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General Category => Berkshire Hathaway => Topic started by: alwaysinvert on August 02, 2018, 12:39:44 PM

Title: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 02, 2018, 12:39:44 PM
I wrote a blog post speculating about this. I'll paste it here but if you want to read it in a better format here's the link: http://vardeinvesteraren.nu/vardeinvestering/buffett-buybacks-could-berkshire-tender-stock/

Quote
Two weeks ago Berkshire Hathaway removed their set buyback level of 1.2x book value. The stock reacted by trading up 5% the following session. However, I think the momentousness of this action is heavily underappreciated by the market. In my view this is a far bigger step than when the original buyback policy of 1.1x book (later revised upwards) was instituted.

The reason why I think this is a watershed moment lies in the answer to this question: why wasn’t the book multiple just once again raised? Let me try and answer that question in a roundabout way.

If you have followed Berkshire for some time you’ll know that the former policies, perhaps unwittingly, established soft floors to the stock trading, such that Buffett hardly managed to do any buybacks at all. That was probably mostly OK for Buffett and worked out pretty well for the Gates foundation, in that they got a ”guaranteed” buying price in the market. Buffett didn’t really want to repurchase Berkshire shares if he had other alternatives; in the past he has looked at it as taking slight advantage of his less sophisticated partners (the selling shareholders) while also having superior information. This issue is of course also a big reason why he vowed not to make any repurchases prior to the release of the Q2 report on August 3.

Another raise of the buyback level to say 1.3x book would likely also establish a floor. Keeping in mind the tax cut and the heightened importance of the operating businesses inside Berkshire, such a move would make perfect sense as a signal of what is now considered ”below intrinsic value, conservatively determined”. However, what’s slightly different this time is that Berkshire is sitting on an ever-growing pile of cash, now safely over $100 billion (Buffett still wants to keep around $20 billion cash as a cushion no matter what), while its investment universe is dwindling fast.

The last ”elephant” Buffett shot was Precision Castparts three (!) years ago. He would need three more acquisitions (!!) of that size to move most of the cash that he already has. And another one in a year again, probably. Not very likely to happen in today’s market.

In light of all that, this is basically Buffett admitting defeat. He just can’t allocate all that capital within the company anymore. Knowing how much he abhors taxes, the natural second choice then is of course share repurchases, rather than dividends. In short, I think the inherent ambiguity of the new policy is a deliberate feature – he really wants to buy back stocks this time.

But how will the buybacks be executed? If done over the market he’ll have to move lots of volume and will risk the price moving away from him as soon as the market gets clued in to the magnitude of what is happening. Dribbling ”a mere” couple of billions in buybacks per year will not make much of a difference, so the purchases are going to have to be very aggressive and represent a sizable portion of the trading each day to even stand a chance at paring down the cash pile.

Warren

A tender offer?

An alternative to this – that I have never seen mentioned anywhere else – could be if Berkshire made a tender offer for some amount of the shares. As some of you may know Buffett’s big idol among corporate leaders, Henry Singleton, utilized buyback tenders to great effect, retiring 90% of the shares outstanding of Teledyne in about a decade. The thought of making a tender offer to Berkshire shareholders has most certainly entered both Buffett’s and Munger’s minds more than once. Curiously, I have never heard them consider this action out loud in public. When you think all the questions have been asked at the shareholder meetings…

The big issue with a tender is of course the tradeoff between the acceptance rate and the premium offered.. Would people not just think Buffett was making an offer that was easy to resist? Well, if contrasted favorably with the former buyback level, some amount of private shareholders could probably be persuaded. A PR campaign with a CNBC guest spot by Buffett might also help with that.

There are also lots of big funds and other institutions who hold Berkshire stock and they might take the offer as an easy way to reallocate parts of their position with less friction involved. Correctly structured, the offer could also make the weak hands sell the stocks to arbitrageurs, thus securing even higher acceptance. One shouldn’t underappriecate how enticing a premium can be to stockholders, whether they are Buffett groupies or not. Making a big enough splash with the tender size should ready investors for this to have a one-off character (an argument Bufett time and time again has made against dividends is that when instituted, the owners expect it to be ongoing), thus feeding expectations that the stock price will subside back to lower levels again once the tender is done and dusted, prompting higher acceptance.

Another thing in favor of a tender offer is a fairness argument. As opposed to market buybacks, there is nothing sneaky about a tender offer. We know that Buffett cares about such things, but I dare not say how important this consideration could be. Conceivably more so if the plan is to retire a huge amount of shares, as opposed to in the past.

Last but not least, the combined daily average trading volume of A and B shares amounts to almost $900 million per Yahoo finance. That is, for Berskhire to deploy $100 billion at current prices they would have to be the sole buyer of shares for 111 straight trading days. Of course, that is a literal impossibility, but you clearly see how far the timeline is drawn out by using any reasonable but still aggressive assumption such as 20% of the average volume. The simple fact is that it is nigh impossible for Berkshire to put a really big dent in their cash pile with running buybacks. Additionally, in the pursuit of shares at a fast enough clip, the share price is extremely likely to enjoy a good ride.

For further evidence, consider Apple’s behemoth buyback program of $100 billion, which it manages with a clip of roughly $20 billion per quarter. That’s with a daily average stock trading volume of $4.6 billion (Yahoo), which makes their buyback roughly 7% of daily volume. Apple could conceivably buy back way more way faster than that with a cash balance o $250 billion. Perhaps their reasons not to include that it would move the price too much.

While I think the tender scenario for Berkshire is far above a non-zero percent possibility, a regular, but sizable, buyback is probably still the safest assumption to make. However, a market buyback strategy won’t likely solve the issue of the accumulated cash balance.

An asymmetric situation

No matter what avenue of buying back shares that is chosen, it will be done in size and with relative swiftness. The Q2 report will likely show that Berkshire trades just above 1.3x book at current market prices of just shy of $200 for the B-shares. I will not go into a big valuation exercise here (there are lots of them out there for those so inclined), but suffice to say that I view this as cheap, perhaps very cheap, and see it as unlikely that the stock will move much lower from here, bar unfortunate deaths, a super cat or some macro event affecting all market prices.

I also harbor a great suspicion that Buffett is now actually willing to buy back shares a bit above current levels. In some way or other he is likely to, by sheer necessity, affect the stock price in the coming months. An additional slight upside for the B shares is that the tiny discount that has opened up against the A shares (presumably in part due to technical selling pressure from the Gates foundation), may start closing again when a huge entirely economically motivated buyer enters the market.

My good friend David suggested that the rather muted response to the buyback policy change could depend on the extreme size of Berkshire. ”Who is going to move that much stock in a controlled company in response to such a vague policy change?” Be that as it may, it is a rather scintillating thought that an inefficiency could be because of huge size, rather than in spite of it. No matter if that hypothesis is correct, an agile mind is important in all markets.

Disclaimer: Long BRK
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: sleepydragon on August 02, 2018, 02:56:22 PM
Is it possible for a company to remove itself from S&p 500? Say, Berkshire do a reverse split of B shares or merge B shares back to A shares,, thus perhaps disqualify itself.  Then Berkshire structures a deal to buy back all the shares that index tracking funds are holding.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: LC on August 02, 2018, 03:58:12 PM
I don;'t think so. S&P includes them based on market cap. Only way to do so would be to de-list.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on August 02, 2018, 04:56:12 PM
I think the buyback, assuming there's no tender offer or large block purchase, is likely to merely keep the cash growth in check, perhaps stopping cash from exceeding float and maintaining that low-risk uncallable leverage. I wouldn't be surprised to see Berkshire take 5 to 10 years to gradually reduce the cash balance towards $20bn through buying a small fraction of daily volume. In reality, there may well be a modest bear market in 2-5 years, allowing Berkshire to make some meaningful acquisitions or other sensible capital allocations, which could put a sizeable chunk of its cash to work.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on August 02, 2018, 05:49:07 PM
The Gates foundation and various Buffett family foundations are more likely sources of large blocks than S&P index funds.  But I suspect Berkshire will primarily just repurchase shares in the open market - they do have a half trillion dollar market cap and the B's are fairly liquid.  Occasionally a large shareholder will die or otherwise make a large block available - similar to the only large repurchase accomplished so far.  If other companies can do it through open market purchases, so can BRK.

We've seen the daily liquidity increase from Gates foundation selling in their filing.

I doubt Berkshire cash levels will ever get below $40 billion again.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 02, 2018, 06:40:38 PM
The more I think about it, the more likely scenario is that “nothing has changed“ with regards to their buyback posture. It’s still intended for the long term, still a pressure relief valve for the next guy and very much  “conservatively calculated”. The biggest signal Buffett maybe sending is that BV is not their yardstick longer term. Per share Earnings is. The fixation with the BV multiple ended, it would not allow them to buy well over $100 B worth which’s what they need to do over the next decade.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 03, 2018, 03:31:09 AM
But I suspect Berkshire will primarily just repurchase shares in the open market - they do have a half trillion dollar market cap and the B's are fairly liquid.

Did you read my basic calculations about an open market buyback? The B shares don't seem all that liquid for their purposes from what I can tell, but I could be wrong.

it would not allow them to buy well over $100 B worth which’s what they need to do over the next decade.

They'd need way, way more than that over the next decade, barring any mega-merger. It's not hard to see them earning north of $300b with already $100b+ in cash.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on August 03, 2018, 05:54:37 AM
I hadn't read that far but now I have.  It's not a lot of daily volume, but there are several selling shareholders also constrained by the low turnover, so there is a lot of room for average daily volume to increase.  Whether or not there are direct block transfers between the Gates Foundation and Berkshire, both can increase the ADV over time.  You are right though - it will be very difficult to make a material dent in either share count or cash levels without a tender (and a tender seems unlikely).

But I suspect Berkshire will primarily just repurchase shares in the open market - they do have a half trillion dollar market cap and the B's are fairly liquid.

Did you read my basic calculations about an open market buyback? The B shares don't seem all that liquid for their purposes from what I can tell, but I could be wrong.

it would not allow them to buy well over $100 B worth which’s what they need to do over the next decade.

They'd need way, way more than that over the next decade, barring any mega-merger. It's not hard to see them earning north of $300b with already $100b+ in cash.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 03, 2018, 06:34:36 AM
Here I'm reposting some basic Berkshire figures [from some of my earlier posts, updated with 2017 figures] - from a birds perspective - related to the topic, just to bring specific data into the discussion. I think they are handy to have here:

Some numbers for the last ten years:
 
 Year - Cash YE [incl. T-Bills] - Equity YE [USD M]:

 
 2007 -   44,329 - 120,733
 2008 -   25,539 - 109,267
 2009 -   30,558 - 135,785
 2010 -   38,227 - 162,934
 2011 -   37,299 - 164,850
 2012 -   46,992 - 187,647
 2013 -   48,186 - 221,890
 2014 -   60,033 - 240,170
 2015 -   67,161 - 255,550
 2016 -   86,370 - 282,070
 2017 - 115,954 - 348,296 [2017 tax cut effect [net] +28,200]
 
 Average shares outstanding YE2007 : 1,545,751 [A eq.]
 Average shares outstanding YE2017 : 1,644,615 [A eq.]


Cash flow from operating activities full years this century [USD B]:
 
 2000:      2.947

 2001:      6.574
 2002:    11.135
 2003:      8.438
 2004:      7.405
 2005:      9.446
 2006:    10.195
 2007:    12.550
 2008:    11.252
 2009:    15.846
 2010:    17.895
 2011:    20.476
 2012:    20.950
 2013:    27.704
 2014:    32.010
 2015:    31.491
 2016:    32.525

2017:    45.776

Total:  324.615 [<- ~USD 325 B!]

Float YE 2000 : USD 27.9 B
Float YE 2017: USD 114.0 B

[Increase in float is included in cash flow from operating activities.]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on August 04, 2018, 12:43:49 AM
Thanks John Hjorth, really helpful post for perspective.

CNBC posted this. Guess we will know soon. I checked precious releases bad they have been both fridays and saturdays, so if there is anything to read into the postponement it should be that it might be a postponement for a reason?  :)

https://www.cnbc.com/2018/08/03/buffetts-berkshire-could-reveal-share-buy-back-plan-saturday.html
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on August 04, 2018, 04:08:57 AM
33:00 in, about the 1,2x floor (when it was still there). Still relevant.

https://youtu.be/2yMeIdheIS0
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 04, 2018, 04:31:37 AM
Your're welcome, SwedishValue, and thank you for your kind words! [ : - ) ], - Please feel free just to call me John - we are not that formal here on CoBF [ : - ) ].

- - - o 0 o - - -

alwaysinvert, I did not even know untill now that we're in the same boat here with Berkshire. Awesome blog post provided by you. Thank you for sharing it with us here on CoBF. Quite refreshing read, containing new line of thinking related to the "luxury problem" of Berkshire here on CoBF.

- - - o 0 o - - -

Personally, I do not rule out any alternative with regard to Berkshire capital allocation going forward.

I'll respectfully submit here, that Mr. Buffett is not totally rational on this matter. alwaysinvert uses the term:

Quote
... In some way or other he is likely to, by sheer necessity, affect the stock price in the coming months ...


Hasen't Mr. Buffet expressed, that there is no way, that he could defend standing in front of the shareholders at the AGM with USD 150 B on the Berkshire balance sheet in cash and T-bills? - He would actually have been in that particular situation right now, haden't he loaded up on Apple.


In the balance between rational capital allocation and the reluctance of buying partners out, going forward, naturally rationality must prevail.

When you deliberately seek to build a crowd of long term shareholders aligned with yourself, a side effect is lower liquidity in the stock. One can't get both simultaniously.

Personally, I don't possess any particular feelings for the customers and fund managers at:

Vanguard [9.24 % of out B]
Blackrock [7.66 % of out B]
State Street [6.25 % of out B]

Just let them do their thing, and let Mr. Buffett do our thing.

When Mr. Buffet was young, he was ringing doorbells in Omaha to pick up shares he considered cheap.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 04, 2018, 06:33:40 AM
It’s an Earnings explosion @ Berkshire.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: sleepydragon on August 04, 2018, 07:25:41 AM
Earning is good, but nothing like tender or buyback like CNBC predicted
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nkp007 on August 04, 2018, 07:55:06 AM
If Buffett starts buying back shares, I think you'll start to see it in the stock price pretty quickly.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Valuehalla on August 04, 2018, 09:36:54 AM
I think the situation concerning the buybacks is quite clear. According to the buyback text from 17th July: till 3rd August happened nothing.

We are clearly under a conservative IV, because we just trade 1.32 x BV. IV shall be around 240 to 275 $ per B share. (See various estimations for the IV; for example Semper Augustus Letter)

For me this means: from Monday on, the buybacks will start. They will end below a market price of 240 $ per B share

Bulks of cash are ready.

The time between 17th July (when the buyback was announced) till 3rd August was the time to load shares, cause the anoucment was more or less without any reasonable market results. During all this time we traded around 1.3 BV.

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: sleepydragon on August 04, 2018, 11:37:03 AM
Well, The press release says they may or may not buyback, depending on their view of the intrinsic value.
I am hoping no buyback :)  cuz i want to buy more
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nkp007 on August 04, 2018, 11:41:22 AM
I think the situation concerning the buybacks is quite clear. According to the buyback text from 17th July: till 3rd August happened nothing.

We are clearly under a conservative IV, because we just trade 1.32 x BV. IV shall be around 240 to 275 $ per B share. (See various estimations for the IV; for example Semper Augustus Letter)

For me this means: from Monday on, the buybacks will start. They will end below a market price of 240 $ per B share

Bulks of cash are ready.

The time between 17th July (when the buyback was announced) till 3rd August was the time to load shares, cause the anoucment was more or less without any reasonable market results. During all this time we traded around 1.3 BV.

Agreed. It moved up like what? 4% after the buyback cap was lifted? Not a move at all. Still 10% below the highs.

Maybe there will be a chance to purchase shares ~$200 over the coming weeks. Or maybe the golden opportunity was the past two weeks when Buffett telegraphed what will likely be a massive, potentially accelerated, buyback.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on August 04, 2018, 11:57:02 AM
I'll be perfectly happy if this buyback bump is a nonevent.  Berkshire the stock under-performed Berkshire the company so far in 2018, but I'm not sure that was the case in 2013, 2014, 2016, or 2017.  It seems like there have been many more undervalued spots in recent history than there are right now so I don't see why Buffett would be rushing to buy back shares hand over fist right now.  It would be great if some more China fears, Gates Foundation sales, and disappointed speculators drop the stock back under 200 for the foreseeable future.

I don't want to see a crash, but I just don't want the stock to look fully valued as it will be harder to buy new shares when money becomes available.  I have a lot more shares I want to buy over the next 10+ years, and I wouldn't want to be competing with the Company for shares, especially not over $200.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Valuehalla on August 04, 2018, 12:23:31 PM
I think the situation concerning the buybacks is quite clear. According to the buyback text from 17th July: till 3rd August happened nothing.

We are clearly under a conservative IV, because we just trade 1.32 x BV. IV shall be around 240 to 275 $ per B share. (See various estimations for the IV; for example Semper Augustus Letter)

For me this means: from Monday on, the buybacks will start. They will end below a market price of 240 $ per B share

Bulks of cash are ready.

The time between 17th July (when the buyback was announced) till 3rd August was the time to load shares, cause the anoucment was more or less without any reasonable market results. During all this time we traded around 1.3 BV.

Agreed. It moved up like what? 4% after the buyback cap was lifted? Not a move at all. Still 10% below the highs.

Maybe there will be a chance to purchase shares ~$200 over the coming weeks. Or maybe the golden opportunity was the past two weeks when Buffett telegraphed what will likely be a massive, potentially accelerated, buyback.

BRK moved up after the 17rh July, but the BV also moved up driven by AAPL etc. the lowest valuation during the last weeks was app 1.28, now it is 1.32.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 04, 2018, 03:43:38 PM
33:00 in, about the 1,2x floor (when it was still there). Still relevant.

https://youtu.be/2yMeIdheIS0

I listened to the clip and respectfully disagree as the relevance of BV. WEB clearly says that BV is very poorly correlated with IBV, across the investing universe; not just at Berkshire. At 1.2x BV they were rather willing to buy back because they are cheapskates. They do have mixed feelings about buying partners out, but wouldn't hesitate if buying stock back compares favorably with buying other businesses.

