Conspiracy Theories

Two of the investing kingpins are in the news this week for different reasons.  Warren, obviously, for his annual meeting.  Carl, on the other hand, stole some of the thunder with his announcement yesterday that he exited his Apple position.  I’ll get back to Warren in a minute, but over the years have come to realize that rarely is a given act random.  Most times it’s calculated, particularly when significant amounts of money are at stake.  So I look for the hidden agenda, or for lack of a better term, the Conspiracy Theory.

I had the opportunity to meet Carl once in the ’80’s during his greenmailing days with TWA.  An article on The Verge illustrates his tactics.  The lesson I learned was that I wanted no part of his investing strategies.  This was a promise kept for 35 years until he joined me as an Apple and Xerox shareholder and I bought into AIG (for other reasons) last year.

Apple is a curious case, which unlike Xerox which he won, he cut and ran.  This isn’t his style.  The reason it’s curious is that he left money on the table.  Sure Apple had a disappointing earnings report – this wasn’t unexpected.  He blamed China – but this isn’t new news either. By timing his sale after the ex-div date (May 9th) he could have pocketed an extra (estimated) $26 million (including the increased dividend).  Perhaps he thinks he’ll lose more by waiting.  Perhaps he had little choice with a possible credit downgrade looming.  Me? I chose to add to my position today.

Which brings us back to Warren.  This theory is a little more convoluted – which makes it less likely.  Berkshire has a stake in Wells Fargo (recently raised to the 10% initial maximum level), Phillips 66 (14.33%), American Express (15.86%) and Kinder-Morgan (1.17%). All of these are factual. What perplexed me a little was the KMI stake.  Either it was perceived to be a value play or there’s an ulterior motive.  What follows is plausible speculation.

WFC attained the 10% trigger requiring Federal Reserve Board notification.  The Fed approved with the same stipulation applicable to AXP – notably no further purchases.  Warrens ownership of AXP exceeds 10% due to company stock repurchases.  Let’s assume WFC holds some KMI debt, BRK could buy it, swap it to KMI for a pipeline (perhaps one serving a PSX refinery) along with some KMI stock.  BRK could then assign ownership to PSX for stock.  PSX could then perform a drop-down to PSXP for cash.  This could be performed along the lines of the Washington Post deal.  benefits are:

  • PSXP gains a pipeline
  • PSX gains administrative fees
  • KMI can reduce debt
  • WFC reduces energy exposure and can buy back shares
  • BRK has increased ownership in both WFC and PSX

Like I said at the outset, shades of a conspiracy theory.

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