HAVE BOUGHT A LITTLE IN THE THIRD QUARTER AND WE DID BUY IT IN THE FIRST QUARTER AS WELL.

QUICK: THAT WAS AUGUST 10th. SO I TAKE IT YOU WERE BUYING IN THE THIRD QUARTER BEFORE AUGUST 10, EVEN BEFORE THE MARKET VOLATILITY CAME UP.

BUFFETT: I DON’T REMEMBER THAT EXACTLY AND I GOT IN TROUBLE GIVING AN ANSWER WHERE I DIDN’T REMEMBER PERFECTLY BEFORE. SO I’LL LEAVE IT AT WHAT I SAID WHICH IS TRUE, THAT WE DEFINTELY BOUGHT IT IN THE FIRST QUARTER AND THE THIRD QUARTER AND WE DEFINITELY DID NOT BUY IN THE SECOND QUARTER EVEN THOUGH I KIND OF THOUGHT THAT WE HAD.

And leading up to Phillips 66:

QUICK: LET’S TALK A LITTLE BIT WHAT ELSE WE FOUND OUT IN THE MOST RECENT FILINGS THAT CAME OUT. PHILLIPS 66 YOU NOW HAVE A $4.5 BILLION STAKE IN THE COMPANY?

BUFFETT: THAT’S CORRECT.

QUICK: WHAT HAPPENED, WHY DID YOU BUY INTO THAT BECAUSE THIS IS SOMETHING THAT YOU TRADED OUT YOUR SHARES FOR BACK AT THE END OF 2013 FOR I GUESS SOME PIPELINES THAT YOU WERE —

BUFFETT: WE TRADED THE SHARES, WE WERE ABLE TO DO IT ON A TAX-ADVANTAGED BASIS, WE DIDN’T TRADE THEM BECAUSE WE DISLIKED THE STOCK AT ALL. A MATTER OF FACT I LIKED THE STOCK WHEN WE TRADED IT. IT WAS A CHANCE TO DO A TRANSACTION TO BUY AN ASSET WE LIKED VERY MUCH. TO DO IT ON A TAX-FREE BASIS, THEY COULD DO IT ON A TAX-FREE BASIS AND I HAD ALWAYS INTENDED THAT WE WOULD COME BACK IN. ASSUMING THAT THE PRICE WAS RIGHT. AND WE DID.

QUICK: IT MUST BE VERY SPECIFIC TO PHILLIPS 66 THOUGH. BECAUSE YOU SOLD YOUR SHARES OF EXXONMOBIL I THINK IN THE FOURTH QUARTER LAST YEAR.

BUFFETT: THEY’RE IN DIFFERENT BUSINESSES, TO SOME DEGREE. PHILLIPS 66 HAS NO UPSTREAM PRODUCTION, THAT PROBABLY ACCOUNTS FOR THE BULK OF THE VALUE OF AN EXXON. ON THE OTHER HAND, PHILLIPS 66 IS NOT A PURE REFINER. THEY’VE GOT A BIG CHEMICALS DIVISION, A MID STREAM BUSINESS. SO IT’S NOT, WE’RE NOT BUYING IT AS A REFINER, WE’RE CERTAINLY NOT BUYING IT AS AN INTEGRATED OIL COMPANY WE’RE BUYING IT BECAUSE WE LIKE THE COMPANY AND WE LIKE THE BMANAGEMENT VERY MUCH. EVER SINCE GREG GARLAND HAS TAKE TN OVER AFTER IT SPUN OUT OF CONOCO PHILLIPS, HE’S DONE A TERRIFIC JOB.  SO I’VE LIKED THE COMPANY.

QUICK: IS IT SOMETHING THAT YOU COULD SEE EVENTUALLY ADDING BY BUYING THE COMPANY OUTRIGHT?

BUFFETT: WELL, THAT’S A LONG – WOULD BE A LONG STRETCH FROM HERE AND WE NEVER, WE WOULD ONLY DO SOMETHING IN ANY COMPANY IF THE COMPANY WANTED US TO. AND I THINK THEY’RE VERY HAPPY TO BE INDEPENDENT.

QUICK: ARE THERE OTHER OPPORTUNITIES THAT YOU SEE IN THE OIL AND NATURAL GAS POSITIONS AT THIS POINT? JUST BECAUSE OF THE HUGE DROP WE’VE SEEN IN OIL AND GAS.

BUFFETT: I THINK THAT’S THE ONLY OIL COMPANY THAT’S CONNECTED WITH THE OIL AND GAS INDUSTRY THAT WE OWN. ALTHOUGH PRECISION CASH PARTS MAKES EQUIPMENT FOR THE OIL INDUSTRY AND OUR LUBRIZOL OPERATION PRODUCES CHEMICALS THAT ARE USED IN OIL AND GAS PRODUCTION.

Please note: This portion of the transcript was sent to 24/7 Wall St. by CNBC.

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