Now, this is from the 2013 meeting. WEB has repeatedly telegraphed that IBV is diverging (up) away from BV; most notably, BV has actually been dropped from the performance table on the first page of the chairman's letter!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Valuehalla on August 04, 2018, 05:00:19 PM
So what does it mean? what is a conservative IV for today ?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 04, 2018, 05:05:36 PM
...I listened to the clip and respectfully disagree as the relevance of BV. WEB clearly says that BV is very poorly correlated with IBV, across the investing universe; not just at BV. At 1.2x BV they were rather willing to buy back because they are cheapskates. ...

Somehow hilarious - two billionaire cheapskates!  [ : - D ]

I think it's about two - thee years ago, I personally left looking at Berkshire based on BV progress. With the soft buyback threshold abolished, or at least making it even softer [upwards <-?], it does not make much sense to me any longer.

The future for Berkshire investors boils down to future earnings, future cash flows, & future capital allocation.

I speculate we'll survive , no matter what.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 04, 2018, 05:53:15 PM
So what does it mean? what is a conservative IV for today ?

I will go with SemperAugustus line of thinking; They had the YE 2017 IV at $610B of market cap. I agree with them that the market in due course will happily pay 13x (or more) for the earnings growth at Berkshire.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on August 05, 2018, 12:11:44 AM
33:00 in, about the 1,2x floor (when it was still there). Still relevant.

https://youtu.be/2yMeIdheIS0

I listened to the clip and respectfully disagree as the relevance of BV. WEB clearly says that BV is very poorly correlated with IBV, across the investing universe; not just at Berkshire. At 1.2x BV they were rather willing to buy back because they are cheapskates. They do have mixed feelings about buying partners out, but wouldn't hesitate if buying stock back compares favorably with buying other businesses.

Now, this is from the 2013 meeting. WEB has repeatedly telegraphed that IBV is diverging (up) away from BV; most notably, BV has actually been dropped from the performance table on the first page of the chairman's letter!

I must have been unclear. I agree with you that Buffett here - and on other occassions - clearly hints at IV is significantly above the previous treshold. I also agree to your pointing out the fact of Buffett saying IV increasingly diverging over BV over time.

I think buybacks are likely.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rolling on August 05, 2018, 03:53:41 AM
So what does it mean? what is a conservative IV for today ?
And more importantly, what is real IV for today? Because if they buy agressively below conservative IV the gap to real IV will widen very quickly.  I would bet 220 and over 250 per b share. I got to 255 yesterday on a slightly modified 2 column approach and don't think I was agressive (if net income from operations is rising 50-60% this year, then applying a 15 multiple to 2017 pre tax earnings, excluding underwriting gains, is the same as it was apllying a 10 multiple before)

About the 220, I'm just throwing dards... As far as I know they might agree with the 255 number...
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on August 05, 2018, 09:11:11 AM
I wrote a blog post speculating about this. I'll paste it here but if you want to read it in a better format here's the link: http://vardeinvesteraren.nu/vardeinvestering/buffett-buybacks-could-berkshire-tender-stock/


Alwaysinvert.  I wanted to complement you on an outstanding post.  Well reasoned, original, and compelling.  Exceptional!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 05, 2018, 10:02:11 AM
I wrote a blog post speculating about this. I'll paste it here but if you want to read it in a better format here's the link: http://vardeinvesteraren.nu/vardeinvestering/buffett-buybacks-could-berkshire-tender-stock/


Alwaysinvert.  I wanted to complement you on an outstanding post.  Well reasoned, original, and compelling.  Exceptional!

Thanks, that's great to hear.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on August 06, 2018, 11:46:52 AM
Is there anything we should expect in terms of volume patterns if Buffett is buying back significant amounts of stock? I've never thought about these things before, and I'm not sure whether to expect increased trading due to having an active buyer in the market or gradually decreased trading as Buffett would soak up free float?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 06, 2018, 11:54:19 AM
Is there anything we should expect in terms of volume patterns if Buffett is buying back significant amounts of stock? I've never thought about these things before, and I'm not sure whether to expect increased trading due to having an active buyer in the market or gradually decreased trading as Buffett would soak up free float?

That's great questions, SwedishValue,

We need to keep an eye on the development in the daily volume for the next three months, where we'll find out by facts presented to us in the 2018Q3 Q-10, if Berkshire has actually been buying back during the quarter.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: wabuffo on August 06, 2018, 12:01:46 PM
Quote
Is there anything we should expect in terms of volume patterns if Buffett is buying back significant amounts of stock? I've never thought about these things before, and I'm not sure whether to expect increased trading due to having an active buyer in the market or gradually decreased trading as Buffett would soak up free float?

A preference for buying back A-shares?  It definitely would be easier to spot the volume increase if that's what he targets.

wabuffo 

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on August 06, 2018, 12:06:44 PM
Quote
Is there anything we should expect in terms of volume patterns if Buffett is buying back significant amounts of stock? I've never thought about these things before, and I'm not sure whether to expect increased trading due to having an active buyer in the market or gradually decreased trading as Buffett would soak up free float?

A preference for buying back A-shares?  It definitely would be easier to spot the volume increase if that's what he targets.

wabuffo

B-shares trades at a discount to A-shares and are much more liquid, so my guess would be he buys B-shares.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on August 06, 2018, 12:08:25 PM
Great question about what to look for in daily volumes if BRK is purchasing back it's own stock..

My question- Would BRK buy back the B class or the A class or both?  I don't have a clear strategy of if they would have a preference for either class, or both classes to keep them in parity..

Reason would tell me that they could not purchase the B class in isolation because with their large amount of capital, they are in a unique position to purchase the A class large unit stock price, and allow the rest of us "small wallet" investors bid the B class up to parity.

Average Daily Volume in dollars is CLASS A $97M   vs.  CLASS B  $824M

I can't wait to read what you genius people come up with.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 06, 2018, 12:25:15 PM
Here is my take, however I haven't ever studied the spread between the A shares and the B shares:

If I was Mr. Buffett and and Mr. Munger, I would focus on the B shares to buy, because it's supposed to be the cheapest all the time, because of the irreversible nature of the conversion from A to B, not the other way around. Against that talks, that some blocks of A shares might end up never converted. [Think early Berkshire investors, First Manhattan Berkshire shares etc.]

We could track both, and conversions from A to B in the next Q-10. We already know what Mr. Buffett has converted from A to B.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 06, 2018, 12:31:05 PM
On the subject of trading volume, evidently it is inversely correlated with high price. At what price level does the B start trading less? $1000? Any thoughts on this?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: LC on August 06, 2018, 02:33:17 PM
One thing buffett hates is being front-run. So if we're just talking about now, he's probably already doing it.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on August 07, 2018, 07:48:50 AM
If Buffett were to be buying back shares:


Thanks all.

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 07, 2018, 08:10:46 AM
We'll find out by reading the section "Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities" in the next 10-Q [p. 45 in the 2018Q2 10-Q], combined with analysis of "CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY" [p.5 in the 2018Q2 10-Q], about three months from now.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 07, 2018, 08:30:56 AM
What really happened is that the advance information/transparency about buybacks was working against the company and the remaining shareholders. The opaqueness with the new buyback policy is the same practiced by them when buying other securities. The burden of pricing the stock switched from Omaha to Mr. Market. Omaha can just go back to adding value. I am guessing that Buffett feels a weight off his shoulders.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 07, 2018, 08:46:24 AM
I think the line of thinking by longinvestor is backed by the fact that Mr. Buffett hasen't given an interview about it yet [AFAIK]. Nobody can convince me that Becky Quick hasen't tried to get one with him by now.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on August 07, 2018, 09:07:19 AM
I agree with both John Hjorth and longinvestor.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 07, 2018, 06:24:16 PM
Here I'm reposting an exchange between longinvestor and I in the topic Sequoia Fund Investor Day Transcript (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/sequoia-fund-investor-day-transcript/).

Please note the date of the exchange. Food for thought. I would say that we have a forecaster among us here at CoBF, who can actually forecast.

... Not exactly the greatest timing... Let's say they sold BRK.A in mid Q4 at $280K/share, heck it still wasn't over $298K at year end.  Today its at $325.  Perhaps they should have assessed the assessment of BRK's future value of cashflows with a reduced tax rate, no?

Writing this caused me to lookup Mastercard, O’Reilly, Waters and TJX as well.  All are up significantly. Given the low cost basis' on what they sold, there is no way they picked better than they sold. They've locked in another year of under-performance with those sells. ...

NoCalledStrikes,

As always, it's easy to see in the polished & clear rear mirror. [ : -) ]

My only addition here is, that rolling out of Berkshire and into something else most likely adds risk to the total portfolio, so the judgement of potential return on what one is rolling into matters much while doing that. [Because Berkshire has lot of built-in diversification.]


I suggested to do something about all three points by buying Berkshire - a ton - to him. I suggested some sort of average in, to get it roughly right. His reaction: "No, just buy it. You say the entry point right now is not totally silly, and it's long term, right?"

I got some BRK.B for him at 182.80 on November 27 in his tax deferred account, and the rest - a lot - the day after - actually the exact day that Berkshire started to take off - at 186.00 in his taxable account.

It was just a lucky punch, based on several elements of randomness, that got him out of the start block in a good way with Berkshire.


Kudos to you for "timing" Berkshire for your brother. Surely he's happy but hopefully he is "long term". There is a different kind of happiness that the long term shareholder feels but something words cannot express. And my long term started 15 years ago. I met a couple at the Berkshire meeting whose long term started in 1978.

Now, let me address the urban myth going around right now; that the tax reform and the resulting benefit to Berkshire is the reason for the recent swelling of the market price. Sure. After all, the market is a voting machine and the math on that is easy. 20% more profits inuring to the shareholders and $37B of one time estimated BV gains ain't shabby at all.

Let's get to the weighing machine. I've been calling out (for more than a year) that the IV was well north of what the stock is selling for, now. That 1.2x BV threshold has messed with rationality of lot of folks. I've consistently been in the school that at 1.2x, it was a 70 or 60 or 50 or...xxxty cent dollar. How much of a bargain is a matter of time. Buffett uses "instantly and materially" when he talks about the buyback benefiting remaining shareholders. The 1.2x is a vaguely correct estimate of a ridiculous discount to IV. The market for sure made that precisely wrong. Market value will eventually catch up with IV.
- - - o 0 o - - -

My apology for not responding to that particular post back then, longinvestor. So short reply here: I have said to my brother, that no matter what happens, Berkshire will be his last stock to sell. His burn rate in retirement, from what he can see right now [start april this year] is basically equal to his state pension, payments from his pension scheme from his former public employment and from ATP. [ https://www.atp.dk/en (https://www.atp.dk/en) ].

So no withdrawals from his stockportfolio needed, based on unchanged lifestyle compared to while he was still working. They have only one kid, a young lady of the age 36. Likely she'll be really wealthy later in her life.

- - - o 0 o - - -

We don't need to take daily notes about volumes, it's all on the Berkshire page at NYSE (https://www.nyse.com/quote/XNYS:BRK.B).
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 28, 2018, 08:06:42 AM
Seems like the trading volume has been pretty tepid since the Q2. I guess that makes it unlikely that there are any significant buybacks going on right now. Has someone observed anything else?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on August 28, 2018, 08:48:37 AM
AlwaysInvert.  Roger that and I concur. 
I have been watching and the share volume has been at or below average.  The price has been up, but so has the general market been up.

It could be that they are looking to purchase a large block direct from the position owner.  They could also be nibbling on the B shares starting to build a position. 

Is there a requirement to disclose if they are buying, or only when their position size goes above a certain threshold?  I would guess it would be binary requirement  [if they buy, they have to tell the public, period.]  I don't know that, but that is my best guess.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on August 28, 2018, 09:34:14 AM
They don't have to tell the public they are buying.  It will be disclosed as either treasury shares or reduced share count once cancelled - in the regular quarterly and annual filings.  They won't 'build a position' of a certain size - they will periodically cancel the treasury shares they accumulate, reducing shares outstanding
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on August 28, 2018, 09:41:09 AM
I'm not 100% sure of the reporting regulations, but I found this on Investopedia about Rule 10b-18 (https://www.investopedia.com/terms/r/rule10b18.asp) and it's worth following that link and reading the whole article as I provide just an excerpt below, and the article explains that Rule 10b-18 is not mandatory and merely provides conditions that would limit the potential liability against securities fraud rules, so there may be other ways to repurchase than the following and still keep the SEC happy:

Quote
The Four Conditions
  • Manner of purchase: The issuer or affiliate must purchase all shares from a single broker or deal during a single day.
  • Timing: An issuer with an average trading volume less than $1 million per day or a public float value below $150 million cannot trade within the last 30 minutes of trading. Companies with higher average trading volume or public float value can trade until the last 10 minutes.
  • Price: The issuer must repurchase at a price that does not exceed the highest independent bid or the last transaction price quoted.
  • Volume: The issuer cannot purchase over 25 percent of the average daily volume.
The SEC also specified more detailed disclosure requirements for repurchases. In each quarterly report on Form 10-Q and in the annual report on Form 10-K, the company must provide a table showing, on a month-by-month basis: the total number of shares purchased, the average price paid per share, the total number of shares purchased under publicly announced repurchase programs and the maximum number of shares it can repurchase under these programs or the maximum dollar amount.

Speculation: I would not be surprised to see only very modest buyback activity this quarter, and not to find out about the August and September buybacks (if there have been any) until early November when the 10-Q is released. I suspect Berkshire wants this mostly as an option for future capital deployment and may use it later to prevent the cash pile exceeding the float.

They will be aware that investors will be able to see the average repurchase price each month if they do conduct any repurchases and follow Rule 10b-18, so this might even encourage them to hold off this quarter or wait for a large announced negotiated repurchase from a major holder.

For example, if they were to wait and then start repurchases in October, they might reveal a reduced share count towards the end of October (26th Oct, perhaps) on the front page of the 10-Q, but would not have to disclose the average purchase prices paid in October, November and December until the 10-K is released in February 2019. If they wait until after 26th October, say, they could avoid even hinting at the volume of repurchases until the 10-K is released in Feb 2019.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 29, 2018, 08:57:33 AM
Speculation: I would not be surprised to see only very modest buyback activity this quarter, and not to find out about the August and September buybacks (if there have been any) until early November when the 10-Q is released. I suspect Berkshire wants this mostly as an option for future capital deployment and may use it later to prevent the cash pile exceeding the float.

They will be aware that investors will be able to see the average repurchase price each month if they do conduct any repurchases and follow Rule 10b-18, so this might even encourage them to hold off this quarter or wait for a large announced negotiated repurchase from a major holder.

For example, if they were to wait and then start repurchases in October, they might reveal a reduced share count towards the end of October (26th Oct, perhaps) on the front page of the 10-Q, but would not have to disclose the average purchase prices paid in October, November and December until the 10-K is released in February 2019. If they wait until after 26th October, say, they could avoid even hinting at the volume of repurchases until the 10-K is released in Feb 2019.

Good stuff. It might make sense for them to hold off a bit if they want to get the most juice for the squeeze from buybacks over the market. On the other hand, if they expect the share price to go up anyway (in light of a good Q3, for example) then this logic is moot. 

Still, this will only mitigate but not solve the cash pile problem. If they want to avoid dividends for as long as possible, they are going to have to find some way of repurchasing bigger chunks than the stock market reasonably allows them to.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on August 29, 2018, 09:42:17 AM
Actually, I think we will very probably see a pretty good Q3 from the business point of view and from the market value growth of the stock portfolio.

Difficult to tell if they're finding good places to invest the excess cash. Last quarter I think they did OK, but the markets have risen substantially since late July in quite a few areas and perhaps they'd be more reluctant to load up on Apple and banks in the latter part of this quarter, though I'm sure there will be a few things to interest them.

I think we might even see BVPS rise by as much as 5½-6% this quarter over 30th June's figure. That could lead to Berkshire's price increasing further, so perhaps if the price fell into the $195-$200 range, maybe even $205, Berkshire might even buy back 5-20% of the 4.1 million B-shares average daily volume to put up to $160mn per day to work (maybe 2-3 times the daily operating profits, so only slightly trimming the cash pile). This is, at best, reasoned speculation, so don't read too much into it.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on August 29, 2018, 09:56:27 AM
If Apple keeps at its recent behavior there will be a decent impact on book and that income statement pass through.  Hit 222 today. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 29, 2018, 12:21:58 PM
Perhaps it's more simple.

Perhaps Mr. Buffett is still standing with the bat over his shoulder, ready to pitch, - and this is about some of the early Berkshire investors still alive, who have made a killing, by holding on for so many years - perhaps now in the hundreds of millions, or billions of USD.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 29, 2018, 01:31:50 PM
That's great if they can buy some future estates in privately negotiated transactions, but nobody but Buffett himself owns enough shares to make a sizable dent for the remaining owners. There are Sandy Gottesman and Munger on the board and *maybe* a select few people outside with comparable ownerships of a few thousand A-shares. But as a whole this is not going to be a consequential thing. Also, I think Munger has indicated that his children will keep holding Berkshire stock.

Maybe there could be a big buyback of Buffett's shares once that day comes, but I don't see how it will be in the interests of the foundations holding that stock to sell all those shares in one fell swoop rather than trickling them out on an as-needed basis (just like the Gates foundation currently does).
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 29, 2018, 02:19:23 PM
I think you don't read my post according to my sincere intentions, alwaysinvert,

My post was meant the way, that Mr. Buffett actually does not want to reduce the overall level of cash & T-bills, based on ruling market conditions as is right now [and for quite some time], while at the same time trying to give some particular investors a fair way out their Berkshire investment [alive, or dead].

