Author Topic: Buffett buybacks: Could Berkshire tender stock?  (Read 85560 times)

wabuffo

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #350 on: February 23, 2019, 06:11:39 PM »
i think this will now change in the future. More importantly, i think Buffett finally is ok with Berkshire making significant purchases of shares. But for this to happen, Buffett first felt he needed to do a couple of things:

Perhaps it is just a matter of Buffett needing to set the stage properly:
Quote
"You should be aware that, at certain times in the past, I have erred in not making repurchases. My appraisal of Berkshire’s value was then too conservative or I was too enthused about some alternative use of funds.... We decided, however, to delay buying, if indeed we elect to do any, until shareholders have had the chance to review this report"

Buffett wanted to make sure all shareholders had the same information from his annual letter before doing any share repurchases ... in March, 2000! 

It's the same siren song for almost 20 years! 

I am afraid he's no Henry Singleton.

wabuffo


vinod1

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #351 on: February 23, 2019, 06:43:22 PM »
It is a mystery to me as to why investors spend so much time on the question of buybacks both at Berkshire and many other companies.

Say Berkshire retires 20% of shares outstanding at 75% of IV over the next 5 years - a prospect I think that would seem to excite a lot of shareholders. This would result in about 6.25% increase in IV over the 5 years or about 1.25% annually.

Do shareholders really get that excited by the prospect of an extra 1.25% annual increase in IV? It is about the the volatility that the stock experiences intraday.

Of course, it is better to have that 1.25% rather than not having it. But is it really that big of a deal that so much attention gets paid?

There are cases where it makes a real difference. Like AIG in 2011/12 timeframe when a case could be made that it would be able to retire 30-40% of shares outstanding at 50-60% of IV in a relatively short period of time.

No disrespect meant to anyone. A lot of smart investors here and I might be missing something that I cannot wrap by head around.

Vinod
The fundamental algorithm of life: repeat what works. –Charlie Munger

wabuffo

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #352 on: February 23, 2019, 06:51:44 PM »
It is a mystery to me as to why investors spend so much time on the question of buybacks both at Berkshire and many other companies.

From March 8, 2000 (day when Buffett first mentioned that he would consider making repurchases) vs AutoZone (serial repurchaser).



Snowball...man, snowball!

wabuffo
« Last Edit: February 23, 2019, 06:54:33 PM by wabuffo »

Viking

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #353 on: February 23, 2019, 07:23:33 PM »
It is a mystery to me as to why investors spend so much time on the question of buybacks both at Berkshire and many other companies.

Say Berkshire retires 20% of shares outstanding at 75% of IV over the next 5 years - a prospect I think that would seem to excite a lot of shareholders. This would result in about 6.25% increase in IV over the 5 years or about 1.25% annually.

Do shareholders really get that excited by the prospect of an extra 1.25% annual increase in IV? It is about the the volatility that the stock experiences intraday.

Of course, it is better to have that 1.25% rather than not having it. But is it really that big of a deal that so much attention gets paid?

There are cases where it makes a real difference. Like AIG in 2011/12 timeframe when a case could be made that it would be able to retire 30-40% of shares outstanding at 50-60% of IV in a relatively short period of time.

No disrespect meant to anyone. A lot of smart investors here and I might be missing something that I cannot wrap by head around.

Vinod

Vinod, for me what a company does with its retained earnings is a super important part of the decision to own shares. Berkshire carrying +$100 billion in cash (more than 20% of its market cap) every year is simply not an effective use of cash and Buffett has said as much. I would love for them to demonstrate they are serious about using meaningful amounts of cash to buy back shares (not all the time but certainly at times when the shares get cheap and they are sitting on too much cash with few opportunities in sight... like perhaps now).

