The Smart Money Just Made Some Big Moves.

Key Concepts

• 13F Filings: Quarterly SEC filings that large money managers must submit, detailing their stock holdings.
• Berkshire Hathaway: Warren Buffett's conglomerate.
• Himalaya Capital: Investment firm founded by Li Lu.
• Pershing Square Capital Management: Hedge fund founded by Bill Ackman.
• Bow Post: Seth Klarman's investment firm.
• PE Ratio (Price-to-Earnings Ratio): A valuation metric used to compare a company's stock price to its earnings per share.
• Network Effect: A phenomenon where a product or service becomes more valuable as more people use it.
• Generative AI: Artificial intelligence capable of creating new content, such as text, images, or code.
• Tariffs: Taxes imposed on imported goods.
• Free Cash Flow (FCF): The cash a company generates after accounting for cash outflows to support operations and maintain its capital assets.

Warren Buffett's Moves

Apple Sell-off Continues:

• Berkshire Hathaway has continued to reduce its Apple holdings, selling an additional 20 million shares (6.67% of their remaining stake) in the most recent 13F filing.
• This follows a significant sell-off initiated in Q1 2024, where over 605 million shares were sold, reducing Apple's weight in the Berkshire portfolio from 50% to 25%.
• Potential Reasons for Sell-off:
  • Fears of increased corporate tax rates.
  • Desire to hold more cash due to global uncertainties.
  • Apple's valuation reaching a PE multiple of around 38.
  • Speculation: The author suggests potential headwinds from tariffs, citing Tim Cook's mention of a $900 million quarterly cost impact on Apple during their Q2 earnings call.

New UnitedHealth Position:

• Berkshire initiated a new $1.5 billion position in UnitedHealth.
• This investment is notable given the recent negative publicity surrounding UnitedHealth, including the murder of its CEO in protest of high claim refusal rates (estimated at 1/3 of claims).

Other Notable Berkshire Trades:

• 4% reduction in Bank of America.
• 3% increase in Chevron.
• 4% reduction in Dvita Healthcare.

Li Lu's Big Bet on Pinduoduo

• New Significant Purchase: Li Lu's Himalaya Capital made a substantial new investment in Pinduoduo, acquiring 4.6 million shares for a $482 million position.
• Portfolio Impact: This position immediately became the second-largest in Himalaya Capital's portfolio, representing almost 18% (technically third largest due to Google's split share classes).
• Pinduoduo Overview:
  • A Chinese e-commerce competitor to JD.com and Alibaba.
  • Utilizes a group buying model where users invite friends and family to join purchases for discounts, targeting price-sensitive shoppers and adding a social element.
  • Revenue Model: Primarily relies on advertising services for merchants, rather than taking a cut of each sale.
  • Key Initiative: Launched Temu in 2022, bringing its low-cost factory-direct model globally.
• Li Lu's Rationale (Speculation):
  • Focus on building a competitive advantage in e-commerce through low-cost models.
  • Creation of a network effect where the experience improves (becomes cheaper) as more friends and family participate.
• Financials and Valuation:
  • Operating profit declined 38% year-over-year in the most recent quarter due to substantial investments in the platform ecosystem.
  • Annualized EPS suggests a PE ratio of 21.
  • Current PE ratio based on trailing 12 months' earnings is a low 12.75.
  • Li Lu likely anticipates these investments will lead to long-term growth.

Bill Ackman Invests in Amazon

• New Investment: Pershing Square Capital Management acquired approximately $1.3 billion worth of Amazon stock.
• Portfolio Significance: This position is now the fourth largest in Pershing Square's portfolio, holding 9.31%.
• Investment Timing: Bill Ackman disclosed the position in May, noting he acquired shares at an "extremely attractive price" after a roughly 30% dip earlier in the year. The stock has since rebounded approximately 40%.
• Reasons for Initial Dip: Short-term fears related to generative AI and US tariffs.
• Pershing Square's Perspective:
  • Ryan Israel, Pershing's CIO, viewed it as a "uniquely attractive time," confident that Amazon could navigate any slowdown.
  • Expectation of over 20% earnings per share growth.
• Tariff Impact:
  • Amazon CEO Andy Jassy stated in May that Amazon was not seeing significant impacts from tariffs, with some categories even seeing increased buying in anticipation.
  • Jassy reaffirmed this in the most recent earnings call, indicating no diminishing demand or meaningful price appreciation due to tariffs in the first half of the year.

Seth Klarman Doubles Down on Google

• Increased Stake: Bow Post increased its Google stake by nearly 27%, bringing it to 11.36% of the portfolio, making it the largest position worth $467 million.
• Divergent Investor Views: This move contrasts with some investors, like Li Lu, who have been selling Google. Two narratives are emerging:
  • Profitable Core Business: Google maintains a dominant position in internet search, generating significant revenue and profit.
    • Search revenue grew nearly 12% year-over-year in the most recent quarter.
    • Google Services (including YouTube ads, network advertising, subscriptions, platforms, and devices) generated $33 billion in profit.
    • Google Cloud generated $2.8 billion in profit.
    • The business is generating $24 billion in free cash flow year-to-date.
  • Generative AI Threat: A growing number of investors are questioning the long-term strength of Google's search moat due to the rise of AI chatbots like ChatGPT.
    • The author personally prefers ChatGPT for its direct answers, even over a paid model, compared to Google's search results with sponsored links.
• Seth Klarman's Rationale:
  • Google's PE ratio is 22, considered reasonable given its growth and strong balance sheet.
  • He sees a business with a $95 billion cash cushion, generating nearly $63 billion in profit and $24 billion in free cash flow every six months.
  • Dominant and diversified advertising business, with a growing cloud segment.

Conclusion and Disclaimer

• The video presents the four main stories from the latest 13F filings: Warren Buffett's continued Apple sell-off and UnitedHealth purchase, Li Lu's Pinduoduo investment, Bill Ackman's Amazon stake, and Seth Klarman's increased Google position.
• Disclaimer: The information is for research and idea generation only and is not a buy, hold, or sell recommendation. Investors should conduct their own research.
• Event Promotion: The video concludes with an invitation to a free 3-day investing workshop hosted by the speaker and Phil Town in Peachtree City, Georgia, from September 12-14.