So, in short, I consider your reply based on what you want, not what Mr. Buffett wants to do going forward. Rest assured, that this fact has been incredible hard to live with for me, too, with the wide swings in the USD compared to my own functional currency. Personally, I would never hold cash in USD [I actually can at my broker], and I would personally never invest directly in US T-bills. [My actual risk free deposit interest rate is 0.9%, with no currency risk.]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 29, 2018, 02:56:39 PM
I guess it is possible that the Gates foundation instead of selling their 5 million shares a quarter over the market as usual, has started selling them directly to Berkshire itself. That would make some sense from both perspectives, but I don't know if they would announce that or not or if there would be any disclosure rules applicable. It also squares well with the relatively low trading volume, even if the Gates foundation would not have amounted to a very big proportion of daily volume. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 30, 2018, 08:05:15 AM
"We've bought back a little stock" says Buffett on CNBC just now.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 30, 2018, 09:08:36 AM
"We've bought back a little stock" says Buffett on CNBC just now.

We’ll see what “a little” is soon.

More importantly he confirmed what many of us have been saying for some years now. BV has become less meaningful in tracking IV.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on August 30, 2018, 09:45:55 AM
My reasoned speculation is the BRK is buying as much as they are able, but stopping short of driving up the daily price significantly.

A little bit is a totally subjective measure/term.  I think it is a WEB calibrated term.

BRK owns a little bit of Costco, $1B, and a little bit of VISA $1.5B.  They own $16B of AMEX, but maybe that is a little bit too.. 


WEB and CM like to go scoop up $10 and $20 bills when they are laying in the middle of the floor with a dump truck.  They are not going to go with a little bucket and leave some easy money for their friends on Wall Street.


I think they are playing their cards as perfect as they can, as quiet as they can...  But this is a very significant development.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 30, 2018, 09:53:24 AM
Note that it was not mentioned if it was open market buybacks or negotiated buybacks. Given low volume, that would push chances at least somewhat towards the latter.

One thing that puzzles me, though, is that he could have easily evaded the question if he wanted to. I don't really get why he answered in the affirmative.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 30, 2018, 10:16:01 AM
Note that it was not mentioned if it was open market buybacks or negotiated buybacks. Given low volume, that would push chances at least somewhat towards the latter.

One thing that puzzles me, though, is that he could have easily evaded the question if he wanted to. I don't really get why he answered in the affirmative.

Isn't this consistent with him talking about his mistakes first? He implied that he let the BV multiple ride for too long and it was somewhat of a mistake. No?

The other thing that is totally new is that remaining shareholders are more important to Omaha than exiting ones. That I had not heard before. He came close to saying something like that a few years back; "I want exiting shareholders to be informed of what they are giving up.."

All good!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on August 30, 2018, 10:23:20 AM
Good interviews on both CNBC and Bloomberg, although Bloomberg seemed to have lost their feed in the middle.  Current value of 255 million Apple shares, of which Berkshire apparently has even more than 255: over $58 Billion.

Seems the Gen Re New England shares are the Ted or Todd position, since he mentioned about 6 million shares was one of the other fellows in the office.  Didn't seem like he was about to bid for Campbells through KHC.  Apparently we were wrong about the need for a 13G filing on Apple, as he is clearly over 5% and has added more.  Perhaps the other disclosures are enough, since the number of shares is out there on different filings with the SEC.  He's certainly not selling any...

He seemed his same old self, not declining or more tired.  I thought that was encouraging after hearing of him ending the student visits and other responsibilities.  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 30, 2018, 10:38:56 AM
Isn't this consistent with him talking about his mistakes first? He implied that he let the BV multiple ride for too long and it was somewhat of a mistake. No? ...

... All good!

Yes & yes!

... He seemed his same old self, not declining or more tired.  I thought that was encouraging after hearing of him ending the student visits and other responsibilities.  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick.

I had exactly the same perception of Mr. Buffetts shape - actually the most important thing to experience today for me!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: boilermaker75 on August 30, 2018, 10:53:37 AM
  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick.

Our classes started Monday Aug 20, by Monday Aug 27 I was fighting a cold.

They brought back germs from all over the world!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on August 30, 2018, 11:04:42 AM
I hear ya Mike.  I used to never get sick.  Now I have a high school student who wants to hug all the time.  I think I feel my glands swelling up just talking about it!

  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick.

Our classes started Monday Aug 20, by Monday Aug 27 I was fighting a cold.

They brought back germs from all over the world!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on August 30, 2018, 02:27:46 PM

I'm not 100% sure of the reporting regulations, but I found this on Investopedia about Rule 10b-18 (https://www.investopedia.com/terms/r/rule10b18.asp) and it's worth following that link and reading the whole article as I provide just an excerpt below, and the article explains that Rule 10b-18 is not mandatory and merely provides conditions that would limit the potential liability against securities fraud rules, so there may be other ways to repurchase than the following and still keep the SEC happy:

Quote
The Four Conditions
  • Manner of purchase: The issuer or affiliate must purchase all shares from a single broker or deal during a single day.
  • Timing: An issuer with an average trading volume less than $1 million per day or a public float value below $150 million cannot trade within the last 30 minutes of trading. Companies with higher average trading volume or public float value can trade until the last 10 minutes.
  • Price: The issuer must repurchase at a price that does not exceed the highest independent bid or the last transaction price quoted.
  • Volume: The issuer cannot purchase over 25 percent of the average daily volume.
The SEC also specified more detailed disclosure requirements for repurchases. In each quarterly report on Form 10-Q and in the annual report on Form 10-K, the company must provide a table showing, on a month-by-month basis: the total number of shares purchased, the average price paid per share, the total number of shares purchased under publicly announced repurchase programs and the maximum number of shares it can repurchase under these programs or the maximum dollar amount.

...
... Last but not least, the combined daily average trading volume of A and B shares amounts to almost $900 million per Yahoo finance. That is, for Berskhire to deploy $100 billion at current prices they would have to be the sole buyer of shares for 111 straight trading days. Of course, that is a literal impossibility, but you clearly see how far the timeline is drawn out by using any reasonable but still aggressive assumption such as 20% of the average volume. The simple fact is that it is nigh impossible for Berkshire to put a really big dent in their cash pile with running buybacks. Additionally, in the pursuit of shares at a fast enough clip, the share price is extremely likely to enjoy a good ride. ...
Is there anything we should expect in terms of volume patterns if Buffett is buying back significant amounts of stock? I've never thought about these things before, and I'm not sure whether to expect increased trading due to having an active buyer in the market or gradually decreased trading as Buffett would soak up free float?

That's great questions, SwedishValue,

We need to keep an eye on the development in the daily volume for the next three months, where we'll find out by facts presented to us in the 2018Q3 Q-10, if Berkshire has actually been buying back during the quarter.

I've made some calculations today based on NYSE realized price & volume data for BRK.A & BRK.B, grabbed today on the NYSE website for the period since the announcement of the new, adjusted buyback policy on July 17th 2018 till and with August 29th 2018 [yesterday]. [Attached.]

The calculations actually surprised me, taking basis in 20 percent of volume, as suggested by alwaysinvert [max. 25 percent of average daily volume, ref. post by Dynamic]:

Calculated yearly buyback volume, based on 20 percent of volume, based on realized volumes the period August 1st - August 29th 2018:

BRK.A : USD 3.8 B
BRK.B : USD 41.3 B
Total BRK : USD 45.1 B

- - - o 0 o - - -

That's materially more than yearly Berkshire cash flow from operations, and will by that actually be able to make a sensible dent in cash and T-Bills positions going forward,
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 30, 2018, 03:00:09 PM
Well, I think it would not be very reasonable to assume an unmoved valuation of the stock if Berkshire took 20% of daily volume (a number I just took out of my behind) for an extended period of time.

Hence, my assumption would be that they could not sustain buybacks at that intensity for enough time to meaningfully pare down their cash. I'm speculating that maybe, maybe they could prevent the cash from growing for some time via only buybacks, but even that will prove to be hard, as time goes on and the weaker hands let go of their stock.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rolling on August 30, 2018, 03:56:30 PM
Well, I think it would not be very reasonable to assume an unmoved valuation of the stock if Berkshire took 20% of daily volume (a number I just took out of my behind) for an extended period of time.

Hence, my assumption would be that they could not sustain buybacks at that intensity for enough time to meaningfully pare down their cash. I'm speculating that maybe, maybe they could prevent the cash from growing for some time via only buybacks, but even that will prove to be hard, as time goes on and the weaker hands let go of their stock.
i remember buffett has stated (about other stocks at the time) that he thought they could buy 10% of daily volume without moving the price meaningfully, is some cases up to 20% (if I'm not mistaken. As such it would be wiser to admit a 10% number. However, using August volumes might not be accurate: not sure about the US but over here volumes crater in August due to the holidays)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 30, 2018, 05:23:23 PM
Question? Now that we know stock was bought back, at what discount to IV do you think they think the buyback price level represents? I like to believe that they are not the type to drive a 199 ton load across a 200 ton rated bridge.

We’ve had this discussion ad nauseum but that was before actual buybacks.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: sleepydragon on August 30, 2018, 06:15:17 PM
Good interviews on both CNBC and Bloomberg, although Bloomberg seemed to have lost their feed in the middle.  Current value of 255 million Apple shares, of which Berkshire apparently has even more than 255: over $58 Billion.

Seems the Gen Re New England shares are the Ted or Todd position, since he mentioned about 6 million shares was one of the other fellows in the office.  Didn't seem like he was about to bid for Campbells through KHC.  Apparently we were wrong about the need for a 13G filing on Apple, as he is clearly over 5% and has added more.  Perhaps the other disclosures are enough, since the number of shares is out there on different filings with the SEC.  He's certainly not selling any...

He seemed his same old self, not declining or more tired.  I thought that was encouraging after hearing of him ending the student visits and other responsibilities.  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick.

People was commenting after 2018 Annual meeting that WEB talked so slow nowadays due to his old age. I have always felt it's more likely he intentionally slowed down to help the real-time live Mandarin translations.
In today's CNBC interview, it will be much better if Mr. Buffett could act up a bit, i.e. talk very slow, forgot a few questions, or even faint, so he can do more buyback! :p

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 31, 2018, 07:27:24 AM
Question? Now that we know stock was bought back, at what discount to IV do you think they think the buyback price level represents? I like to believe that they are not the type to drive a 199 ton load across a 200 ton rated bridge.

We’ve had this discussion ad nauseum but that was before actual buybacks.

Maybe I'm committing heresy at this point by using the p/b multiple, but I have been thinking that WB put intrinsic value at 1.6-1.8 for some time now. I don't think he would repurchase shares at below ~20% discount to intrinsic value. There are no advanced calculations behind this - just the usual moves of triangulating value: deducting float from liabilities, valuing cash, stocks and bonds at 100% and giving the operating businesses a market multiple.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on August 31, 2018, 07:51:08 AM
Question? Now that we know stock was bought back, at what discount to IV do you think they think the buyback price level represents? I like to believe that they are not the type to drive a 199 ton load across a 200 ton rated bridge.

We’ve had this discussion ad nauseum but that was before actual buybacks.

Maybe I'm committing heresy at this point by using the p/b multiple, but I have been thinking that WB put intrinsic value at 1.6-1.8 for some time now. I don't think he would repurchase shares at below ~20% discount to intrinsic value. There are no advanced calculations behind this - just the usual moves of triangulating value: deducting float from liabilities, valuing cash, stocks and bonds at 100% and giving the operating businesses a market multiple.

I also think he’s had it pegged far higher than the 1.2x. But it’s my sense that it’s higher than 2.0x. The oblique reference to 2.0x was made in the 50th year letter. He was warning that even BRK was not immune to disappointing shareholders if bought at higher price levels. Folks read that to mean that 2.0x was overvalued. Buffett is acutely sensitive to what kind of return his shareholders are accustomed to. At 2.0x an investment in BRK would earn what IV growth would. Say 10%. That’s quite satisfactory but Buffett’s sights are set higher.

And that was in 2015. There’s been an earnings explosion since.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on August 31, 2018, 09:27:14 AM
I think Tilson is roughly right on the implications of Buffett's CNBC interview: https://www.youtube.com/watch?v=yMiAEzcCl20
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nkp007 on August 31, 2018, 11:18:21 AM
Interesting to hear that Tilson is managing money again (via separately managed accounts) for friends and family. Knew he couldn't stay away for too long.

Berkshire seems like a low downside uncertain upside (Tilson says 10% upside) special situation. With the buyback bazooka as a put option around current prices, definitely makes it a protected way to get exposure to US equity markets / companies.

I took a position after they announced the buyback. Huge technical support barring a crash.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on August 31, 2018, 01:29:47 PM
I can see a 1M share trade at the closing bell for $208.72.  The Volume all day long was not even close to that.  The other trades were all 3-6K lot sizes during the day.

I know that a disproportionate volume happens at the open and close of the market bells, but this is 25% of the volume at the end of the day in 1 minute.  It might have been even 1 single trade.  If it was all BRK purchasing back stock that would be about $208MM.

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on August 31, 2018, 01:46:29 PM
I don't think I see a 1 million share trade on BRK B but I do see just under 284k shares traded at the close.  There is a large order match at the close that you can participate in by entering MOC - "Market on Close" orders.  Index funds and other institutional traders are big users of the closing bell order cross, which is why they publish order imbalances for the closing cross in the last hour and a couple minutes or so before the close.

(I should add, it's never going to be all Berkshire unless its a block trade that you see printed out of nowhere - it is safe to assume Berkshire is only purchasing 10%-20% of the daily volume and I would bet it is closer to 10%.  They would probably be purchasing both classes of shares)

I can see a 1M share trade at the closing bell for $208.72.  The Volume all day long was not even close to that.  The other trades were all 3-6K lot sizes during the day.

I know that a disproportionate volume happens at the open and close of the market bells, but this is 25% of the volume at the end of the day in 1 minute.  It might have been even 1 single trade.  If it was all BRK purchasing back stock that would be about $208MM.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Cigarbutt on August 31, 2018, 03:07:31 PM
Interesting to hear that Tilson is managing money again (via separately managed accounts) for friends and family. Knew he couldn't stay away for too long.

Berkshire seems like a low downside uncertain upside (Tilson says 10% upside) special situation. With the buyback bazooka as a put option around current prices, definitely makes it a protected way to get exposure to US equity markets / companies.

I took a position after they announced the buyback. Huge technical support barring a crash.
Same here.

What I find interesting is the tension that exists between the necessity to do a large buyback at a significant discount to make a meaningful impact on intrinsic value per share and to manage the uncomfortable cash pile while, at the same time, keeping the magic opportunistic formula loaded in order to maintain the capacity to outperform. Despite the soft-spoken aphorisms, I still picture Mr. Buffett as a warrior with a knife between his teeth.

His thinking has always been long term and I would say that this may be even more important at a time when he is defining his legacy. The Oracle has to balance the weighted opportunity cost of holding excess cash now and for the next few years. Simple but not easy.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on September 06, 2018, 10:56:56 AM
I know very little of dark pools etc., but just had this thought and wanted to ask whether it would be possible to determine whether there is any non-public trading of Berkshire in any way. Does anyone know? No matter what it will be interesting to know the total amount of trading in Berkshire for the next couple of months, combining this number with the proportion that Buffett bought back will give some valuable indications of times to come during similar circumstances.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on September 06, 2018, 11:45:51 AM
Privately negotiated trades for large blocks eventually get reported to the NYSE and included in the reported volume:

"The NYSE has a general reporting rule specifying that transactions must be reported promptly. In particular, NYSE Rule 131 specifies that trades must be reported within an hour after the close of business on the day the trade was made."


I know very little of dark pools etc., but just had this thought and wanted to ask whether it would be possible to determine whether there is any non-public trading of Berkshire in any way. Does anyone know? No matter what it will be interesting to know the total amount of trading in Berkshire for the next couple of months, combining this number with the proportion that Buffett bought back will give some valuable indications of times to come during similar circumstances.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on September 19, 2018, 12:38:31 PM
So the discount for the B-shares compared with the A-shares has been  closed. Two months ago the discount was 4%. Isn’t this an argument for there being heavy, committed buying in the B-share?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on September 20, 2018, 01:47:24 PM
So the discount for the B-shares compared with the A-shares has been  closed. Two months ago the discount was 4%. Isn’t this an argument for there being heavy, committed buying in the B-share?

Personally, I'm not sure of what we can deduct from this fact, SwedishValue,

Berkshire has run up quite a bit recently, that's evident though. Somehow it all boils down to who's buying, and why - and personally I don't know the answer to that question.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on September 20, 2018, 07:24:25 PM
So the discount for the B-shares compared with the A-shares has been  closed. Two months ago the discount was 4%. Isn’t this an argument for there being heavy, committed buying in the B-share?

Personally, I'm not sure of what we can deduct from this fact, SwedishValue,

Berkshire has run up quite a bit recently, that's evident though. Somehow it all boils down to who's buying, and why - and personally I don't know the answer to that question.

All we heard was that quip “Yeah we bought a little”. Apparently those  five words mean a lot. Don’t know of any other mortal with such market force speak.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on September 21, 2018, 04:37:42 AM
So the discount for the B-shares compared with the A-shares has been  closed. Two months ago the discount was 4%. Isn’t this an argument for there being heavy, committed buying in the B-share?

Personally, I'm not sure of what we can deduct from this fact, SwedishValue,

Berkshire has run up quite a bit recently, that's evident though. Somehow it all boils down to who's buying, and why - and personally I don't know the answer to that question.

All we heard was that quip “Yeah we bought a little”. Apparently those  five words mean a lot. Don’t know of any other mortal with such market force speak.

Stock didn't budge all day when he said that.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on September 21, 2018, 05:55:41 AM
Yeah, that was surprising on the day he said that.  It was basically Warren going on TV saying that the current price of Berkshire (at that time) was 'way below intrinsic value, conservatively determined by Warren Buffett & Charlie Munger.'  And he also mentioned, if it's close enough they have to talk about it on the phone, they probably shouldn't be buying it...  He was on 4 networks that day and the stock didn't budge
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on September 21, 2018, 06:29:25 AM
And that fact that GlobalFinancialPartners is pointing out.. that the stock didn't move..  despite there being high probability of making money...  is a scary comment on group herd psychology...  And it is a beautiful thing for all those that listen to the words of Ben Graham-

Short term stock market is a voting machine.
Long term stock market is a weighing machine.

