Author Topic: Buffett buybacks: Could Berkshire tender stock?  (Read 36862 times)

longinvestor

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #140 on: October 11, 2018, 10:00:13 AM »
My $208 filled. Hope my $202 does as well.




alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #141 on: October 11, 2018, 10:44:15 AM »
Yes, watching my portfolio plummet back from the all time high of $224 at yesterday's open, I was thinking Berkshire's broker could be getting busy with the buybacks today around $210, prices we haven't seen since the end of August.

compared to:

My understanding is that they are limited by rule 10b-18 to buying no more than 25% of the daily volume.  They are also not supposed to trade in the final 10 minutes before the close.

I would be very surprised if Warren purchased anywhere close to 25% of the daily volume of the combined share classes.  My impression is that he would feel that repurchase activity near the 25% level would influence the share price more than he desires.  It is impossible to completely eliminate your influence on the share price (witness the generally rising stock, closure of A/B share premium/discount, etc).

If I had to guess, I would guess that Berkshire established a 10b5-1 plan specifying a maximum price and a percentage of the trailing ADV to purchase.  I would guess that they specified somewhere around 10-15% of the Average Daily Volume, not to exceed 25% on any given day unless a large transaction was privately negotiated outside the plan (which would not be considered to be protected by the safe harbor of the plan).

They probably filed the 10b5-1 plan directly following their 10Q, allowing them to begin purchases under the plan immediately.  Buffett would receive daily trade confirms but isn't supposed to have any other communication with the broker he chose to administer the plan.  So he would know what was purchased each day and "we bought a little" is very difficult to quantify when you are talking about a half-trillion dollar market value enterprise...

We'll find out soon enough with the next 10Q and we can try to reverse engineer the % of daily volume they specified...

If this theory is correct then I gather there is no buyback pause during the blackout period? That would be a pretty major drawback to a more actively managed buyback program - 4 months a year where they can't make repurchases.

So, last week pretty strong resistance to general market price moves [outside the blackout period], ref. post #109 by sleepydragon, - this week [inside the blackout period] it moves around in the market price spectrum basically [give or take a bit] like any other stock.

Thoughts, gents?

It is a possibility that there are no repurchases now, like you seem to suggest. But even if the buyback program is ongoing it would probably not give as much "support" to the price under such selling pressure.

I don't know if we will know any time soon if they are buying during the blackout period. Possibly we can surmise it from the Q4 report if there has been very heavy repurchases.
« Last Edit: October 11, 2018, 10:46:02 AM by alwaysinvert »

alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #142 on: October 11, 2018, 11:37:38 AM »
It could also of course be that they did'n't buy back anything after Buffett's comments.. I find that unlikely but let's not get ahead of ourselves.

John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #143 on: October 11, 2018, 12:12:50 PM »
I actually think about it exactly like you, alwaysinvert. And, yes, it's speculation.
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alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #144 on: October 18, 2018, 04:15:49 PM »
Here is a contrary take:
https://seekingalpha.com/article/4212476-will-berkshire-hathaway-implement-meaningful-share-repurchases

He mentions the unwillingness to pay dividends, but seems not to properly appreciate the levels of excess liquidity that we are talking about and what those to facts together imply. I also think he's wrong on the p/b levels at which buybacks can occur, especially since WB has already stated that he bought back stock when it traded above 1.3x. Adjusted for accruing cash flows, the stock is cheaper now than it was at that point. 

John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #145 on: October 18, 2018, 09:30:05 PM »
I personally agree with you on your comments about that particular SA article, alwaysinvert.
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Dynamic

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #146 on: October 19, 2018, 01:59:00 AM »
Me too John, I had just read the SA article before seeing your post, alwaysinvert, and you hit every point that occurred to me. Although the signal to noise ratio of SA is not a patch on CoBF's, it (including the comments) isn't a bad place to gauge varied opinions and see where we might have a better perception that Mr Market, and sometimes also there are some real gems of great analysis posted there as well as technical analysis/chartism and stuff I'll happily skim over.

It is interesting that the (assumed) Berkshire portfolio has lost about -$6.3bn gross (-$5.0bn net of deferred tax benefit) since 30 Sep. That's about -$2.01 per BRK.B share reduction in the portfolio's contribution to Book Value in 18 calendar days since quarter end.

I'd guess roughly that BRK.B BVPS was maybe about $152.30 at 30 Sep, but might be a little below $151 today - perhaps around $150.90 (allowing for net earnings flowing in, less net portfolio decline flowing out). The repurchases might actually reduce BVPS a tiny bit, but increase IV per share slightly too.

AdjustedEarnings

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #147 on: October 21, 2018, 05:38:30 PM »
Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!

longinvestor

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #148 on: October 22, 2018, 06:57:16 AM »
Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!

Surely a piece of the IV. But given their focus on increasing the pool of operating earnings (Munger called it converting liquid assets to illiquid ones) the securities portfolio gets smaller over time and perhaps an ever smaller piece of the IV pie.

Something of a corollary here is that identifying stellar owner operators has become more important than just valuing businesses. I would bet that lot of reading activity in Omaha (especially Todd/Ted) is focused on identifying good owner operators. Good news is that just like good businesses, they are not hordes of them running around.

Cigarbutt

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #149 on: October 22, 2018, 08:45:55 AM »
Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!
Fascinating question and would add that future opportunities will come from what is available at a cheap price wherever that may be.

Your question is difficult to answer because one has to rely on what is written between the lines and is subject to personal interpretations.
I guess we all have, to varying degrees of formalness, a list of owned stocks and a watchlist tabulating the ratio of price to intrinsic value, that we update on a regular basis. For Mr. Buffett, this may be recorded in a book slipped into his drawer but may simply be in his brain.

The 1979 annual report has useful comments (annual performance based on investments at cost and longer term performance OK with investments at market value) and more recently, Mr. Buffett has described his 2-column valuation "model". If interested, Mason Hawkins at Southeastern Asset Management periodically discusses this aspect when "monitoring" portfolios.

As value investors, typically, our recorded price to intrinsic value ratio should be below one as we allocate entries and exits in our portfolios. At Berkshire, there is a long term mindset and the turnover is relatively low but, in the main and long-term wise, the market has recorded the closing gap between intrinsic value at acquisition and at every year-end reporting. All that to say that I suspect the price to intrinsic value ratio at Berkshire is below 1 but not by much, especially since it has grown so much and because of present circumstances.

Wondering if Mr. Buffett makes adjustments or not, would say that the price to intrinsic value for marketable securities held may have gone down to some degree when capital constraints are felt and when maximum pessimism abounds (time for juicy returns, especially in the early days but also more recently, to a lesser extent) and may have come closer to one in different 180-degrees scenarios. However, I don't think Mr. Buffett needs to make adjustments, especially for the more recent period, for the following conceptual reason. My understanding is that the cash position at Berkshire tends to "naturally" increase when the price to intrinsic value gap decreases in BH portfolios. This happens because, despite cash being associated with an opportunity cost, I assume that Mr. Buffett considers that the temporal optionality value provided more than compensates for the opportunity cost and "naturally" allows to benefit from the widening gap opportunity occasionally seen.

In summary, I think Mr. Buffett does not adjust for the fluctuations of the intrinsic value gap for the marketable securities in his portfolios because of his long term and opportunistic valuation approach using financial flexibilty as an input.

As an aside, the recent "evolution" on the buyback stance may be related to evolving thoughts on the present opportunity cost of cash and the opportunity set (or absence thereof) on the horizon.