Author Topic: Buffett buybacks: Could Berkshire tender stock?  (Read 87283 times)

John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #370 on: March 07, 2019, 08:25:23 AM »
Price is below $200 again. I can almost imagine them buying...$300k of stock today... sarcastic obviously. But point being, I doubt we're going to have any large buy backs this quarter. What do you all think?

Well, we know that there weren't any up to February 14, so even if they are buying hand over fist after that, the total amount for the quarter is unlikely to be impressive.

Personally, I'll mentally settle with this. -What are the alternatives?

1. To lever your Berkshire position, or
2. To sell your Berkshire position [whole, or partly].

None of those alternatives have any appeal to me personally, compared to just holding on.

- - - o 0 o - - -

Are we getting played? [In the meaning: As continuing shareholders.] Personally, I've been through the whole emotional spectrum, from the release of the 13-F/HR to the 10-K. Today, my conclusion is, that we've not been. The whole line of Berkshire communication for the year end 2018 has to me been orchestrated to perfection, ending up with the interview with Ms. Quick early Monday morning [ pre market opening] after the release of the 2018 10-K Saturday in the weekend up to that particular Monday.

Mr. Buffett has - and will always have - an informational advantage, compared to us as Berkshire shareholders.
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai


aws

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #371 on: March 07, 2019, 08:54:28 AM »
I think there a three important factors to keep in mind when determining if Buffett will be making buybacks:

1. Berkshire's absolute price
2. Berkshire's price relative to the market
3. Berkshire's intraday book value (as adjusted for MTM gains and losses in their portfolio)

Numbers 1 and 3 are both trying to get at the same thing - a calculation of discount to intrinsic value, while number 2 affects the attractiveness of Berkshire vs. other opportunities.  I think too many people ignore number 3.  While a sharp selloff in the market won't have much of an impact on the IV of Berkshire's operating companies, a buyback looks like less of a good deal if Berkshire is off 10% while its portfolio is off 20%.  That was more or less the situation in Q4.  On an absolute basis it was getting cheaper, but less so relative to the market and further reduced by declines to its portfolio in excess of market losses.

His buybacks in August were at an average price of about 5% above the 1/1/18 price, the S&P 500 total return index was about 7% above the starting value for the year, and Berkshire's portfolio was worth about $219b (25b more than today).  So even though the absolute price of Berkshire is 4% cheaper today than his average purchase in August, the after tax adjustment to their equity portfolio results in a 4% lower book value than back then. 

So then you're left with only the operating earnings since then which make Berkshire maybe 2% cheaper on an absolute basis.  Also, on a relative basis the S&P 500 TR index is about 4.6% above 1/1/18 today and Berkshire is about 1% above, so on that basis too Berkshire is about 2% cheaper than August buybacks.  With the combination of those factors, and the loss of that elephant which might have held back purchase in Q4, I would expect higher repurchases today than Q3.  How much higher though I have no idea.  We don't have any evidence that he intends to devote material cash to buybacks.  $10b would be great, but I would expect 1.5-2b and hope to be surprised on the upside.


John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #372 on: March 07, 2019, 09:22:13 AM »
aws,

It' still beyond my comprehension how you since July 17th 2018 still have your bullet #3 in your considerations, latest based on the following in the 2018 Berkshire Shareholder Letter, p. 12:

Quote
Charlie and I do not view the $172.8 billion detailed above as a collection of ticker symbols – a financial dalliance to be terminated because of downgrades by “the Street,” expected Federal Reserve actions, possible political developments, forecasts by economists or whatever else might be the subject du jour.

What we see in our holdings, rather, is an assembly of companies that we partly own and that, on a weighted basis, are earning about 20% on the net tangible equity capital required to run their businesses. These companies, also, earn their profits without employing excessive levels of debt.

I'll let it go from here onwards.
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

aws

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #373 on: March 07, 2019, 09:44:25 AM »
Of course I know that he considers more than just the price of the securities in his portfolio when determining the value, but it would be crazy to assume he ignores it completely when deciding whether to buyback Berkshire versus apply the cash to another opportunity (like buying more shares in the portfolio companies). Taken to an extreme, if Berkshire was flat and his holdings were down 50%, it would be crazy to assume he would ignore that and buyback Berkshire stock.  Berkshire is almost 40% the equity portfolio, so every dollar in repurchases is like allocating 40 cents to the equity portfolio and 60 cents toward everything else.  If that portfolio were down 50% and his buyback were at the same price, it would instead be 20 cents going toward the equity portfolio and 80 cents toward everything else.  He'd have to assume Berkshire was 1/3rd more valuable than it was previously to want to buy back it versus just spending the same amount of money to increase his stake in the portfolio companies.