It confounds me how complicated and how simple stock market investing can be!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on September 21, 2018, 06:40:03 AM
Some of this move the last few days has got to be option expiration related.  A lot of folks probably got caught out with covered calls against low basis stock they had no intention of selling.  Look at the opening tick of over 2 million shares traded on the B shares this morning, which is a major option expiry day.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on September 21, 2018, 09:48:37 AM
Is Buffett (through Berkshire), under US securities law and regulation, allowed to write put options on Berkshire? I would guess not, right?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Kapitalust on September 21, 2018, 09:50:40 AM
Yeah, that was surprising on the day he said that.  It was basically Warren going on TV saying that the current price of Berkshire (at that time) was 'way below intrinsic value, conservatively determined by Warren Buffett & Charlie Munger.'  And he also mentioned, if it's close enough they have to talk about it on the phone, they probably shouldn't be buying it...  He was on 4 networks that day and the stock didn't budge

After the removal of the buyback announcement and Buffett essentially saying the stock is cheap, I increased the entire portfolio's weighting to 60% Berkshire.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on September 21, 2018, 10:04:55 AM
It was legal in the 90's as part of a repurchase plan.  I assume it is still legal.  I doubt Berkshire is doing it, but Warren has used short puts to purchase shares several times in the past, including with Coca Cola and BNSF.

'97 wsj article - https://www.wsj.com/articles/SB864243230195870000

Is Buffett (through Berkshire), under US securities law and regulation, allowed to write put options on Berkshire? I would guess not, right?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on September 21, 2018, 10:31:40 AM
It was legal in the 90's as part of a repurchase plan.  I assume it is still legal.  I doubt Berkshire is doing it, but Warren has used short puts to purchase shares several times in the past, including with Coca Cola and BNSF.

'97 wsj article - https://www.wsj.com/articles/SB864243230195870000

Is Buffett (through Berkshire), under US securities law and regulation, allowed to write put options on Berkshire? I would guess not, right?

Yea that was what brought it to my mind. He did it kind of massively for BNSF, and the way he structured it (issuing puts at prices much higher than the market value), made it likely he would actually get the shares delivered.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on September 21, 2018, 02:12:12 PM
Did you guys notice the trading volume on the BRK.B shares today.

Normal B share trading volume is 4M.
Today 13M shares changed hands.  That is $3B in one day...

I wonder who the buyers and sellers are.....  humm.....

Gates Foundation
BRK share repurchase

hummmm....
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on September 21, 2018, 02:16:12 PM
over 2 million was on the opening tick.  Today was options expiration.

(IB showing less than 5million but Bloomberg and NYSE showing over 13m)


Did you guys notice the trading volume on the BRK.B shares today.

Normal B share trading volume is 4M.
Today 13M shares changed hands.  That is $3B in one day...

I wonder who the buyers and sellers are.....  humm.....

Gates Foundation
BRK share repurchase

hummmm....
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on September 29, 2018, 12:44:32 AM
I added up the number of traded shares for each day from the 6th of august until the 28th of september. These numbers probably do not reflect transactions off-market, as I've seen people in here report significantly higher numbers for specific days compared with the numbers my broker gives me.

109 127 485 B-shares have been traded.
9 080 A-shares have been traded.

If Buffett bought back 25% of this amount, he would have bough back approximately USD 5.7 Billion of B-shares and USD 0.7 Billion of A-shares. Do I understand it correctly that Buffett is not allowed to purchase more than 25% of average trading volume per day?

If anyone can provide the correct numbers of shares traded including off-market transactions I would be delighted.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on September 29, 2018, 12:57:51 AM
SwedishValue,

Personally, I think our primary source should be the NYSE numbers, as a direct source, i.e. for the B share you find the daily turnover here (https://www.nyse.com/quote/XNYS:BRK.B). How do those numbers compare to yours?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on September 29, 2018, 01:15:42 AM
Thanks for providing the link. My new figures are that

154 990 202 B-shares have been traded.
10 531 A-shares have been traded.

If 25% of daily volume has been bought back, this means USD 8,14 BN of B-shares have been bought back, and USD 0.83 BN of A-shares have been bought back. Combined, just below USD 9 BN could have been bought back if 25% of daily volume was targeted.

John Hjorth, can you confirm or refute whether 25% of daily volume is a hard cap for buybacks that applies to Berkshire? I read it somewhere, forgot where.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on September 29, 2018, 01:20:44 AM
SwedishValue,

According to Dynamic's study of the rules, ref. Dynamic's post here (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg343564/#msg343564), it's max. 25 percent of the average daily volume. There are some valuable posts by globalfinancepartners about this matter and the details of it on here, too.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on September 29, 2018, 04:52:23 AM
I knew nothing before finding that investopedia article.

I'd be quite surprised if Berkshire has repurchased anything close to 25% this quarter, so any subtleties in interpretation of the rules are probably moot, and an approximate upper bound on open market repurchases is all we're likely to establish so these figures look about right.

If the excess cash is just below float until the next major opportunity to invest it at a good price, I'll be happy enough.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on September 29, 2018, 03:59:53 PM
I can't wait to see how much they have repurchased.  If they repurchased something more than a pittance, do you guys think it serves as a catalyst to increase the share price to higher levels?

Does anyone want to guesstimate what price the stock increases to under that scenario?

Are there any significant detractors from the share price in the near term?

[PS- I get the Ben Graham Stock Market voting machine-shorter them  weighing machine-long term.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on September 30, 2018, 02:58:26 AM
A significant buybacks represents a few things.

First of all, it represents that Buffett considers the present market valuation of Berkshire to be significantly below intrinsic value. This has a few implications in turn.

1. If Buffett is right, which is my default option, then buying Berkshire at these rates provides an attractive investment opportunity both for Berkshire and for the private investor.
2. Share buybacks are likely to be sustained unless the share price appreciates significantly.
3. 1 & 2 combined gives that additional, continuous value creation from buybacks will accrue to remaining shareholders.

Secondly, we have a liquidity aspect of the buybacks. Intrinsic value chugs along and grows at a nice albeit slow rate. It is unlikely that intrinsic value will significantly deviate either up or down over short periods of time. In this scenario, having Buffett buy back a significant percentage of the daily trading volume, is likely to decrease the short-term downside of the Berkshire stock price compared with the upside.

I think a significant buyback is very material for the implications stated above. I would consider it a 10% event on the stock price for me personally, but I think a likely market reaction more is along the lines of 3-4% (which would present an additional buying opportunity for the savy investor, in my opinion).
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on September 30, 2018, 03:28:36 AM
All we heard was that quip “Yeah we bought a little”. ...

This is still the only fact we have. So, yes, trying by now to triangulate with some kind of precision maximum buyback volume actually appear a bit "academic" [<- [: - ) ]], ref. what Dynamic is implying, when that maximum volume is actually meaningful.

[Academic can in this context be defined as a well thought out & in-depth analysis of something without relevance to anything. [ : - ) ]]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on September 30, 2018, 03:40:04 AM
I don't agree. He had this interview the 19th trading day after the Q2-report was issued. At that time, around USD 4 Billion would have been the maximum possible open market buyback that Buffett could have orchestrated, less than 0.8% of shares outstanding. I don't think "we bought a little" means that we can exclude him having bought back around the maximum threshold.

I think it's more likely that Buffett bought back closer to the max amount of shares (25% of average trading volume) than having him buy back 10% or less. Simply for the fact that Buffett likes to behave opportunistically. If he finds it to make sense at 10% of average trading volume, then why not make it 25%?

But there's no way we will know before early November. I just wanna lay out my arguments here so that they possibly can get shot down and make me change my mind about this being a very special situation.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on September 30, 2018, 07:05:25 AM
The narrative surrounding the buyback is far more significant here. And it changed from the prior narrative.

 As recently as in May this year, Buffett explicitly stated that they would buy only slightly above the 1.2x BV. Like 1.25 or 1.27x. During the CNBC interview, besides the “yeah we bought a little “, his admission of sorts that they should have been using “intrinsic business value all along” is what we should be discussing. He basically threw the BV yardstick out of the window. Although he’s been telegraphing it for several years through the annual letter, it’s huge that it happened. I wasn’t expecting it in 2018, more like in the next decade.

So.what changed? I like to believe that he and Charlie ran their own “Owner Earnings from here to judgment day discounted to present value” given the monumental jump in earnings this year. The facts have changed and they change with that.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on September 30, 2018, 09:23:51 AM
Here's my prediction: the headline number for buybacks won't be obviously enormous at first glance, partly due to him not buying back stock for the whole quarter. But as investors start calculating the actual number of trading days that Buffett will have been able to buy the stock, they will start to realize that he considered it a significant bargain at around current levels ($214). Will the market react heavily to this realization? I don't know the answer to that.   
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Swedish_Compounder on October 01, 2018, 01:06:31 AM
The narrative surrounding the buyback is far more significant here. And it changed from the prior narrative.

 As recently as in May this year, Buffett explicitly stated that they would buy only slightly above the 1.2x BV. Like 1.25 or 1.27x. During the CNBC interview, besides the “yeah we bought a little “, his admission of sorts that they should have been using “intrinsic business value all along” is what we should be discussing. He basically threw the BV yardstick out of the window. Although he’s been telegraphing it for several years through the annual letter, it’s huge that it happened. I wasn’t expecting it in 2018, more like in the next decade.

So.what changed? I like to believe that he and Charlie ran their own “Owner Earnings from here to judgment day discounted to present value” given the monumental jump in earnings this year. The facts have changed and they change with that.


I remember that interview you refer to. My take is that he did not want to talk up the price, but I did not interpret that as meaning that he would not buy back higher than at 1,27.


Yes, he threw the P/B yardstick out of the window and he had for a long time not valued the company based on that. It was only the repurchase critera that was tied to P/B and that confused people. I think he wanted the stock to move with as little volatility as possible, which was accomplished that way, since P/B does not move so dramatically.


I think that what changed was that they now wanted to include repurchases in their tool-box. Before, the repurchase limit was merely there reduce volatility for the stock. Now, since they have not found other ways to deploy all their cash flow for a while, they decided to distribute money to the owners, meaning that they need to value BRK properly, since they need to decided whether to pay a dividend or repurchase shares.

I hope this means that they will from here on always value BRK vs other opportunities when deciding what to spend money on, because I think they should have bought BRK instead of some of the acquisitions they made if chosing between the two. Probably, repurchases would have been more value creating than the PCP acquisition for example, even though that was probably not a poor acquisition. BRK was just cheaper.

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 02, 2018, 02:02:01 PM
I realize now, that my post #97 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg346792/#msg346792) in this topic actually could be considered deeply patronizing and condecending. If I have offended you, SwedishValue, please accept my apology. My post was actually not meant that way.

In short, personally, I would - any time - prefer BRK buybacks [at reasonable price levels], as an alternative to Berkshire holding [US] cash & US T-Bills.

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on October 02, 2018, 11:36:45 PM
We’re good. I didn’t find it patronizing and I appreciate our discussions.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: IceCreamMan on October 05, 2018, 08:46:09 PM
The argument for Berkshire having probably bought back a large amount of stock this quarter is that Buffett is opportunistic. But on the other side of the coin, we have his past statements about not wanting to take advantage of selling shareholders; consistent with this principle might be doing just a small repurchase at first as a signal. In other words, would Buffett find it unethical or distasteful to do a large repurchase all in one quarter, after a long period without one?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rolling on October 06, 2018, 04:09:33 AM
The argument for Berkshire having probably bought back a large amount of stock this quarter is that Buffett is opportunistic. But on the other side of the coin, we have his past statements about not wanting to take advantage of selling shareholders; consistent with this principle might be doing just a small repurchase at first as a signal. In other words, would Buffett find it unethical or distasteful to do a large repurchase all in one quarter, after a long period without one?
I would bet they bought heavily.  Before the buyback date but after the announcement the stock was around 200/b share. Then it quickly bounced up and it is staying up even in general market downdays (and there have been plenty of those). My bet however is that the stock peaked at the same level or a bit above their ceiling, which in september was likely between 215-220. It would be logical for him to slowly move the ceiling up as the months passed, but it is likely he is still buying by 2nd quarter IV estimate and will only revise up after 3rd quarter results...
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on October 06, 2018, 06:55:18 AM
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...
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on October 06, 2018, 08:12:04 AM
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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on October 06, 2018, 11:51:11 AM
Correct.  If they are doing it the way I am guessing they are doing it, there can be steady open market purchases throughout the usual blackout periods.  You can get really specific with formulas and rules and changing price caps/floors - but I would bet they have a simple price cap, % of daily volume instruction.  Just a guess of course.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: sleepydragon on October 06, 2018, 12:06:49 PM
On Friday, almost all the financials are down, and almost all the stocks in my portfolio/watch lists are down, Except BRK. So someone has to be buying. To move BRK like this, I think it needs at least $5B demand per week.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 06, 2018, 03:05:57 PM
... They probably filed the 10b5-1 plan directly following their 10Q, allowing them to begin purchases under the plan immediately. ...

globalfinancepartners,

Would such a filing have to be released on the SEC website, or can it be withheld from release on the request by the filer [here: Berkshire]? I have studied the SEC 10b-1 plan FAQ, it seems to me to be mute on that particular question. [There is no such filing from Berkshire right now on the SEC website.]

Your posts on this matter are highly appreciated. I learn a lot.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on October 06, 2018, 05:25:17 PM
My understanding is that nothing has to be publicly disclosed in a filing when an issuer is using the plan for a repurchase. Other types of plans, for insider selling for instance, usually get mentioned in the form 4 - but the confidential details of the trading rules are usually not public.  Sometimes you can divine them through other disclosures though - a cap price can sometimes be observed if trading prices are detailed in a form 4.

So no, Berkshire doesn’t have to file anything but might mention it in a footnote later.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on October 07, 2018, 04:18:23 AM
Globalfinancepartners, this is very helpful. Thanks for the very valuable contribution!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 07, 2018, 04:36:52 AM
Globalfinancepartners, this is very helpful. Thanks for the very valuable contribution!

Agreed! - So we'll just have to wait to next 10-Q and see. The observation made by sleepydragon is actually quite striking. I really hope this is a material change in the buyback narrative, as longinvestor has called it. - Wait, wait, wait ...
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on October 07, 2018, 07:41:45 AM
I just wanna have this on the record.

1. I believe Buffett has been repurchasing shares aggressively, in excess of 10% of daily trading volume.

2. I believe share buybacks will take place as long as prices are at least within 110% of the price when Buffett commented on the buybacks on CNBC (at least until 230 USD).

3. I think both the ”soft trading floor” and the fact that Buffett considers the stock to be significantly undervalued, to be strong reasons for a very significant long position in Berkshire.

I am long, for the first time ever, since shortly after the buyback treshold change.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: boilermaker75 on October 07, 2018, 02:12:01 PM
I just wanna have this on the record.

1. I believe Buffett has been repurchasing shares aggressively, in excess of 10% of daily trading volume.

2. I believe share buybacks will take place as long as prices are at least within 110% of the price when Buffett commented on the buybacks on CNBC (at least until 230 USD).

3. I think both the ”soft trading floor” and the fact that Buffett considers the stock to be significantly undervalued, to be strong reasons for a very significant long position in Berkshire.

I am long, for the first time ever, since shortly after the buyback treshold change.

Just for the record, BRKB is my largest position, about 40% of my portfolio. Most was acquired in 2008, but using puts I added in the range of $184-$198 in May and June.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on October 07, 2018, 05:22:49 PM
On Friday, almost all the financials are down, and almost all the stocks in my portfolio/watch lists are down, Except BRK. So someone has to be buying. To move BRK like this, I think it needs at least $5B demand per week.

I have been thinking about sleepydragon's observation from a couple different angles.  And I think there is a very high probability that he is right..

Do you guys think there is any flight/movement to "value"?  One of the economists that I like from Prudential thinks that it is coming in the market cycle.  But, I haven't really seen it yet..  Except BRK is rising.  But the increase in BRK could also be directly caused by BRK share repurchase.

"When we hear hoof sounds we should think horses [BRK buy backs], we should not think zebras  [Illuminati secret buyers.]"
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on October 07, 2018, 05:39:55 PM
I just wanna have this on the record.

1. I believe Buffett has been repurchasing shares aggressively, in excess of 10% of daily trading volume.

2. I believe share buybacks will take place as long as prices are at least within 110% of the price when Buffett commented on the buybacks on CNBC (at least until 230 USD).

3. I think both the ”soft trading floor” and the fact that Buffett considers the stock to be significantly undervalued, to be strong reasons for a very significant long position in Berkshire.

I am long, for the first time ever, since shortly after the buyback treshold change.

Right on SwedishValue for going on record, and that is where you money is invested too.

I think WEB and CM will continue to purchase with available cash if the share price continue to rise as long as the IV is well above the share price.  So, if BRK in a year is at $250, and BRK has grown IV by another 15%, the margin between the IV and share repurchase price is still good potentially.

This is our current reality, and numbers as SwedishValue has outlined.  Fingers Crossed.

Also, we have new variables entering the share price calculus, that we have never had before.  That is real cash/share buybacks and fewer shares outstanding for BRK.  How long does BRK purchase, how much do they purchase, at what prices do they purchase?  What happens to the share price when the rate of repurchase becomes public?  What does WEB say publicly about the repurchase?  What does WEB and CM say at the SH meeting 5/2019?

Great time to be a Brk shareholder.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on October 07, 2018, 06:41:32 PM
There are several factors in addition to repurchase activity that could be pushing BRK up relative to the market. One is the rise in interest rates and Berkshire’s unique positioning relative to interest rates (float based businesses become more valuable along with money, but most insurance companies hold large bond portfolios that get marked lower - Berkshire’s traditional long bond portfolio is comically small relative to total assets).

