Stick with Berkshire Hathaway, says this longtime investor, who’s wary of Nvidia and Tesla

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It’s Fed day and if the forecasters are right, the central bank will sit on its hands, while elsewhere, sellers are pushing back on oil gains.

Our call of the day taps into another veteran investor, the chief investment officer of Semper Augustus Investments, Chris Bloomstran, who spoke about favorite holdings like Dollar General and less-faves Nvidia and Tesla in a two-part interview (here and here) that recently aired via the Richer, Wiser, Happier podcast.

Formed in 1998, his firm was named after the most highly valued of all the tulip bulbs at the peak of the bubble that burst in 1637, which speaks to his cautious approach. His first client Robert Brookings Smith, who he calls the godfather of investing, exited the stock market in early 1928 fearing a bubble, then waited until 1932 to pick up cheap shares of GE, Merck and Dow Chemical. (Bloomstran tells Smith’s story in a 2021 letter to clients — page 32.)

Guided for years by Smith, Bloomstran bought Berkshire Hathaway BRK.B, +0.01% in 1998, which was cheaper after the tech bubble burst. He says the last year and a half feels like “an awful lot of what happened in the late 90s,” where everyone owns the same too-highly-valued 20 or so stocks.

“There’s this bullishness that’s returned among the tech crowd in particular that believes that, you know, we’re backing off to the races and as Bob Smith said of the 1920s, you know, I’ve seen the show before and history repeats and we’re repeating it again,” he said.

In 1999, he predicted Microsoft MSFT, -0.12% shareholders would lose or make little returns for the next 15 years, which largely turned out to be accurate. “It was simply the price on $20 billion in sales and a 38% profit margin. So 7.5 billion dollars in net income, the market cap was $620 billion, 31 times sales and 80 times earnings on a business that’s not going to grow as fast as it had from its IPO 15 or 14 years prior,” he said.

He also thinks today’s Nvidia NVDA, -1.01% investor “will lose money over the next 15 years.” His lengthy explanation can be found at the one-hour mark, but Bloomstran makes the case that margins at the chip maker cannot grow as strongly as Wall Street expects, even in a perfect scenario, stretching out that many years. He’s got small short positions on Nvidia and Tesla TSLA, +0.46%,

“It’s Tesla and what’s approaching a trillion dollar market cap again. And they’re now at $100 billion revenue run rate. Everything has to go right and bothers me to no end,” he said, criticizing Tesla’s self-driving aims, ARK Invest talking it up and out-of-reach margins.

But he does like Dollar General DG, +1.27%, for its “whale of a moat around it, given their rural footprint” and economics of the median household, their customer. (See buzz on that stock.)

“We’ve just made Dollar General a very big position here in the past month and a half, because it’s now among the cheapest companies in the portfolio versus what was one of the most fully valued companies in the portfolio two years ago. Under the hood, you don’t necessarily see it if you simply look at a list of Semper Augustus holdings, but it’s the value that’s added by trimming the dear and buying the cheap at the margin that I think delivers an enormous amount of value over time,” he said.

One of his cornerstone pieces of advice is that “there’s a price at which anything ought to probably be trimmed or sold, including Berkshire. There are prices at which I would sell down my Berkshire position, especially from an opportunity cost standpoint, but I’m going to do it tax efficiently,” he says.

But he says investors should be happy with it for the next 10 years because it’s an “easy bet from a valuation climate like you have today. “

“I think we’ve got a better roster of businesses and managers. Berkshire’s just a better manager and on a net essentially un-levered basis, you’re not going to blow yourself up. So I look at it as a bond. It’s a business that earns 10 to 12 on equity that trades at a pretty modest premium to equity. And, you know, it’s a place where you can make 10 to 12 in a world of low interest rates. And I think it’s got some inflation protections built into some of the big moving parts.”

The markets

Pre-Fed, stock futures ES00, 0.38% YM00, 0.36% NQ00, 0.39% are stalling and Treasury yields are easing from 16-year highs BX:TMUBMUSD10Y BX:TMUBMUSD02Y, as oil CL.1, -1.04% BRN00, -1.13% slides. Natural gas is down over 3%.

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