Author Topic: Buffett buybacks: Could Berkshire tender stock?  (Read 87925 times)

SwedishValue

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #380 on: March 26, 2019, 01:12:44 PM »
Thought I'd check back to offer some more color on the way I view things. First, I think your walk-through is interesting and informative AWS. If Buffett paused buybacks during early q1 due to price concerns (ergo, if he thought the mark-to-market losses were enough to decrease his desired price for repurchasing), then the validity of such a buyback pause is much smaller today considering the huge mark-to-market gains Buffett has had in his investment portfolio Q1.

I was surprised and disappointed to have misunderstand Buffett's new policy for buybacks, as I thought bigger buybacks were in the cards. Mostly I was disappointed in myself because I've always made it a point to read and watch everything Buffett related (interviews, AGM's, books, letters, etc.), and up until recently I've always thought it "easy" to understand Berkshire policy. Recently, my misjudgments of Berkshire makes me feel like a really dumb kid.

If Buffett has continued in the same fashion, preferring US treasuries to buying back Berkshire stock - even though he has said that the stock is undervalued (by buying back at these prices and prices higher than today), I would argue that he is actively deceiving shareholders in terms of the likelihood of him addressing the Berkshire cash issue. If he isn't buying back stock under March 2019 circumstances, when could we ever expect Buffett to deploy anything significant to buying back Berkshire shares in the future? In the case March 2019 is too bad to even buy back pitiful amounts of shares, mostly depression or scary recession scenarios would remain as possible opportunities for Buffett to deploy the cash. I think shareholders deserve to know if this is indeed the plan, or if buying back stock is as serious an alternative as Buffett and Munger have suggested in the past. Data so far suggests that buybacks are not a material share of the ongoing capital allocation even when they consider Berkshire stock to be significantly undervalued.

It's not likely anyone will call Buffett out on this, but it is a big issue. If they had bought back 10 times as much stock as they did for the first 6 months of the new buyback program, it would still only barely offset the increase in cash from operating earnings and increase of float. If they had bought back 20 times as much stock as they did, then we would still be looking at approximately a 3 year period before cash were down to around 30 USD Billion.

There are no indications from data - so far - that repurchases in any way will do anything material with excess Berkshire cash. I believe this is something that Buffett should be asked about and that shareholders deserve to know his stance on.


aws

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #381 on: March 26, 2019, 01:25:48 PM »
My thoughts exactly.  Since the buyback restrictions was lifted, there hasn't really been a better time than right now to buy.  It wasn't a slam dunk in December at cheaper prices because so much else was going on and he was supposedly in talks to bag an elephant.  But now the elephant got away, everything else is more expensive, and Berkshire is much cheaper than prior prices he was buying at.  If buybacks are going to be material, not even to reduce the net cash balance, just to slow the growth of cash, then how can he be doing it so slowly, or when would he think would be a better time in the future?

omagh

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #382 on: March 28, 2019, 09:29:24 AM »
...If he isn't buying back stock under March 2019 circumstances, when could we ever expect Buffett to deploy anything significant to buying back Berkshire shares in the future? In the case March 2019 is too bad to even buy back pitiful amounts of shares, mostly depression or scary recession scenarios would remain as possible opportunities for Buffett to deploy the cash. I think shareholders deserve to know if this is indeed the plan, or if buying back stock is as serious an alternative as Buffett and Munger have suggested in the past. Data so far suggests that buybacks are not a material share of the ongoing capital allocation even when they consider Berkshire stock to be significantly undervalued.

I wouldn't recommend extrapolating a few weeks behaviour indefinitely.  Buffett disclosed on CNBC that there was an elephant-sized acquisition in the works during the last few months which ultimately failed to close.  During an elephant acquisition, cash put to work at high rates of return, is MUCH more valuable than buying back whatever mildly-discounted BRK shares are fully available for repurchase.

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« Last Edit: March 28, 2019, 11:20:30 AM by omagh »

John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #383 on: March 28, 2019, 01:38:38 PM »
I kindly ask all contributers to and readers of this topic to go back and revisit gfp's post #363 of February 25th 2019 in this topic, quoted below :

Some color on the decisions made in Q4-

https://www.cnbc.com/2019/02/25/buffett-says-he-was-close-to-making-a-very-large-acquisition-in-the-4th-quarter-but-it-fell-apart.html

Please do yourself the favor of reviewing the video with the interview of Mr. Buffett with Ms. Quick. Please ask yourself about your personal experience during the clip - especially with regard to Mr. Buffett's behavior and appearance in the clip.

To me, he has never been lingering and/or circling any question before he moves straight to question at hand. To me, it has always been "directly head on", and to me it still is. Not even somehow controversial questions I recall have had the ability to bring him out of personal balance [politics etc.].

Now what do you experience here with regard to Mr. Buffett's body language and general appearance? He did not get upset in any way, but anyway?

Normally he's "firing back" like a machine gun [friendly meant] immediately - no ping- & lead-time, & totally calme while replying. Here: A bit of unrest appears to take place - he's moving around a bit on the chair - even pausing a bit in his answers some places [absolutely not the normal], and Ms. Quick actually handles it the right way [she is Mr. Buffett's favorite interviewer, and is very good at "reading him" - she - so to say "clicks with him"] by asking him a totally open question in the end of this particular part of the total interview, that gives him the opportunity to leave the subject with a comment that calls for a smile, - and Ms. Quick actually lets it go from there.