Another is simple technical analysis reasons, which also relates to violated option strikes, where Brk held above its recent breakout. Might sound like Mumbo Jumbo, but covered calls are a factor at Brk, where everyone holds at a gain, most with large gains they are not eager to be called on and realize.

But stock repurchases are undoubtably a factor as well
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 07, 2018, 08:51:40 PM
I just wanna have this on the record.

1. I believe Buffett has been repurchasing shares aggressively, in excess of 10% of daily trading volume.

2. I believe share buybacks will take place as long as prices are at least within 110% of the price when Buffett commented on the buybacks on CNBC (at least until 230 USD).

3. I think both the ”soft trading floor” and the fact that Buffett considers the stock to be significantly undervalued, to be strong reasons for a very significant long position in Berkshire.

I am long, for the first time ever, since shortly after the buyback treshold change.

Right on SwedishValue for going on record, and that is where you money is invested too.

I think WEB and CM will continue to purchase with available cash if the share price continue to rise as long as the IV is well above the share price.  So, if BRK in a year is at $250, and BRK has grown IV by another 15%, the margin between the IV and share repurchase price is still good potentially.

This is our current reality, and numbers as SwedishValue has outlined.  Fingers Crossed.

Also, we have new variables entering the share price calculus, that we have never had before.  That is real cash/share buybacks and fewer shares outstanding for BRK.  How long does BRK purchase, how much do they purchase, at what prices do they purchase? What happens to the share price when the rate of repurchase becomes public?  What does WEB say publicly about the repurchase?  What does WEB and CM say at the SH meeting 5/2019?

Great time to be a Brk shareholder.


I have posted on COBF before (don't remember which thread under Berkshire) but it is my speculation that the net buyback $ will approximate Warren Buffett's peak personal stake in the company. 30%+. It may take well over a decade and the market has to cooperate by allowing attractive repurchases. It will be a fitting way to seal his legacy by retiring all of his ownership. This was his painting anyway.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Cigarbutt on October 07, 2018, 09:11:35 PM
I have posted on COBF before (don't remember which thread under Berkshire) but it is my speculation that the net buyback $ will approximate Warren Buffett's peak personal stake in the company. 30%+. It may take well over a decade and the market has to cooperate by allowing attractive repurchases. It will be a fitting way to seal his legacy by retiring all of his ownership. This was his painting anyway.
Interesting speculation.
Need the following assumptions:
-limited outside re-investment opportunities
-cooperating market
-capital deployment discipline

Unusual scenario but not unheard of:
https://brianlangis.files.wordpress.com/2017/07/grants-article-1148.pdf
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 07, 2018, 09:58:35 PM
I have posted on COBF before (don't remember which thread under Berkshire) but it is my speculation that the net buyback $ will approximate Warren Buffett's peak personal stake in the company. 30%+. It may take well over a decade and the market has to cooperate by allowing attractive repurchases. It will be a fitting way to seal his legacy by retiring all of his ownership. This was his painting anyway.
Interesting speculation.
Need the following assumptions:
-limited outside re-investment opportunities
-cooperating market
-capital deployment discipline

Unusual scenario but not unheard of:
https://brianlangis.files.wordpress.com/2017/07/grants-article-1148.pdf

Thanks for the Singleton piece.

As to assumptions, I am not sure of the first assumption, limited outside re-investment opportunities. Today, cash is some 20% of market cap; Cash continues to pour in and should the market cap double over a decade, the cash coffers will likely be 3x; Plus, Buffett has expressly stated that the entire investment portfolio should be treated as "available for sale".  There is room for both outside reinvestment and buybacks.

I pointed out the second assumption, cooperating market. My "well over a decade" qualifier was meant to allow as much time for the market to cooperate. Folly will happen, sooner or later.

Finally, the one lid that held up repurchases was the public pronouncement of a readily calculable 1.?? x BV. Now everyone can do their own calculation of IV. Don't expect them to pony up any formulae to estimate IV to the second decimal place. I can already see the hit pieces coming "Buffett manipulates market to buy back stock". You heard it first here ;)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rolling on October 08, 2018, 04:52:39 AM
On Friday, almost all the financials are down, and almost all the stocks in my portfolio/watch lists are down, Except BRK. So someone has to be buying. To move BRK like this, I think it needs at least $5B demand per week.

I have been thinking about sleepydragon's observation from a couple different angles.  And I think there is a very high probability that he is right..

Do you guys think there is any flight/movement to "value"?  One of the economists that I like from Prudential thinks that it is coming in the market cycle.  But, I haven't really seen it yet..  Except BRK is rising.  But the increase in BRK could also be directly caused by BRK share repurchase.

"When we hear hoof sounds we should think horses [BRK buy backs], we should not think zebras  [Illuminati secret buyers.]"
I just received an e-mail saying his client's strategists are shifting to value.
I would add that instead of looking for Berkshire rising, we should be looking at "who is falling less" - in general market declines everything ends up going down.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Cigarbutt on October 08, 2018, 07:15:42 AM
There are several factors in addition to repurchase activity that could be pushing BRK up relative to the market. One is the rise in interest rates and Berkshire’s unique positioning relative to interest rates (float based businesses become more valuable along with money, but most insurance companies hold large bond portfolios that get marked lower - Berkshire’s traditional long bond portfolio is comically small relative to total assets).
Would add another minor point.
Mr. Buffett has described that, for some time, his bids are not competitive in this environment. Looking at Bloomberg this AM, the spectrum of treasuries yields from 3 months to 2 years have increased by 115 to 138 basis points over the last 12 months. Nothing earth shattering but, using the gravity argument, higher interest rates would tend to put downward pressure on deal valuation from Mr. Buffett's perspective and the cash optionality value has increased a little as he is getting paid slightly more in order to wait for the fat pitches. I see this aspect as another factor contributing to higher cash balance and, by consequence, to increased pressure into the buyback default option.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 08, 2018, 03:57:40 PM
I have posted on COBF before (don't remember which thread under Berkshire) but it is my speculation that the net buyback $ will approximate Warren Buffett's peak personal stake in the company. 30%+. It may take well over a decade and the market has to cooperate by allowing attractive repurchases. It will be a fitting way to seal his legacy by retiring all of his ownership. This was his painting anyway.

Here, I'm focusing on a part of a post made in this topic [post #119] by longinvestor. I really want to understand longinvestor's line of thinking. The exchange, that longinvestor is referring to here [I assume], took place on June 30th 2018 in the topic "Berkshire - cheap?" (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/berkshire-cheap/), posts #195 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/berkshire-cheap/msg337262/#msg337262) to #202 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/berkshire-cheap/msg337271/#msg337271).

Here I'm nitpicking the heck out it - I'm simply bending it in neon, as my understanding now of longinvestor's line of thinking & proposal as I understand it now [longinvestor, please correct me, if I still don't get it correctly]:

1. Mr. Buffett - at his own discretion, based on what he personally considers fit, based on what ever [, including Berkshire stock market price] - decides to donate USD X billion worth of Berkshire stock to 1 - 4 foundations, as a one time gift, - and execute on it - on top of the 2006 pledge with amendment, as an "extra" - converting A shares to B, and to give them away. [with no promise to do it again next year etc. [, but he might perhaps do that actually ... - again, at his own personal discretion]].

2. The board of Berkshire and management bodies of the 1 - 4 foundations negotiate a private buyback deal for the shares just donated by Mr. Buffett, with every person in those management bodies being disaqualified because of conflicts of interests outside the negotiation room: Mr. Buffett, Mr. Gates & and his wife, & Mr. Buffett's descendants for the three family foundations. [Again, depending on which foundations involved.]

Did I get it right this time, longinvestor?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 08, 2018, 05:45:36 PM
I have posted on COBF before (don't remember which thread under Berkshire) but it is my speculation that the net buyback $ will approximate Warren Buffett's peak personal stake in the company. 30%+. It may take well over a decade and the market has to cooperate by allowing attractive repurchases. It will be a fitting way to seal his legacy by retiring all of his ownership. This was his painting anyway.

Here, I'm focusing on a part of a post made in this topic [post #119] by longinvestor. I really want to understand longinvestor's line of thinking. The exchange, that longinvestor is referring to here [I assume], took place on June 30th 2018 in the topic "Berkshire - cheap?" (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/berkshire-cheap/), posts #195 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/berkshire-cheap/msg337262/#msg337262) to #202 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/berkshire-cheap/msg337271/#msg337271).

Here I'm nitpicking the heck out it - I'm simply bending it in neon, as my understanding now of longinvestor's line of thinking & proposal as I understand it now [longinvestor, please correct me, if I still don't get it correctly]:

1. Mr. Buffett - at his own discretion, based on what he personally considers fit, based on what ever [, including Berkshire stock market price] - decides to donate USD X billion worth of Berkshire stock to 1 - 4 foundations, as a one time gift, - and execute on it - on top of the 2006 pledge with amendment, as an "extra" - converting A shares to B, and to give them away. [with no promise to do it again next year etc. [, but he might perhaps do that actually ... - again, at his own personal discretion]].

2. The board of Berkshire and management bodies of the 1 - 4 foundations negotiate a private buyback deal for the shares just donated by Mr. Buffett, with every person in those management bodies being disaqualified because of conflicts of interests outside the negotiation room: Mr. Buffett, Mr. Gates & and his wife, & Mr. Buffett's descendants for the three family foundations. [Again, depending on which foundations involved.]

Did I get it right this time, longinvestor?

You’ve thought through a detailed scenario of which shares are likely to be bought back. I have not.

My thoughts are not that detailed other than the long held heavy ownership interest of Mr Buffett (31% at peak) is an important component of the Berkshire culture. At one extreme it has allowed them a free hand at painting this picture but at the other hand as his ownership is being liquidated it could open up dilution of ownership including the possibility of activism. As Berkshire prepares for the future without Buffett the share buyback is integral to the transition. Cunningham talks about this in his book Berkshire beyond Buffett and has chronicled some 10% ownership interest of “insiders”. Should this coterie hold on while Berkshire buys back gobs of stock the insider ownership will swell to approximate Buffett’s peak ownership. In fact Cunningham released the book about the Berkshire shareholder this May and I attended the book launch event on the eve of the meeting. Cunningham said that Berkshire’s culture surviving includes the long term shareholders and their ownership continuity and engagement. My thoughts are an extension of Cunningham ‘s
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 08, 2018, 06:10:48 PM
Thank you for the elaboration here, longinvestor,

Now I understand your former posts here on CoBF on the matter much better. I'll read Mr. Cunningham's book.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 09, 2018, 11:25:05 PM
I'm still thinking about longinvestor's last post in this topic.

From the special [anniversary] letter (http://www.berkshirehathaway.com/SpecialLetters/WEB%20past%20present%20future%202014.pdf) released February 27th 2015, p. 36:

Quote from: Warren Buffett
... Eventually – probably between ten and twenty years from now – Berkshire’s earnings and capital resources will reach a level that will not allow management to intelligently reinvest all of the company’s earnings. At that time our directors will need to determine whether the best method to distribute the excess earnings is through dividends, share repurchases or both. If Berkshire shares are selling below intrinsic business value, massive repurchases will almost certainly be the best choice. You can be comfortable that your directors will make the right decision.[1] ...

The changed buyback regime going forward was released on July 17th 2018. -So not "probably between ten and twenty years from now", but actually more like 1,236 days, which equals roughly 3.4 years, likely caused by a combination of Berkshire performing well and deal flow drought.

[1] © Warren Buffett
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on October 10, 2018, 02:44:59 AM
”If Berkshire shares are selling below intrinsic business value, massive repurchases will almost certainly be the best choice.”

Combine this with everything else that Buffett and Munger have said throughout the years about buybacks. I personally don’t believe it’s likely that Buffett would ”small-ball” a share buyback when he buys back. And i also don’t think Buffett would ever repurchase above intrinsic business value.

I’m like the man with a hammer now, but I would be seriously surprised if somehow Buffett bought back stock for less than two billion dollars this quarter.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 10, 2018, 08:12:43 AM
As a shareholder I'm squarely facing the dilemma of whether to rejoice or lament a rising share price environment. Its a struggle for me to move away from my default like for rising prices. (who doesn't ha.).

It is slowly sinking in that low prices are better, especially for Berkshire as they mull massive share buybacks. High price defeats the buyback intent. I believe Berkshire may be alone in this. Most businesses court analysts to drive share price higher. Managements are incentivized for that. Buffett keeps saying that they like low share prices of businesses they own and like to own more of. At the end of the day, it comes down to trust that price will catch up to value. Eventually. The weighing machine thing. Monumental patience is required. Coming to grips with this reality is quite an education for me.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: sleepydragon on October 10, 2018, 08:47:08 AM
For all the stocks, except BRK, I wish for higher prices. Because I might sell next year.
For BRK, everyday I hope it go down, because I always want to buy more when I have more money.
Brk has become a savings vehicle for its shareholders
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: The Investor on October 10, 2018, 08:52:02 AM
Even if a strong, steadily growing company was to become cheaper relative to intrinsic value over a long time frame, you eventually realise a high return through rising dividends. As a long term holder of shares you don't even need the weighing machine effect to kick in (although in the real world it always seems to).

Berkshire will not pay a dividend until it makes sense to do so (and who knows when that will be?). That means if you have anything less than a multi-decade time horizon, you will be more dependent on the whims of the market to realise gains, than you would with a company that pays out some part of profits.

I was somewhat peeved at the recent runup in Berkshire, as I would like to buy more over time. If BRK goes to sub 1.3 P/B without something obviously terrible causing that, I'd be very pleased.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 10, 2018, 09:24:51 AM
... Berkshire will not pay a dividend until it makes sense to do so (and who knows when that will be?). ...

The Investor,

I suppose, by inverting the Berkshire Buyback Ammendment of July 17th 2018 (http://berkshirehathaway.com/news/jul1718.pdf), that would be when Mr. Buffett & Mr. Munger deems the Berkshire market price to be above intrinsic value per share, as one condition, out of maybe several.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 10, 2018, 09:37:26 AM
Even if a strong, steadily growing company was to become cheaper relative to intrinsic value over a long time frame, you eventually realise a high return through rising dividends. As a long term holder of shares you don't even need the weighing machine effect to kick in (although in the real world it always seems to).

Berkshire will not pay a dividend until it makes sense to do so (and who knows when that will be?). That means if you have anything less than a multi-decade time horizon, you will be more dependent on the whims of the market to realise gains, than you would with a company that pays out some part of profits.

I was somewhat peeved at the recent runup in Berkshire, as I would like to buy more over time. If BRK goes to sub 1.3 P/B without something obviously terrible causing that, I'd be very pleased.

I am actually in the camp that I don't want Berkshire to pay me a dividend. Reasons are simple, they pay a dividend when I don't need the cash. Or that amount of cash. I will make my own dividend by selling just enough shares when I need the cash. The price may be lower (on recency basis), and I am willing to accept that knowing that there will be other times when I sell at higher prices. It is all relative. Selling a small percent of your holding bought 10-15 years ago don't mean much. So yes, holding over multi-decade time horizon is a different ball game. Buffett kind of talks only to that crowd. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: The Investor on October 10, 2018, 03:10:30 PM
... Berkshire will not pay a dividend until it makes sense to do so (and who knows when that will be?). ...

The Investor,

I suppose, by inverting the Berkshire Buyback Ammendment of July 17th 2018 (http://berkshirehathaway.com/news/jul1718.pdf), that would be when Mr. Buffett & Mr. Munger deems the Berkshire market price to be above intrinsic value per share, as one condition, out of maybe several.

It might even be the only condition? Perhaps it should be fairly significantly above fair value though, due to the negative tax implication of a dividend for many owners.

If it's below intrinsic value buybacks should come before a dividend, if there are no more attractive options.
There might be a zone where it's slightly above intrinsic value so buybacks don't make sense and dividends don't either. Then I suppose lots of cash would build up until it moves one way or the other.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: The Investor on October 10, 2018, 03:23:27 PM
Even if a strong, steadily growing company was to become cheaper relative to intrinsic value over a long time frame, you eventually realise a high return through rising dividends. As a long term holder of shares you don't even need the weighing machine effect to kick in (although in the real world it always seems to).

Berkshire will not pay a dividend until it makes sense to do so (and who knows when that will be?). That means if you have anything less than a multi-decade time horizon, you will be more dependent on the whims of the market to realise gains, than you would with a company that pays out some part of profits.

I was somewhat peeved at the recent runup in Berkshire, as I would like to buy more over time. If BRK goes to sub 1.3 P/B without something obviously terrible causing that, I'd be very pleased.

I am actually in the camp that I don't want Berkshire to pay me a dividend. Reasons are simple, they pay a dividend when I don't need the cash. Or that amount of cash. I will make my own dividend by selling just enough shares when I need the cash. The price may be lower (on recency basis), and I am willing to accept that knowing that there will be other times when I sell at higher prices. It is all relative. Selling a small percent of your holding bought 10-15 years ago don't mean much. So yes, holding over multi-decade time horizon is a different ball game. Buffett kind of talks only to that crowd.

Yes same here. I prefer not to get a dividend either, especially for the shares I own personally. Here in the UK there is no tax on undistributed income for personal holding companies, but the US would withhold 15% tax anyway, so it would still be disadvantageous from a tax perspective. In the case of UK companies paying a dividend, I would be able to keep reinvesting dividends received within my company with tax deferred until it's paid out to me personally.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 11, 2018, 07:31:00 AM
Are we at the cusp of a new cycle of greed @ Omaha? All market declines are for them but this one (if it comes true) is one they are so ($110 b)ready for. On your mark-get set...….
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on October 11, 2018, 07:37:13 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on October 11, 2018, 08:54:34 AM
Yeah, no question about it. The stock is below the now-infamous August 30 ("we bought back a little" day). $224 was better if one was looking to sell. But frankly, LT holders have to love the price drop. Now that they're no longer hoarding cash, it's nice to know that every price drop works in our favor if you just sit and let them shrink the equity (if Warren Buffett and John Malone had a child...). Better than waiting for that 'elephant' acquisition which comes every few years and hasn't come for a long time now. I do not think they're stopping at $210 either. My guesstimate (and that's all it can be) is that the buyback will continue to $220-$225 at least and that limit will move up as IV increases (though it could move down if rates were up a lot? But I suppose WEB uses higher than prevailing rates for his discounting, so maybe not by much). If we have a -20 or -30% on the S&P, BRK buyback will be epic. And you could sit on your position and not have to buy more to take advantage of the dips (if you don't want to or don't have the funds) because they'll be buying it in.