If this process starts when Buffett is still around then we should be able to safely assume it will continue when Buffett is gone. In my mind this also makes the decision easier to be a long term shareholder (post Buffett).

bennycx

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #354 on: February 23, 2019, 08:08:05 PM »
This discussion exemplifies group-think, over-analyzing the situation and what investors want rather than what is logical.
Put yourself in Buffett shoes and you will realize:
1) He thinks there is more value in some large banks and wholly-owned elephant acquisitions
2) He doesn't think Berkshire's intrinsic value is at a steep enough discount

For large wholly-owned acquisitions, incentives are against Buffett as ego-centric CEOs like to say they're a CEO of a big company, rather than a head of a subsidiary of Berkshire.
Therefore I still stand by my prediction of the "not impossible" chance of a way for Buffett to get around the 10% limitations of big banks, likely to be an agreement with the SEC or still a minority interest in banks he might deal less with e.g. USB

Cigarbutt

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #355 on: February 24, 2019, 04:48:41 AM »
Follow-up to replies #351-3.
I like wabuffo's example but the buyback does not explain all for AutoZone.
Potentially interesting to look at the math behind the decision and the compounding effect.

(1+%TR) = (1+%ΔREV)*(1+%ΔNPM)*(1+%Δ of multiple)*(1+%reinv. div. impact)*(1+%buyback impact as a function of a lower share count)
The compounding impact is related to the size (continuous or opportunistic) of the buyback and to the discount to IV.

One can play with numbers (backward and forward looking).
For BRK, there are a few reasonable assumptions and perhaps a major conceptual flaw.

For instance, looking back, if BH had used 20B of "excess" cash per year for the last four years in order to complete a buyback:
instead of BRK.B at 204 and cash/equiv./ST at 112B,
one gets BRK.B at around 260 and cash/equiv./ST at 32B

What do you prefer?

If you think the old man has lost it and that his deviation from the fully invested mentality is no longer appropriate, you may prefer the second hypothetical scenario.

If you think that the Capital Allocator in chief has been considering all opportunities in a rational way, you may prefer the real scenario and see how getting towards the 150B mark with the present BRK valuation has made the job more difficult.

Last time I saw an interview with him, he still showed the same charm and folksy nature but I still deeply respect the man and his focus, to the same degree I would respect a man carrying a fully loaded gun. I still don't think he will let go of the cartridges so easily.

shalab

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #356 on: February 24, 2019, 09:29:46 AM »
I get what wabuffo and others are saying, also the P/B metric anchored the stock. The stock was never reached intrinsic value in the past decade.

On the plus side, it has allowed me and my family to acquire a great business at reasonable prices. I think there will be significant buy back in the coming years. If the business expands further with other acquisitions it will be great!

longinvestor

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #357 on: February 24, 2019, 10:23:19 AM »
I get what wabuffo and others are saying, also the P/B metric anchored the stock. The stock was never reached intrinsic value in the past decade.

On the plus side, it has allowed me and my family to acquire a great business at reasonable prices. I think there will be significant buy back in the coming years. If the business expands further with other acquisitions it will be great!
+1 couldn’t have expressed myself better. I have bought for myself and others pieces of this fortress for always less than it’s worth. Couldn’t have timed it any better given these are our saving years. Results have already been satisfactory and here’s hoping for that to get to the quite satisfactory level.

scorpioncapital

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #358 on: February 24, 2019, 10:50:21 AM »
It is a mystery to me as to why investors spend so much time on the question of buybacks both at Berkshire and many other companies.

From March 8, 2000 (day when Buffett first mentioned that he would consider making repurchases) vs AutoZone (serial repurchaser).

Snowball...man, snowball!

wabuffo

Also notice the 8 year period of zero return before the shoot-up. People want constantly up. They will be disappointed (unless it's some sort of inflationary snowball, but then up will be just keeping up)

alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #359 on: February 24, 2019, 10:59:17 AM »
It is a mystery to me as to why investors spend so much time on the question of buybacks both at Berkshire and many other companies.

Should probably not be all that much of a mystery when you click on a thread named "Buffett buybacks: Could Berkshire tender stock?"