Author Topic: Buffett buybacks: Could Berkshire tender stock?  (Read 108455 times)

AdjustedEarnings

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #150 on: October 22, 2018, 03:58:11 PM »
Thank you to both the responses. You have given this particular issue more thought than I have. My question mainly arose because so many times we see something along the lines of... "the portfolio is down 2% since quarter end... so tax-effect and subtract that from the prior BV... add in earnings from operations, etc. etc."

We know that BV has been disowned by WEB... but, on further thought, I also have doubts about whether they use the MV of the securities. Not that they'd use IV either. But it definitely seems frequent adjustments would not be made based on weekly or even monthly moves in stocks. That would require moving the purchase threshold given to their broker (I think it's Citigroup) on a daily or weekly basis. I don't think this is happening (definitely not in a restricted period if they're operating under a 10b-5). So, to me, some of the very-fine tuning... ("Where has IV gone since quarter end") seems like work that would provide little additional information on which to base decisions. What do you guys think?


alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #151 on: October 22, 2018, 04:23:36 PM »
Thank you to both the responses. You have given this particular issue more thought than I have. My question mainly arose because so many times we see something along the lines of... "the portfolio is down 2% since quarter end... so tax-effect and subtract that from the prior BV... add in earnings from operations, etc. etc."

We know that BV has been disowned by WEB... but, on further thought, I also have doubts about whether they use the MV of the securities. Not that they'd use IV either. But it definitely seems frequent adjustments would not be made based on weekly or even monthly moves in stocks. That would require moving the purchase threshold given to their broker (I think it's Citigroup) on a daily or weekly basis. I don't think this is happening (definitely not in a restricted period if they're operating under a 10b-5). So, to me, some of the very-fine tuning... ("Where has IV gone since quarter end") seems like work that would provide little additional information on which to base decisions. What do you guys think?

Estimations of look-through owner earnings is the probable answer. My guess is that Buffett has some very simple, rough heuristic in mind, like owner earnings and if the whole company trades below say 20x of that he will be repurchasing stock.

I think that the multiple will be relatively high seeing as the additional cash flowing in from operations has basically no option value at all at this point. The bigger the cash pile grows, the closer the investment hurdle rate gets to that of the treasury yields. Now, he likely would never buy back stock at 40x just because treasuries were at an implied 50x multiple, but I think it is a useful way of conceptualizing the issue anyway.

John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #152 on: October 22, 2018, 04:42:13 PM »
Estimations of look-through owner earnings is the probable answer. My guess is that Buffett has some very simple, rough heuristic in mind, like owner earnings and if the whole company trades below say 20x of that he will be repurchasing stock. ...

Again, we are mentally in synch here, alwaysinvert. I suppose that some staff member regularly provides him the numbers, or per specific & ad hoc request.
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Spekulatius

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #153 on: October 23, 2018, 04:09:43 AM »
Estimations of look-through owner earnings is the probable answer. My guess is that Buffett has some very simple, rough heuristic in mind, like owner earnings and if the whole company trades below say 20x of that he will be repurchasing stock. ...

Again, we are mentally in synch here, alwaysinvert. I suppose that some staff member regularly provides him the numbers, or per specific & ad hoc request.

I think we should use market value of the holdings, not intrinsic value. If the market value of Buffets shareholding’s goes down, very likely the general market goes down too and other stocks competing for dollars to be invested in BRK will get more attractive as well.

I wish I could mark up some illiquid stocks I own to fair value  :o
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longinvestor

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #154 on: October 23, 2018, 08:54:59 AM »
My $208 filled. Hope my $202 does as well.

It did! I was not going to wait for 19x to happen.

gfp

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #155 on: October 23, 2018, 09:25:16 AM »
I'm adding today as well.  Something like 500 Billion at today's price

Jurgis

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #156 on: October 23, 2018, 09:58:20 AM »
I'm adding today as well.  Something like 500 Billion at today's price

Nice to hear that you have 500B to spare.  ;)

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bizaro86

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #157 on: October 23, 2018, 11:24:35 AM »
I'm adding today as well.  Something like 500 Billion at today's price

Nice to hear that you have 500B to spare.  ;)

Probably want to use limit orders on that one.

Dynamic

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #158 on: October 24, 2018, 09:20:56 AM »
To the question of how Charlie and Warren value the investments, I don't think it matters so long as they are suitably conservative and are not in excess of market value.

Using Market Value itself or applying a discount to Market Value to apply a windage factor to normalize to a more typical market valuation is one approach.

If they valued the companies independently they would either be calculating IV with a high enough discount rate or capitalization rate to be conservative or they'd calculate a more fully-valued IV then apply a suitable discount to be conservative. (And in a similar way they would be valuing subsidiaries with a similarly conservative assessment of what they're worth given the current normalized earning power)

Whichever approach they take they'd arrive at a similar figure, being conservative, I'm sure.

At the end they may choose how to account for cash held and how to value float and normalized underwriting profits.

A few commentators have noticed that over the years the cash balance is usually pretty close to the float liability and only dips significantly below float during bear markets or similar opportunities to make large acquisitions, and that remains roughly the case today. To me this offsets the feeling that there may be a cash drag if the cash doesn't get invested fast enough, but instead limits the multiplying effect of the float leverage except when cash is being used up to buy cheap assets.

Float is a liability, but the funds are so likely to endure (3% per year decline rate at most, but more likely to gradually increase over time) and to remain cost-free (thanks to profitable underwriting) that one could effectively count as much as 70% of float as an effectively enduring asset whose economic earning power is worth paying for. Perhaps, being more conservative, we'd value it at less or apply a margin of safety at the end of calculating the full IV.

To be frank, I'd expect them to make a relatively simple calculation with amply conservative assumptions built in rather than going to great lengths to adjust market values of securities very much. They're still intending to pay significantly less than IV, but perhaps a 5-10% discount to a conservatively calculated IV amounts to the same as a 30-50% discount to an IV that represents the line between fully valued and overvalued.

SwedishValue

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #159 on: October 26, 2018, 11:24:20 AM »
Buying today gives you a quite decent discount to the price that Buffett started the repurchases. With increased volume during this October turmoil, Buffett has been presented with the option of buying back significantly more stock compared with the previous months. Not that it protected the downside that much (I didn't expect Berkshire to drop more than the market during the so far worst parts of the turmoil).

In this type of market environment, will Mr. Market approve or disapprove of a communicated and big Buffett buyback? A month ago, I was very confident that it would be the headline. Today? Not as sure.