Buyers at $206 really have, again if they're in it for the LT, almost a one-way bet. You can be as sure as you'll ever be in stocks that there won't be a permanent impairment of capital. Plus, there's upside from here from valuation growth and business growth. Just my 20,600 cents.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 11, 2018, 09:01:04 AM
Are we at the cusp of a new cycle of greed @ Omaha? All market declines are for them but this one (if it comes true) is one they are so ($110 b)ready for. On your mark-get set...….

That would actually be great, if Berkshire had something listed on its watchlist, that would fit with regard to price in this situation. Time will tell.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 11, 2018, 09:18:05 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 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg347579/#msg347579) 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?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 11, 2018, 10:00:13 AM
My $208 filled. Hope my $202 does as well.


Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert 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 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg347579/#msg347579) 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 11, 2018, 12:12:50 PM
I actually think about it exactly like you, alwaysinvert. And, yes, it's speculation.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert 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. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 18, 2018, 09:30:05 PM
I personally agree with you on your comments about that particular SA article, alwaysinvert.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings 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!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Cigarbutt 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings 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?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Spekulatius 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
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on October 23, 2018, 09:25:16 AM
I'm adding today as well.  Something like 500 Billion at today's price
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Jurgis 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.  ;)

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: bizaro86 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: valueinvesting101 on October 26, 2018, 12:15:49 PM
Positively surprised by Berkshire fall too. It is good since buyback can happen at an attractive price.

It is all speculation but it could be triggered by Index funds or charities selling stock to meet yearly spending requirements too.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on October 26, 2018, 12:20:42 PM
When things goes sour, everything turns out to be correlated. This should be a nice opportunity for long-term shareholders.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Swedish_Compounder on October 29, 2018, 08:37:40 AM
I realize that some members might be tired of the question how to value float and float increases that comes up from time to time. I just wanted to share WEB:s Words on the topic, since it shows that his opinion is that float is worth more than equity (as long as it costs less than zero and grows) and therefrom must be concluded that float increase must be worth more than profit. It is central to valuing BRK:s look-through profits, which is the reason I bring it up again.

Under question 27 on the link below is written a nice explanation:

https://buffett.cnbc.com/video/1998/05/04/morning-session---1998-berkshire-hathaway-annual-meeting.html

"27. Berkshire insurance float has a negative cost
WARREN BUFFETT: Zone 8.
AUDIENCE MEMBER: My name is Hutch Vernon. I’m from Baltimore, Maryland.
My question has to do with float. You said in the annual, and you’ve said in the past, that float has had a greater value to Berkshire than an equal amount of equity.
I wondered if you could clarify that statement. Is that because the float has been generated at such a low cost relative to an imputed cost for equity, or is there something else behind that statement?

WARREN BUFFETT: No, it’s because the float, which is now, we’ll say, 7 billion, comes to us at a negative cost. We would not make that statement if our float was costing us a couple percent a year, even though float would then be desirable. Highly desirable.
But our float is even better than that, or it has been, and so it comes to us with a cost of less than zero. It comes to us with a profit attached.
So if we were to replace — if we were to get out of the insurance business and give up the 7 billion of float and replace it with 7 billion of equity, we would have less going for us next year than under the present situation, even though our net worth would appear to be 7 billion higher.
And I have said, if we were to make the decision — if we were offered the opportunity to go out of the insurance business, and that 7 billion liability would — as part of that decision — would evaporate from our balance sheet, so that our equity would go up 7 billion, with no tax implications, we would turn down that proposition.
So obviously we think that 7 billion, which is shown as a liability, when it’s part of a — viewed as part of an insurance business, is not a liability at all in terms of real economic value. And of course, the key is not what the float is today, and not what the cost is today.
The key is what is the float going to be 10 or 15 years from now, and what is the cost going to be 10 or 15 years ago. And, you know, we will work very hard at both increasing the amount of float and keeping the costs down somewhere close to our present level.
That makes it a very attractive business when that can be done. GEICO’s a big part of doing that, but we’ve got other things, other insurance operations, that’ll be important in that, too. And we may have others besides that in the future.
Charlie?
CHARLIE MUNGER: Yeah. If the float keeps growing, that is a wonderful thing indeed."
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on October 29, 2018, 08:57:26 AM
It’s one very important point that you bring up. In the light of float increase and look through earnings, one likely more closely looking at Berkshire the way Munger and Buffett are - and compared with just the reported GAAP earnings the difference is huge. Buffett spoke about the GAAP earnings compared with look through earnings on many occassions as well.

Btw, do I know you? Is the Swedish investing universe really this big? :D
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Cigarbutt on October 29, 2018, 01:02:52 PM
^The topic does often come up and there have been some equations suggested to discount the liability.
I wonder if the discounting exercise applies to all insurers as the underlying principle means a long term capital commitment related to underwriting discipline.

Recently reviewed transactions completed in the non-life insurance runoff area (including by Fairfax) over the last few years. Interesting because the acquirer, in these transactions, aims, in a way, to decrease the advantages related to float:

1-cost of float
The acquirer aims for a low cost of float instead of a negative cost of float.

2 and 3-discounting and growth
The acquirer aims to accelerate the runoff (active management of claims, commutations etc) and to bring the number of claims to zero.

Despite the above, it is possible to buy a runoff book of business at book value (assuming "adjustments" to reserves, strong claims management and superior investment ability) and obtain a satisfactory return. So, reserves liabilities at BH deserve a significant discount. However, unless in a last man standing scenario, growth in float should moderate and float to shareholders' equity has been decreasing and stands now at about a third.

When looking at other insurers, interesting to compare the investment leverage (float per share) and to multiply that number by a factor related to excess return expected (or absence thereof) related to superior investment ability.

The discounting exercise for BH (balancing float assets and reserve liabilities) also helps to evaluate how much cash could be converted to stock investments if stars align. I would say about 30 to 40% of cash float could be used pretty much overnight.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Swedish_Compounder on October 30, 2018, 01:06:16 AM
That is the core of the matter. There is no other major insurer like BRK. Therefore, the same methods can not apply. What Buffett says is that their float should not be discounted at all, since it is expected to grow and it comes at a negative cost.

He also makes the example that he would not be willing to give up his float for good if receiving the corresponding amount in cash. Thus, the float is worth more than the corresponding cash amount (in Berkshires case).


Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: IceCreamMan on November 01, 2018, 11:38:32 AM
Touching back on a previous topic, what's the explanation for Berkshire's stock price rising 5% the day after the buyback threshold was loosened, but declining slightly the day Buffett said in an interview that he recently bought back "a little" stock (for the first time since 2012)?

July 18: S&P +0.22%, IAK +1.09%, BRK-B +5.27%
August 30: S&P -0.44%, IAK -0.62%, BRK-B -0.72%

Even if the market interpreted the buyback policy change to mean that Berkshire was likely to buy back stock soon, or if the new policy was perceived as more significant than actual buybacks, I would have still thought that confirmation of buybacks from Buffett would mean something, too.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on November 01, 2018, 12:27:13 PM
I've seen firsthand stocks blip up when Buffett mentioned he's bought them. Like with Apple. Instant market reaction. Buffett said his buyback remarks under opening hours, and the stock didn't even blip. It blew my mind back then and it still does today.

I think the market has a materially different view to me regarding the meaning of the buyback announcement.

I guess it's likely we know more saturday, or monday, or in the months to come.

As has been pointed out in this thread many times before: Buffett can barely offset the cash that Berkshire brings in by the amount he can spend on buybacks in the public market.

Also, an update for the volume traded in October:

111 558 790 B-shares were traded, which means that the maximum 25% threshold would give buybacks amounting to 5,7 Billion USD can have been made from B-shares.
8 600 A-shares were traded, which means that the maximum 25% threshold would give buybacks amounting to 2/3 Billion USD can have been made from A-shares.

All in all, the theoretical max for October is around 6,4 Billion USD.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on November 01, 2018, 01:25:47 PM
I've seen firsthand stocks blip up when Buffett mentioned he's bought them. Like with Apple. Instant market reaction. Buffett said his buyback remarks under opening hours, and the stock didn't even blip. It blew my mind back then and it still does today.

I think the market has a materially different view to me regarding the meaning of the buyback announcement.

I guess it's likely we know more saturday, or monday, or in the months to come.

As has been pointed out in this thread many times before: Buffett can barely offset the cash that Berkshire brings in by the amount he can spend on buybacks in the public market.

Also, an update for the volume traded in October:

111 558 790 B-shares were traded, which means that the maximum 25% threshold would give buybacks amounting to 5,7 Billion USD can have been made from B-shares.
8 600 A-shares were traded, which means that the maximum 25% threshold would give buybacks amounting to 2/3 Billion USD can have been made from A-shares.

All in all, the theoretical max for October is around 6,4 Billion USD.

SwedishValue,

I follow all of your points and I appreciate the math regarding the max cash that BRK could buyback [pittance] relative to their GIGANTIC pile of cash.  Your ultimate conclusion is unclear to me?  What does the share buy back, cash reserves and stock price mean to you?

Thanks for the clarity!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on November 01, 2018, 01:50:17 PM
I have a few conclusions for myself, feel free to disagree.

First, Buffett has - on so many occassions - talked about the punchcard approach of investment. It is imperative that if one gets a good idea, you should make it a big one. Thus, I think it’s likely Buffett will use his buyback mandate in a very aggressive manner.

Buffett buying back shares means he thinks Berkshire is significantly undervalued. My default position is to always agree with Buffett - especially on matters of valuation and matters of Berkshire. This should be his sweet spot, so Buffett being wrong about the intrinsic value of Berkshire now that he is buying back stock, is not realistic.

Buffett buying back up to 25% of the daily trading volume should put some soft floor on the trading level of Berkshire. This also has the implication that the shareprice is likely to converge to intrinsic value faster than it would have without Buffett buying back.

Keeping track of possible buyback volume and comparing to reported volume will give a good indication as of how aggressive Buffett has been. All the news articles I’ve read that mention buybacks argue for much lower volumes than I think is likely.

All in all, I think it’s a good time to be long Berkshire - also for ”special short-term reasons”.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on November 01, 2018, 04:18:26 PM
It will certainly be interesting to see the number of shares outstanding at 30 Sep 2018 and those around Fri 26 Oct (printed at the foot of the front page of the 10-Q) especially as BRK.B has spent half of October at around $215-$224 and then dropped to below $210 and as low as about $197.50 during the session on 26 Oct (I topped up my exposure around that level on Friday).

On the old faithful metric of Book Value Per Share, the quarter probably ended around $228,500 per A or ~$152.30 per B share, but has since dropped thanks to the assumed stock portfolio retracing a lot of its gains, alongside the market in general. I'd guess ~$197.50 was just below 1.3x BVPS at quarter end, but just above 1.3x BVPS when adjusting for the portfolio decline and typical earnings over 26 days. 1,3x BVPS has typically been a good buy point, though the rare times below 1.25x BVPS (e.g. Jan-Feb 2016) are obviously even better and limit the near term downside risk enormously.

My thought is that that ratio of IV to BV has increased a little and this is recognised by Mr Market, and prices significantly below 1.3x BVPS will perhaps be rarer still over future years. BRK purchased at such a price is likely to return inflation+ 6% to 9% compounding with quite a high probability to my mind, and short term downside risk is likely to be limited to about 10% except in the depths of a major bear market, making Berkshire stock at that price a great place to earn a healthy compound return if held long term with a short-term return distribution skewed significantly to the upside, while retaining optionality close to that of cash, allowing me to redeploy my funds at short notice if I happen to find a bargain high conviction opportunity that warrants substantial exposure (and these high conviction ideas might be once in 3-5 year finds so on average I have plenty of time to compound value while I'm waiting). Berkshire also carries, to my mind, very little company risk, because Berkshire has so many diverse earnings streams and autonomously run subsidiaries operating in only modestly correlated areas of the economy, and because it is famously a prudent long-term capital allocator with a strong aversion to permanent loss of capital.

While the opportunities around $185-190 in late July were great buy points to me, I suspect that prices around $198-205 now that the buyback rules have changed will be very likely to have seen significant buyback volume in October, though as SwedishValue points out, it might still do little more than offset the cash inflows from operations given the limitations offered by SEC Safe Harbor guidelines.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on November 02, 2018, 12:00:03 AM
”It will certainly be interesting to see the number of shares outstanding at 30 Sep 2018 and those around Fri 26 Oct (printed at the foot of the front page of the 10-Q)”

The second part of this statement was news to me. Are you saying we will also get to know part of October’s buyback activity? Great news in that case!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 02, 2018, 12:06:06 AM
SwedishValue,

Or close to the end of October 2018. On the front page of the 2018Q2 10-Q the share count for outstanding shares was as per July 26th 2018.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on November 02, 2018, 12:24:43 AM
Thanks. I'm just very confused. This is not the way it works in Sweden and I just somehow assumed they would not have to file anything that would give away what they have been doing in the 4th quarter. Thanks for helping me out.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 02, 2018, 12:37:06 AM
Admitted, you're not the only one to be confused here, SwedishValue [ : - ) ],

Yesterday I was studying the C 2018Q3 10-Q. C reports at that spot outstanding shares at end of 2018Q3.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on November 02, 2018, 08:01:13 AM
It's quite possible, if what John noticed about Citibank is anything to go by, that Berkshire will change its practice regarding revealing the number of shares in issue shortly before the date the 10-K is released, particularly now that meaningful sums from the cash balance could have been spent on buybacks to reduce the share count, which would affect both the balance sheet and cash flow statement as well as the share count itself.

I guess the only significant purpose now in providing the share count is in allowing people and entities with SEC filing requirements of their own to determine their fractional stake in each class of share as of the most recent disclosure by Berkshire and report it appropriately to the SEC in Form 4 or 13 D/G filings etc. Beyond that it's an unnecessary early disclosure of the buyback rate, although in most time it wouldn't give too much away about their conservative appraisal of IV.

Last quarter the earnings release time of Saturday at about 8am was announced on the preceding Thursday, though that wasn't the case last November except for annual reports, but has been the case for every quarter since. I wonder if in the absence of such a News Release yesterday or so far today we might guess that Berkshire's 10-Q will be released next week - Fri 9th Nov or Sat 10th - rather than today after the closing bell or tomorrow as a few financial data providers had guessed based on previous filings such as Fri 3rd Nov 2017. If so, any share count info on the front page might be as of some point next week (unless they change to showing only quarter-end figures). Delaying a week while buyback prices are well below IV before revealing their hand could provide a modest but worthwhile boost to IV per share if the 10-Q happens to reveal that something close to 25% of recent volume had Berkshire Hathaway as the buyer and that news were to provide a significant boost to the stock price.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: IceCreamMan on November 02, 2018, 08:21:38 AM
October 30, 2018
OMAHA, Neb. (AP) — Investor Warren Buffett’s company plans to release its third-quarter earnings report on Saturday morning.

https://www.apnews.com/10844de9ade74149912d3d6b46292aef
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on November 02, 2018, 08:25:03 AM
Ah, thanks, IceCreamMan. (I'll have a '99' with an extra Flake please  :P - a little quip for my fellow Brits)

I'm surprised AP News releases didn't show up last time I checked BRK.B on Google or Yahoo! Finance
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on November 02, 2018, 10:09:38 AM
How does the SEC corporate buyback blackout period work relative to BRK in the situation.  Would BRK not be able to buyback it's own shares from 9/15/2018 thru 11/2/18 earning release date?

I like SwedishValue's math a couple posts back regarding how much of the monthly trading volume BRK could be buying back theoretically, but I am wondering if we need to modify it a bit for the buyback blackout.

PS- I don't know much about this particular nuance, and I am trying to learn.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on November 02, 2018, 10:15:38 AM
I'm not sure if the Safe Harbor rules (https://www.investopedia.com/terms/r/rule10b18.asp), when trading is conducted using predefined criteria through a single broker would exempt the company from having to cease buybacks during the blackout period. I've not read anything that make that very clear.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: The Investor on November 02, 2018, 05:54:16 PM
My default position is to always agree with Buffett

Same here, although I like to understand why an investment makes sense. I don't really understand Teva for example, so I haven't invested. Other than indirectly through owning Berkshire that is  ;)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on November 03, 2018, 05:13:04 AM
It's out.

http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf

Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on November 03, 2018, 05:18:38 AM
Earnings explosion continue
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 03, 2018, 06:26:24 AM
So the way I read it is that they were only active for 14 trading days during the quarter: August 7th - August 24th, from which you can estimate the cap price in their repurchase instructions.  During those 14 trading days they repurchased approximately $927.566 million worth of stock, for an average of about $66.25 million worth per trading day.

No further repurchase activity during the quarter.

Then, subsequent to quarter end, up until October 25th, they were back in the market, repurchasing approximately $181 million worth of stock in 8 trading days, for an average of about $22.625 million worth of stock per day.  This is consistent with the estimated cap price that can be divined by the August repurchase activity.

They did not repurchase anything the first day the were allowed to, August 6th, probably because they had a one day delay starting trading on the 10b5-1 plan I assume they are using.


It's out.

http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf

Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on November 03, 2018, 06:28:18 AM
It's out.

http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf

Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.

I have a slightly different number, but similar conclusion to you. Total B-equivalents of 4,476,692 repurchased for $928 million during the quarter, for an average price of $207.2. I'm not sure where you are seeing the October numbers. It seems you are drawing conclusions from the reported share-count at Oct 25? I think that's reasonable, but there could easily be other factors that affect share counts aside from repurchases, as there were this quarter as well. Buyback was a little underwhelming. The rest of the earnings are rather good though. So good report overall, IMO.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 03, 2018, 06:34:05 AM
The october repurchase activity can be estimated by using the 10/25 share counts, accounting for A to B conversions, and estimating the "missing" shares.  It won't be spot on, because like you mention there are other factors that effect share count, but when there is a reduction in the number of outstanding shares we can safely assume that is from net share repurchases.  All the other factors that effect share count would generally lead to small increases in share count.