Personally, I interpret this as Mr. Buffett being quite annoyed/disappointed, not by the question asked [knowing it would be asked], but from that the not specified deal did not work out, and Ms. Quick gently lets him off the hook here.

- - - o 0 o - - -

Elephants [at least these kind of potential elephants...] aren't really suitable for data driven analysis by us, -and certainly not related to Berkshire buybacks. [ ; - ) ]
« Last Edit: March 28, 2019, 02:16:40 PM by John Hjorth »
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SwedishValue

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #384 on: March 28, 2019, 02:55:56 PM »
Yea, I’ve talked with my closest investor friend and I reacted too harshly. It still baffles me that Buffett didn’t repurchase during first half of q1, but like has been suggested by both Buffett and others: there are valid reasons for postponing buybacks at times.

It does make it harder to interpret and judge the level we can expect for buybacks over time however, and this is a big black box for valuation for an outsider like me.

Lemsip

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #385 on: March 29, 2019, 02:10:58 AM »
I kindly ask all contributers to and readers of this topic to go back and revisit gfp's post #363 of February 25th 2019 in this topic, quoted below :

Some color on the decisions made in Q4-

https://www.cnbc.com/2019/02/25/buffett-says-he-was-close-to-making-a-very-large-acquisition-in-the-4th-quarter-but-it-fell-apart.html

Please do yourself the favor of reviewing the video with the interview of Mr. Buffett with Ms. Quick. Please ask yourself about your personal experience during the clip - especially with regard to Mr. Buffett's behavior and appearance in the clip.


That question that Becky Quick read out was from me and I asked it because I saw people obsessing over the minutae of Berkshire buybacks. I had predicted that the reason for the lower than average buying in Q4 was because they might have been working on an acquisition and Buffett confirmed it in his answer which I thought was rational and well explained even though it had to be drawn out by asking a direct question. People are not usually privy to the choices he is evaluating while making capital allocation decisions so most kneejerk reactions are based on very limited information.
People sometimes forget that Buffet's core focus as CEO of Berkshire is to increase operating earnings, not sit around watching stock prices and time buybacks.  Trying to get large acquisitions is where I want him to focus. He can do buybacks etc as he finds that advantageous vs alternatives n  but I do not expect a CEO of one of the largest companies in the world to be micro managing that aspect not does it make a material difference in short time frames. He has already for the first time made it explicit that Berkshire will be doing significant repurchases in the letter and I think that is good enough as long as the business overall creates value.
With regard to amount of buybacks, note that the pattern so far is that Berkshire has done most buybacks in specific blocks of a week or two so not having bought anything in size by 14th Feb doesn't mean much. He bought a billion's worth in a 2 week period in August in the 3rd quarter and the buying activity in the 4th quarter was also concentrated in 2 blocks of a week to ten days in October and December.

alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #386 on: March 29, 2019, 04:16:11 AM »
This really feels like beating a dead horse at this point, but here goes anyway. The issue won't die not because it is a fuzzing over minutiae, but because it is an interesting puzzle with large repercussions to shareholders.

He has, as mentioned, said explicitly that buybacks will be significant over time and given the record, I also think one should err on the side of believing that. However, this is impossible to square with 1) actions taken thus far - even when allowing for a pause due to a possible acquisition 2) average daily volume in the stock. There is no easy satisfying answer to this conundrum, hence why this thread was started in the very first place and has had so many posts.

The uses of the excess cash over time is way more important than whatever short or intermediate term acquisition Buffett can find. Both because the time for him to personally find such acquisition targets is running out fast and because mere size makes them just a partial solution anyway.

tenyearsout

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #387 on: March 29, 2019, 04:30:23 AM »
Just a thought:

Berkshire acquiring an elephant would typically result in an increase in the market price of BRK shares. 

If Buffett knew that he had an elephant in his sights then he may have felt that any share repurchases at that time would have been unfair to current shareholders given that he had special insider information

aws

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #388 on: March 29, 2019, 01:58:34 PM »
The books are closed on buybacks on the quarter, but we still have about five weeks until we can see what he did.  In terms of relative performance we are closed pretty much at the low point from a few days ago, 15.3% below the S&P total return YTD.  I know a quarter doesn't mean much, but the disparity is still quite striking to me.  Certainly seems like good buyback value to me and I hope he took advantage of it.

Berkshire can probably stand a more aggressive buyback than most stocks without affecting the share price.  It's underweighted in the S&P 500, I think by the percentage of Warren's holdings, so not as much index money flows into it.  Also, the foundations which receive his stock sell roughly $5 billion worth a year which can help can soak up some of the buyback cash. 

DanielGMask

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #389 on: March 29, 2019, 02:20:12 PM »
Just a thought:

Berkshire acquiring an elephant would typically result in an increase in the market price of BRK shares. 

If Buffett knew that he had an elephant in his sights then he may have felt that any share repurchases at that time would have been unfair to current shareholders given that he had special insider information

This kind of talk is what I call to crimp the curl!

1) Buffett has been clear about how to calculate BRK's value.
2) He has clearly stated that buybacks could and would be done under IV if that is the best use of capital.
3) He has clearly stated that buybacks are a smarter use of capital than dividends.

So it's logical that everybody here is asking why he is not buying.
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