Put another way, if Berkshire's IV includes a prorata IV of each portfolio holding, then each individual stock as well as Berkshire as a whole is an opportunity to deploy capital at a discount. If the market value of his securities is down way more than the market as a whole, and is not permanently impaired, then it stands to reason that the discount to IV of many holdings has grown by a bigger gap than the discount of Berkshire overall.  If he can deploy capital into a 70 cent dollar with one of his stocks versus an 80 cent dollar with Berkshire that would affect his decision.
« Last Edit: March 07, 2019, 10:12:49 AM by aws »

ragu

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #374 on: March 07, 2019, 07:26:43 PM »
--When pressed for further details on the mystery deal, Buffett says, "I'll give you a hint. It's on this planet."

Mars, then?

DooDiligence

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #375 on: March 08, 2019, 05:28:50 AM »
--When pressed for further details on the mystery deal, Buffett says, "I'll give you a hint. It's on this planet."

Mars, then?

SpaceX  ;D
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Drinkers & Smokers 7.5% - ABEV MO // Auto's & Oil 12.4% - CLB GPC VDE // Tech 0.0%

%'s held @ MV 06/18/2019 minus 18.3% investable cash

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sleepydragon

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #376 on: March 08, 2019, 08:02:03 AM »
--When pressed for further details on the mystery deal, Buffett says, "I'll give you a hint. It's on this planet."

Mars, then?

That’s a smart guess...

aws

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #377 on: March 26, 2019, 08:51:42 AM »
I'm surprised by the increasing gap between the performance of Berkshire and the S&P.  It started on that big Apple drop day at the start of the year where Berkshire was down 5.5% vs. more like 2.5% for the market, and has continued through many days like today (Berkshire up 0.1% vs. S&P up 0.9%).  The gap is as of writing 15.46% underperformance YTD.  I decided to put this in a historical context and see how unusual this is.  Berkshire has underperformed the S&P 500 by more than 10% in a quarter nine times since the B shares were issued.   Five of them were in the late 90s when Berkshire was not participating in the tech bubble, and the Coke bubble they did participate in was starting to deflate.  Seven of the nine were positive quarters for the S&P, so Berkshire tended to underperform on big up quarters for the general market.

The largest was Q4 1999 when Berkshire had a -1.44% vs. a 14.88% rise in the S&P for a difference of 16.28%. 

This quarter is the second worst in history with a -2.32% for Berkshire vs. a 13.14% gain for the S&P for a difference of 15.46%.

With just three more days to go we're basically one more day like today away from setting a record for underperformance.  Hopefully in light of this we will see substantially more repurchases than we did in Q3 or Q4, but until we actually see it I'm quite skeptical.  Here's the table of data for quarters of > 10% underperformance:

Quarter   Berkshire   S&P   Gap
Q3 1997   -5.38%   7.49%   -12.87%
Q3 1998   -23.73%   -9.95%   -13.78%
Q2 1999   -4.72%   7.05%   -11.77%
Q3 1999   -17.14%   -6.24%   -10.90%
Q4 1999   -1.40%   14.88%   -16.28%
Q4 2002   -1.70%   8.44%   -10.14%
Q2 2009   2.70%   15.93%   -13.23%
Q4 2010   -3.11%   10.76%   -13.87%
Q1 2019   -2.32%   13.14%   -15.46%

SwedishValue

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #378 on: March 26, 2019, 09:22:18 AM »
From the front page of the 10-k, we know Buffett didn’t repurchase any significant amount the first half of the first quarter. We’ll see eventually, I think repurchases makes sense from a price perspective.

Lemsip

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #379 on: March 26, 2019, 12:52:13 PM »
I'm surprised by the increasing gap between the performance of Berkshire and the S&P.
A quarter is too short a time period to draw any conclusion since there is so much noise in price data over sich short periods.
Berkshire has flatlined after outperforming the S&P by 7% for the year ending 31 Dec and the market has moved up but these things happen. Last summer Berkshire was weak till July and then went on a 17% run in under 3 months to September.  Good time to be a buyer as the business is substantially cheaper than it has been for a while with no deterioration in the business.

With regard to buybacks, they are likely to be small this quarter. They had bought back only $14m by 15th Feb per 10-K. Buffett did explain in an interview that they were holding cash for a very big transaction that got away. Even if they had stepped up the buying after that, it is unlikely to be significant as they would only have about a month and half remaining. 
It will some years for buybacks to start showing their impact even if they were really stepping it up so for the foreseeable future, the main driver will continue to be operating earnings and the stock portfolio ( judged over a 3-5 year time frame - not every quarter)