It's out.

http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf

Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.

I have a slightly different number, but similar conclusion to you. Total B-equivalents of 4,476,692 repurchased for $928 million during the quarter, for an average price of $207.3. I'm not sure where you are seeing the October numbers. It seems you are drawing conclusions from the reported share-count at Oct 25? I think that's reasonable, but there could easily be other factors that affect share counts aside from repurchases, as there were this quarter as well. Buyback was a little underwhelming. The rest of the earnings are rather good though. So good report overall, IMO.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on November 03, 2018, 06:48:35 AM
"This is absolutely one of the biggest quarterly earnings reports that has ever come out of a United States corporation," said Bill Smead, chief executive of Smead Capital Management in Seattle, a Berkshire shareholder.

I believe he is talking about the headline number, but is his statement correct?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: StubbleJumper on November 03, 2018, 06:51:27 AM
The exact level of buybacks might not be clear, but what is clear is that it amounts to bugger-all in the context of BRK's cash balances.  The finished the quarter with, what, $95 billion in cash and short term investments?  So dropping a bil on buybacks hardly constitutes an aggressive, high conviction move.

I say either get serious about deploying some of that cash on buybacks, or institute a considerable cash dividend.  Buying Apple sharss soaked up some cash, but it really doesnt inspire confidence in management given previous observations about circle of competence.


SJ
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: ander on November 03, 2018, 07:16:14 AM
I think it’s pretty clear (based on his actions), he thinks the stock is attractively priced relative to other alternatives but not substantially attractive. Seems to me that the change in buyback policy probably made because of the accounting change re: investment treatment as opposed to the stock being significantly undervalued currently.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on November 03, 2018, 07:37:05 AM
If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on November 03, 2018, 07:38:36 AM
I think it’s pretty clear (based on his actions), he thinks the stock is attractively priced relative to other alternatives but not substantially attractive. Seems to me that the change in buyback policy probably made because of the accounting change re: investment treatment as opposed to the stock being significantly undervalued currently.


May that opinion dominate in the market (reflected in the stock price) for quite a bit longer while ignoring the earnings growth as an anomaly due to accounting treatment. It has allowed me (& others around here) to buy more shares thinking that the shares are indeed significantly undervalued.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 03, 2018, 08:11:13 AM
So the way I read it is that they were only active for 14 trading days during the quarter: August 7th - August 24th, from which you can estimate the cap price in their repurchase instructions.  During those 14 trading days they repurchased approximately $927.566 million worth of stock, for an average of about $66.25 million worth per trading day.

No further repurchase activity during the quarter.

Then, subsequent to quarter end, up until October 25th, they were back in the market, repurchasing approximately $181 million worth of stock in 8 trading days, for an average of about $22.625 million worth of stock per day.  This is consistent with the estimated cap price that can be divined by the August repurchase activity.

They did not repurchase anything the first day the were allowed to, August 6th, probably because they had a one day delay starting trading on the 10b5-1 plan I assume they are using.

globalfinancepartners,

From you numbers etc, it appears clear to me, the basis for your post is the 2018Q3 10-Q, p. 45, lower part, where we have the facts, right?

1. Why 8 days in October, ref. my emphasis in the quote of your post? [I suppose you perhaps mean 18 trading days instead?]
2. Why is August 6th first day in your opinion for the new buyback regime? The public announcement was July 17th.

I just want to be sure to understand correctly your line of thinking here.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on November 03, 2018, 08:14:16 AM
So the way I read it is that they were only active for 14 trading days during the quarter: August 7th - August 24th, from which you can estimate the cap price in their repurchase instructions.  During those 14 trading days they repurchased approximately $927.566 million worth of stock, for an average of about $66.25 million worth per trading day.

No further repurchase activity during the quarter.

Then, subsequent to quarter end, up until October 25th, they were back in the market, repurchasing approximately $181 million worth of stock in 8 trading days, for an average of about $22.625 million worth of stock per day.  This is consistent with the estimated cap price that can be divined by the August repurchase activity.

They did not repurchase anything the first day the were allowed to, August 6th, probably because they had a one day delay starting trading on the 10b5-1 plan I assume they are using.

globalfinancepartners,

From you numbers etc, it appears clear to me, the basis for your post is the 2018Q3 10-Q, p. 45, lower part, where we have the facts, right?

1. Why 8 days in October, ref. my emphasis in the quote of your post? [I suppose you perhaps mean 18 trading days instead?]
2. Why is August 6th first day in your opinion for the new buyback regime? The public announcement was July 17th.

I just want to be sure to understand correctly your line of thinking here.


Know the answer to #2: Buffett explicitly stated that no buybacks would happen before earnings release for the quarter.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 03, 2018, 08:29:30 AM
Thank you, longinvestor!

I missed that, got it now! [ : -) ]

If one look at a price chart for the B share for 2018Q3, it really looks like a "208 threshold" for the period [2018Q3].
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 03, 2018, 11:25:47 AM
I'm not sure where I got 8 days from, I've been out all day.  Perhaps it was an error in reading my notes.  More likely, with the price cap that appears to have been in place, it was 11 trading days.  If I remember what the hell I was thinking about when I wrote that I'll let you know..

But, yeah, as mentioned earlier - the 10Q on page 45 says, "Period"  "August 7 through August 24:"

And he had mentioned in the original announcement that he would wait until everyone had the same information (after earnings were publicly released).  Then he apparently waited one additional day, potentially for the reason I speculated in my previous post.

The gist is that Berkshire isn't buying back anywhere close to 25% of the average daily volume.  And there appears to be a price cap, likely based on a multiple of book value so it may change quarter to quarter.  Did the 'soft floor' just become a 'soft ceiling' ?  LOL
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 03, 2018, 11:32:34 AM
I mean, yeah, "one of the biggest quarters" is correct if you use an almost meaningless headline number under these new accounting rules.  Even lowly Apple Inc just reported a pitiful $14 Billion net income quarter (must be embarrassing I know).  Apple has made over $18 billion in a quarter (Q1) before, hence the "one of" language.  [*edit - Apple made $20 Billion in the quarter ending December 2017]

But if you're going to focus on a meaningless headline number, why not use Berkshire's 2017 Q4, where the tax related gain added $29 Billion to Berkshire's actual earnings for the quarter.


"This is absolutely one of the biggest quarterly earnings reports that has ever come out of a United States corporation," said Bill Smead, chief executive of Smead Capital Management in Seattle, a Berkshire shareholder.

I believe he is talking about the headline number, but is his statement correct?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Gregmal on November 03, 2018, 11:34:41 AM
So in summary what I get, is that just like most value investors, Berkshire is sitting on too much cash and being way too frugal and nitpicky about buying stock.... Like most value investors I'd gander they underperform going forward.

A good example of the cure here would be AAPL. When did they really turn a corner? When Einhorn and Icahn forced them to start deploying excess capital.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 03, 2018, 11:39:59 AM
... Even lowly Apple Inc just reported a pitiful $14 Billion net income quarter (must be embarrassing I know).  ...

lol. Good humor upon Red October.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Swedish_Compounder on November 03, 2018, 11:53:31 AM
What I take with me regarding the buybacks is that Warren and Charlie consider that BRK is undervalued at 207 USD.

We do not know the reasons for why they did not buy back more. Perhaps they still prefer to buy other companies and only want to consider buybacks when the cash level gets too high. They appear to have bought other equity securities for 18 BUSD or so during the quarter, which is a lot...


Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 03, 2018, 11:58:57 AM
Yeah - that's what I'm getting at in the other thread.  They purchased $17.657 Billion of equities in the quarter, and around $15 Billion of that is Banks, Insurance, Finance.  And I think 200 million BAC shares is definitely part of it.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 03, 2018, 12:03:37 PM
I'm not sure where I got 8 days from, I've been out all day.  Perhaps it was an error in reading my notes.  More likely, with the price cap that appears to have been in place, it was 11 trading days.  If I remember what the hell I was thinking about when I wrote that I'll let you know..

But, yeah, as mentioned earlier - the 10Q on page 45 says, "Period"  "August 7 through August 24:"

And he had mentioned in the original announcement that he would wait until everyone had the same information (after earnings were publicly released).  Then he apparently waited one additional day, potentially for the reason I speculated in my previous post.

The gist is that Berkshire isn't buying back anywhere close to 25% of the average daily volume.  And there appears to be a price cap, likely based on a multiple of book value so it may change quarter to quarter.  Did the 'soft floor' just become a 'soft ceiling' ?  LOL

Thank you, globalfinancepartners, & my question #1 does not really matter, what had me really puzzled, was my question #2, which has been answered satisfactory by longinvestor. The whole thing makes sense to me now, actually, in the meaning that we're not any longer held in the dark. We have now black on white, that Berkshire has been buying back at average 207ish for the B share. That's sufficient for me.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 05, 2018, 01:18:09 AM
The exact level of buybacks might not be clear, but what is clear is that it amounts to bugger-all in the context of BRK's cash balances.  The finished the quarter with, what, $95 billion in cash and short term investments?  So dropping a bil on buybacks hardly constitutes an aggressive, high conviction move.

I say either get serious about deploying some of that cash on buybacks, or institute a considerable cash dividend.  Buying Apple sharss soaked up some cash, but it really doesnt inspire confidence in management given previous observations about circle of competence.


SJ
If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.

StubbleJumper & alwaysinvert,

How do you feel and think about the whole thing today Monday?

- In a time context, your posts was just after the Berkshire 10-Q was released. Now we have had ongoing discussion during the weekend and analysis of the 10-Q, and it has come up that about ~USD 15B has been allocated to financials during 2018Q3 [- of the ~USD 15 B ~USD 6 B allocated to BAC -], on top of the share buyback of ~USD 1 B in the quarter.

Furthermore considerations/speculations [ time will tell ] that more capital has been allocated to perhaps BK, USB & GS, perhaps even new positions in financials.

Personally, I was a bit disappointed just after the release of the 10-Q, too. After a couple of nights sleep on it, I have a good feeling about this here Monday morning. The upward trend in liquidity surplus has been turned, and Berkshire is still the Rock of Gibraltar. All in all, not that bad, because it's actually able to generate good earnings and cash flow as it is.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on November 05, 2018, 02:51:25 AM
The exact level of buybacks might not be clear, but what is clear is that it amounts to bugger-all in the context of BRK's cash balances.  The finished the quarter with, what, $95 billion in cash and short term investments?  So dropping a bil on buybacks hardly constitutes an aggressive, high conviction move.

I say either get serious about deploying some of that cash on buybacks, or institute a considerable cash dividend.  Buying Apple sharss soaked up some cash, but it really doesnt inspire confidence in management given previous observations about circle of competence.


SJ
If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.

StubbleJumper & alwaysinvert,

How do you feel and think about the whole thing today Monday?

- In a time context, your posts was just after the Berkshire 10-Q was released. Now we have had ongoing discussion during the weekend and analysis of the 10-Q, and it has come up that about ~USD 15B has been allocated to financials during 2018Q3 [- of the ~USD 15 B ~USD 6 B allocated to BAC -], on top of the share buyback of ~USD 1 B in the quarter.

Furthermore considerations/speculations [ time will tell ] that more capital has been allocated to perhaps BK, USB & GS, perhaps even new positions in financials.

Personally, I was a bit disappointed just after the release of the 10-Q, too. After a couple of nights sleep on it, I have a good feeling about this here Monday morning. The upward trend in liquidity surplus has been turned, and Berkshire is still the Rock of Gibraltar. All in all, not that bad, because it's actually able to generate good earnings and cash flow as it is.

Nothing has changed. The further allocation towards BAC is a one time thing. The 10% limit is probably pretty much reached so that position now can't soak up further capital. Neither GS nor USB have potential to soak up that much capital either. From what Google tells me, the GS stake was $3b and USB was $5b in Q2 - by eyeglancing their market caps the maximum further allocation towards them is something like $8-9b combined. BK maybe makes for an additional $1.5b.

If there is no new bank/insurance stock position that explains the Q3 transactions and is pretty much it. We are back to square one in a quarter or two with regards to the cash.

He would need a non-financial stock with preferably a market cap in the several hundreds of billions to really make a difference (even more AAPL has not seemed enticing enough at recent prices). Or an acquisition in the +30b class, the last of which he made in 2015.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 05, 2018, 03:27:20 AM
Thanks, alwaysinvert,

Your post actually triggers me thinking that I'm personally biased here, because I haven't bought anything american but Berkshire and [Big] US banks for the last 1½ years or so, [which is what Mr. Buffett here has done]. [I have bought some MKL & FFH too in that time span though, but that was more a matter of portfolio alignment, while something else got sold.]

And, yes, the forward time horizon under which to assess this situation matters.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 05, 2018, 04:17:21 AM
Quote
dividends are way closer than previously suspected

It really does seem like Warren's been really clear in pointing out that cash dividends do not make sense with Berkshire trading above book value.  A dollar of after-tax earnings is worth less than a dollar if sent out in a cash dividend, or more than a dollar if retained.  Despite there bing a ceiling price on their repurchase plan, I do think repurchases are the way he will go.  And, of course, cash hasn't piled up the way many would have expected.  We're still here at $100 Billion.  One of these days he's going to buy a decent sized company.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Cigarbutt on November 05, 2018, 06:40:41 AM
http://www.rationalwalk.com/?p=16931
Interesting perspective and a few backward and forward looking questions.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: StubbleJumper on November 05, 2018, 06:42:53 AM
The exact level of buybacks might not be clear, but what is clear is that it amounts to bugger-all in the context of BRK's cash balances.  The finished the quarter with, what, $95 billion in cash and short term investments?  So dropping a bil on buybacks hardly constitutes an aggressive, high conviction move.

I say either get serious about deploying some of that cash on buybacks, or institute a considerable cash dividend.  Buying Apple sharss soaked up some cash, but it really doesnt inspire confidence in management given previous observations about circle of competence.


SJ
If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.

StubbleJumper & alwaysinvert,

How do you feel and think about the whole thing today Monday?

- In a time context, your posts was just after the Berkshire 10-Q was released. Now we have had ongoing discussion during the weekend and analysis of the 10-Q, and it has come up that about ~USD 15B has been allocated to financials during 2018Q3 [- of the ~USD 15 B ~USD 6 B allocated to BAC -], on top of the share buyback of ~USD 1 B in the quarter.

Furthermore considerations/speculations [ time will tell ] that more capital has been allocated to perhaps BK, USB & GS, perhaps even new positions in financials.

Personally, I was a bit disappointed just after the release of the 10-Q, too. After a couple of nights sleep on it, I have a good feeling about this here Monday morning. The upward trend in liquidity surplus has been turned, and Berkshire is still the Rock of Gibraltar. All in all, not that bad, because it's actually able to generate good earnings and cash flow as it is.


John,

Since the beginning, I have been skeptical of the Apple position because it struck me as outside of WEBs circle of competence and it has always struck me as a desperate move to deploy a large amount of cash.  The catalyst for that move has never quite been obvious to me -- what has Apple done in the past 12 or 18 months that suddenly merited such a large chunk of shareholders' capital?  The price didn't plunge rapidly to make it a 50 cent dollar.  Nope it was bought on fundamentals and operating results.  But, after racking up $110B± of cash it looks like brk is grasping for reasons to not initiate a healthy sized dividend or to not buy back a large slug of shares.

Turning to the purchase of large US financial companies (banks), nearly everybody on this board took a high conviction position about 5 or 6 years ago and we have made out like bandits.  The banks are still a buy, IMO, but are not as cheap as when we were all pounding on the table about BAC or JPM back in '11 or '12.  So why is brk suddenly taking a high(er) conviction position in the banks right at this moment?  A what point during the past five or so years were the US banks not an obvious purchase?  To be blunt, it was value in plain sight.  How did brk accumulate $110B± of cash when the banks have been an obvious outlet to deploy cash for the past 20 or so quarters?

The actions of the past year or so have struck me as a desperate effort to deploy cash and deny a basic reality.  That reality is that cash from ops is basically $40b per year.  Take off something for maintenance capex, new plant and equipment, and opportunistic acquisitions and you're looking at reasonably reliable cash surplus of about $20b per year.  The opportunities to deploy that much capital on an ongoing basis are not available in sufficient quality and high enough expected return to continue retaining 100 percent of earnings.


SJ
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: ugadawg_98 on November 05, 2018, 09:32:22 AM
Don’t know if anyone else has posted this, but it’s worth a read. I note that WB has spoken favorably of Dr Singleton in the past, and since this thread was started regarding the possibility of a tender, this article seems relevant:

http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Singleton-and-Teledyne-A-Study-of-an-Excellent-Capital-Allocator.pdf
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on November 05, 2018, 09:55:35 AM
Quote
dividends are way closer than previously suspected

It really does seem like Warren's been really clear in pointing out that cash dividends do not make sense with Berkshire trading above book value.  A dollar of after-tax earnings is worth less than a dollar if sent out in a cash dividend, or more than a dollar if retained.  Despite there bing a ceiling price on their repurchase plan, I do think repurchases are the way he will go.  And, of course, cash hasn't piled up the way many would have expected.  We're still here at $100 Billion.  One of these days he's going to buy a decent sized company.

He has done two really significant acqusitions in the last 10 years (BNSF and PCP), whereas he would need one of those on average *every year* to motivate retaining all earnings in the future. Repurchases are an alternative possibility but the price (and size) he has done them at thus far doesn't give any indication that they will come even close to solving the "problem". It's very easy math and the numbers are just too big at this point. By my estimation, something has got to give decently soon, whether that's the buyback price level or dividends.

A dollar retained is not worth a dollar if you retain it just because the alternative of paying it out means making it 70 cents through taxes. How many cents on the dollar would you pay to get a return of ~2% before inflation and taxes and not having any control over when you can have disposal of it? Whatever your answer to that question is right now is what the marginal dollar at BRK is worth, because all the evidence available points towards it being impossible to deploy internally except in bonds.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 05, 2018, 12:06:14 PM
I guess my point is that $1 retained is worth more than $1 any time Berkshire trades for more than book value.  And if it trades close to or below book value, he would buy back as much stock as he could get his hands on.  If the company trades at 1.01x book value, by definition a dollar retained is worth more than a dollar paid out (not even taking taxation into account)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: xo 1 on November 05, 2018, 12:27:38 PM
Quote
dividends are way closer than previously suspected

It really does seem like Warren's been really clear in pointing out that cash dividends do not make sense with Berkshire trading above book value.  A dollar of after-tax earnings is worth less than a dollar if sent out in a cash dividend, or more than a dollar if retained.  Despite there bing a ceiling price on their repurchase plan, I do think repurchases are the way he will go.  And, of course, cash hasn't piled up the way many would have expected.  We're still here at $100 Billion.  One of these days he's going to buy a decent sized company.

He has done two really significant acquisitions in the last 10 years (BNSF and PCP), whereas he would need one of those on average *every year* to motivate retaining all earnings in the future. Repurchases are an alternative possibility but the price (and size) he has done them at thus far doesn't give any indication that they will come even close to solving the "problem". It's very easy math and the numbers are just too big at this point. By my estimation, something has got to give decently soon, whether that's the buyback price level or dividends.

A dollar retained is not worth a dollar if you retain it just because the alternative of paying it out means making it 70 cents through taxes. How many cents on the dollar would you pay to get a return of ~2% before inflation and taxes and not having any control over when you can have disposal of it? Whatever your answer to that question is right now is what the marginal dollar at BRK is worth, because all the evidence available points towards it being impossible to deploy internally except in bonds.

I understand and respect the perspective.  The counter position, in my mind, is illustrated by the Great Financial Crisis.  Alice Schroeder has stated several times that, as well as Berkshire did with its investments in the GFC, it was not able to really back up the truck because of its bets on the equity indexes.  This has been explored already here:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/interview-with-alice-schroeder/ (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/interview-with-alice-schroeder/)

I can't help but believe that Buffett hesitates to return capital because he remembers well what it felt like to be light on cash in a time of great opportunity.  From my portfolio's perspective, that is the greatest value of BRK - it is anti-fragile to the extent it has gobs of cash available in the next crisis.  If it starts to accept that the cash will never be investable, then it needs to undertake promptly a return of cash to shareholders.  BRK may still have a position among my investments in that event, but the thesis will be different.  But I reject that the time to make that determination is nearly a decade into a bull market.  I'm not suggesting that a crash is imminent - only that the absence of satisfactory large opportunities is not likely to be permanent.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: xo 1 on November 05, 2018, 12:38:23 PM
Don’t know if anyone else has posted this, but it’s worth a read. I note that WB has spoken favorably of Dr Singleton in the past, and since this thread was started regarding the possibility of a tender, this article seems relevant:

http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Singleton-and-Teledyne-A-Study-of-an-Excellent-Capital-Allocator.pdf
Dr. Singleton had the "advantage" of being willing to take advantage of his shareholders.  One of the most powerful deterrents to BRK's repurchases has been a reticence to act greedily when the stock price was low.  I am ambivalent yet about whether to admire or regret the behavior - the loyalty of the shareholder base is a cardinal advantage.  If you start to treat them as arms'-length financial interests, you will surely lose that benefit.  Then, when the stock price sags, BRK risks a breakup at the very time it could be aggressively deploying its resources.  I appreciate why WEB dithers.  :-\
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on November 05, 2018, 01:32:34 PM

I understand and respect the perspective.  The counter position, in my mind, is illustrated by the Great Financial Crisis.  Alice Schroeder has stated several times that, as well as Berkshire did with its investments in the GFC, it was not able to really back up the truck because of its bets on the equity indexes.  This has been explored already here:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/interview-with-alice-schroeder/ (http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/interview-with-alice-schroeder/)

I can't help but believe that Buffett hesitates to return capital because he remembers well what it felt like to be light on cash in a time of great opportunity.  From my portfolio's perspective, that is the greatest value of BRK - it is anti-fragile to the extent it has gobs of cash available in the next crisis.  If it starts to accept that the cash will never be investable, then it needs to undertake promptly a return of cash to shareholders.  BRK may still have a position among my investments in that event, but the thesis will be different.  But I reject that the time to make that determination is nearly a decade into a bull market.  I'm not suggesting that a crash is imminent - only that the absence of satisfactory large opportunities is not likely to be permanent.

Now that make the most sense, rationally of all to me XO.  I don't know why WEB doesn't/didn't repurchase more of his own stock, but he might in the coming months.  If he doesn't, and if he has a view that he wants to have a HOG PILE of cash ready to move, your perspective still makes sense.  As Howard Marks says, we are in the 7, 8 or 9th inning of the game in our economy and a down turn WILL happen [who knows when]..  Having cash on hand might be handy.

I personally think that he should repurchase as much as he can while still maintaining a HOG PILE of cash.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on November 05, 2018, 02:04:56 PM
I just want to make sure that we all agree with each other on this “soft upper/lower limit” that I have read in the last couple of days regarding the BRK repurchase prices..  I appreciate the concept and the arithmetic that others have performed to derive it.  Thank you.

I think any discussion of such limits is moot, and too much time spent on it could be academic masturbation.  If the IV and BV of BRK is constantly changing and most likely increasing, the price at which BRK repurchased shares tells us something but not much at all as time passes.  If the IV is increasing BRK will do well to continue to purchase as the price vs value math is expanding.

I think trying to spend any exact precision on the purchase numbers and times/days, is probably a waste of time. 

Rather, I would argue, a 10K foot view of the events..  BRK is repurchasing shares, and BRK doesn’t make many mistakes in the pursuit of their own wealth accumulation.  The current prices resemble the prices that BRK paid, therefore we should all purchase the shares if we have a desire.  If prices continue to go up, that doesn’t necessarily make them a bad value, one must just continue to do the math on the IV.

What did I miss?  What do you guys think?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on November 05, 2018, 02:11:47 PM
I just want to make sure that we all agree with each other on this “soft upper/lower limit” that I have read in the last couple of days regarding the BRK repurchase prices..  I appreciate the concept and the arithmetic that others have performed to derive it.  Thank you.

I think any discussion of such limits is moot, and too much time spent on it could be academic masturbation.  If the IV and BV of BRK is constantly changing and most likely increasing, the price at which BRK repurchased shares tells us something but not much at all as time passes.  If the IV is increasing BRK will do well to continue to purchase as the price vs value math is expanding.

I think trying to spend any exact precision on the purchase numbers and times/days, is probably a waste of time. 

Rather, I would argue, a 10K foot view of the events..  BRK is repurchasing shares, and BRK doesn’t make many mistakes in the pursuit of their own wealth accumulation.  The current prices resemble the prices that BRK paid, therefore we should all purchase the shares if we have a desire.  If prices continue to go up, that doesn’t necessarily make them a bad value, one must just continue to do the math on the IV.

What did I miss?  What do you guys think?

Well said. I do agree with the choice of expression of yours Acad Mastu😂 Shareholders should be enjoying the 100% jump in operating earnings more than A M. Only with 4/5th of the resources deployed!

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 05, 2018, 03:52:07 PM
I just want to make sure that we all agree with each other on this “soft upper/lower limit” that I have read in the last couple of days regarding the BRK repurchase prices..  I appreciate the concept and the arithmetic that others have performed to derive it.  Thank you.

I think any discussion of such limits is moot, and too much time spent on it could be academic masturbation.  If the IV and BV of BRK is constantly changing and most likely increasing, the price at which BRK repurchased shares tells us something but not much at all as time passes.  If the IV is increasing BRK will do well to continue to purchase as the price vs value math is expanding.

I think trying to spend any exact precision on the purchase numbers and times/days, is probably a waste of time. 

Rather, I would argue, a 10K foot view of the events. ...

What did I miss?  What do you guys think?

In short, you and I don't agree.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on November 05, 2018, 03:57:24 PM
I guess my point is that $1 retained is worth more than $1 any time Berkshire trades for more than book value.  And if it trades close to or below book value, he would buy back as much stock as he could get his hands on.  If the company trades at 1.01x book value, by definition a dollar retained is worth more than a dollar paid out (not even taking taxation into account)

This is mathematically true but it is actually a chicken and egg issue. It trades above book because, among other reasons, there's an expectation that these dollars will be worth more than a dollar. If that expectation/assumption was removed or proved wrong by one or two mistakes (let's say, just for a hypothetical consideration, that all of the excess cash was invested in IBM-like stocks), it could well trade (and deserve to trade) below book. Another way to point it out is to say that this excess cash built up to an extent that was 95% of assets (again, thought experiment) would the stock still be worth 1.4x book? At that point, aren't you just paying 1.4x for mostly cash. The multiple would have to come down.

The way I think of opportunity cost here is: If they pay out $1, you'd get $0.85 (in most cases). To make it $1 again, you need a return of 17.64%. Then you are even and you have to earn about 10% p.a. after that which BRK is likely to earn over time on their investments. If you can get that return (or better) outside of Berkshire, you probably deserve a dividend. I think WEB/CM think that for all shareholders taken as a whole, that is not achievable. When viewed mathematically like this, I tend to agree with their conclusion even though, I'd love a large special dividend of cash as much as anyone else.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 05, 2018, 04:19:35 PM
I guess my point is that $1 retained is worth more than $1 any time Berkshire trades for more than book value.  And if it trades close to or below book value, he would buy back as much stock as he could get his hands on.  If the company trades at 1.01x book value, by definition a dollar retained is worth more than a dollar paid out (not even taking taxation into account)

This is mathematically true but it is actually a chicken and egg issue. It trades above book because, among other reasons, there's an expectation that these dollars will be worth more than a dollar. If that expectation/assumption was removed or proved wrong by one or two mistakes (let's say, just for a hypothetical consideration, that all of the excess cash was invested in IBM-like stocks), it could well trade (and deserve to trade) below book. Another way to point it out is to say that this excess cash built up to an extent that was 95% of assets (again, thought experiment) would the stock still be worth 1.4x book? At that point, aren't you just paying 1.4x for mostly cash. The multiple would have to come down.

The way I think of opportunity cost here is: If they pay out $1, you'd get $0.85 (in most cases). To make it $1 again, you need a return of 17.64%. Then you are even and you have to earn about 10% p.a. after that which BRK is likely to earn over time on their investments. If you can get that return (or better) outside of Berkshire, you probably deserve a dividend. I think WEB/CM think that for all shareholders taken as a whole, that is not achievable. When viewed mathematically like this, I tend to agree with their conclusion even though, I'd love a large special dividend of cash as much as anyone else.

With regard to taxes for the in fact controlling shareholder, globalfinancepartner's point is far from moot. It appears evident to me, that you're most likely holding your Berkshire position in an account, where you're not subject to taxes on dividends, and that this fact is indeed perhaps blinding you.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on November 05, 2018, 04:29:28 PM
I guess my point is that $1 retained is worth more than $1 any time Berkshire trades for more than book value.  And if it trades close to or below book value, he would buy back as much stock as he could get his hands on.  If the company trades at 1.01x book value, by definition a dollar retained is worth more than a dollar paid out (not even taking taxation into account)

This is mathematically true but it is actually a chicken and egg issue. It trades above book because, among other reasons, there's an expectation that these dollars will be worth more than a dollar. If that expectation/assumption was removed or proved wrong by one or two mistakes (let's say, just for a hypothetical consideration, that all of the excess cash was invested in IBM-like stocks), it could well trade (and deserve to trade) below book. Another way to point it out is to say that this excess cash built up to an extent that was 95% of assets (again, thought experiment) would the stock still be worth 1.4x book? At that point, aren't you just paying 1.4x for mostly cash. The multiple would have to come down.

The way I think of opportunity cost here is: If they pay out $1, you'd get $0.85 (in most cases). To make it $1 again, you need a return of 17.64%. Then you are even and you have to earn about 10% p.a. after that which BRK is likely to earn over time on their investments. If you can get that return (or better) outside of Berkshire, you probably deserve a dividend. I think WEB/CM think that for all shareholders taken as a whole, that is not achievable. When viewed mathematically like this, I tend to agree with their conclusion even though, I'd love a large special dividend of cash as much as anyone else.

With regard to taxes for the in fact controlling shareholder, globalfinancepartner's point is far from moot. It appears evident to me, that you're most likely holding your Berkshire position in an account, where you're not subject to taxes on dividends, and that this fact is indeed perhaps blinding you.

Sorry, I don't understand what you're saying. My point is exactly that taxes make dividends a bad idea. My math I showed supports that. So I'm not sure why I gave you the impression that I don't care about taxes. It's the opposite. Of course, to a policy question of what BRK should do, how I own my shares shouldn't matter... but even so, I do own them in a taxable account. In fact Berkshire is the type of thing you'd WANT in a taxable account (at least if you live in the US).... no dividends, long term gains, etc. all play well with the current tax law here.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on November 05, 2018, 04:57:14 PM
I guess my point is that $1 retained is worth more than $1 any time Berkshire trades for more than book value.  And if it trades close to or below book value, he would buy back as much stock as he could get his hands on.  If the company trades at 1.01x book value, by definition a dollar retained is worth more than a dollar paid out (not even taking taxation into account)

This is mathematically true but it is actually a chicken and egg issue. It trades above book because, among other reasons, there's an expectation that these dollars will be worth more than a dollar. If that expectation/assumption was removed or proved wrong by one or two mistakes (let's say, just for a hypothetical consideration, that all of the excess cash was invested in IBM-like stocks), it could well trade (and deserve to trade) below book. Another way to point it out is to say that this excess cash built up to an extent that was 95% of assets (again, thought experiment) would the stock still be worth 1.4x book? At that point, aren't you just paying 1.4x for mostly cash. The multiple would have to come down.

The way I think of opportunity cost here is: If they pay out $1, you'd get $0.85 (in most cases). To make it $1 again, you need a return of 17.64%. Then you are even and you have to earn about 10% p.a. after that which BRK is likely to earn over time on their investments. If you can get that return (or better) outside of Berkshire, you probably deserve a dividend. I think WEB/CM think that for all shareholders taken as a whole, that is not achievable. When viewed mathematically like this, I tend to agree with their conclusion even though, I'd love a large special dividend of cash as much as anyone else.

With regard to taxes for the in fact controlling shareholder, globalfinancepartner's point is far from moot. It appears evident to me, that you're most likely holding your Berkshire position in an account, where you're not subject to taxes on dividends, and that this fact is indeed perhaps blinding you.

Sorry, I don't understand what you're saying. My point is exactly that taxes make dividends a bad idea. My math I showed supports that. So I'm not sure why I gave you the impression that I don't care about taxes. It's the opposite. Of course, to a policy question of what BRK should do, how I own my shares shouldn't matter... but even so, I do own them in a taxable account. In fact Berkshire is the type of thing you'd WANT in a taxable account (at least if you live in the US).... no dividends, long term gains, etc. all play well with the current tax law here.

AdjustedEarnings,

Frankly, to me, you appear indisposed right now. For Mr. Buffett, the taxes on a dividend would reduce his donation capacity, measured in absolute USD [his 2006 pledge with amendments does not - as far as I can see - exclude him from suggesting a dividend though].

-Where do you think Mr. Buffett wants the money to go? - To the five foundations, or to the US IRS?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on November 05, 2018, 06:00:19 PM
I guess my point is that $1 retained is worth more than $1 any time Berkshire trades for more than book value.  And if it trades close to or below book value, he would buy back as much stock as he could get his hands on.  If the company trades at 1.01x book value, by definition a dollar retained is worth more than a dollar paid out (not even taking taxation into account)

This is mathematically true but it is actually a chicken and egg issue. It trades above book because, among other reasons, there's an expectation that these dollars will be worth more than a dollar. If that expectation/assumption was removed or proved wrong by one or two mistakes (let's say, just for a hypothetical consideration, that all of the excess cash was invested in IBM-like stocks), it could well trade (and deserve to trade) below book. Another way to point it out is to say that this excess cash built up to an extent that was 95% of assets (again, thought experiment) would the stock still be worth 1.4x book? At that point, aren't you just paying 1.4x for mostly cash. The multiple would have to come down.

The way I think of opportunity cost here is: If they pay out $1, you'd get $0.85 (in most cases). To make it $1 again, you need a return of 17.64%. Then you are even and you have to earn about 10% p.a. after that which BRK is likely to earn over time on their investments. If you can get that return (or better) outside of Berkshire, you probably deserve a dividend. I think WEB/CM think that for all shareholders taken as a whole, that is not achievable. When viewed mathematically like this, I tend to agree with their conclusion even though, I'd love a large special dividend of cash as much as anyone else.

With regard to taxes for the in fact controlling shareholder, globalfinancepartner's point is far from moot. It appears evident to me, that you're most likely holding your Berkshire position in an account, where you're not subject to taxes on dividends, and that this fact is indeed perhaps blinding you.

Sorry, I don't understand what you're saying. My point is exactly that taxes make dividends a bad idea. My math I showed supports that. So I'm not sure why I gave you the impression that I don't care about taxes. It's the opposite. Of course, to a policy question of what BRK should do, how I own my shares shouldn't matter... but even so, I do own them in a taxable account. In fact Berkshire is the type of thing you'd WANT in a taxable account (at least if you live in the US).... no dividends, long term gains, etc. all play well with the current tax law here.

AdjustedEarnings,

Frankly, to me, you appear indisposed right now. For Mr. Buffett, the taxes on a dividend would reduce his donation capacity, measured in absolute USD [his 2006 pledge with amendments does not - as far as I can see - exclude him from suggesting a dividend though].

-Where do you think Mr. Buffett wants the money to go? - To the five foundations, or to the US IRS?

I don't understand what you're saying. I'm serious. I said dividends are a bad idea because of taxes. You said the same thing. WE ARE AGREEING. Yet, you are saying that I'm in disagreement with you somehow and indisposed? I am lost.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on November 06, 2018, 04:09:57 AM
All right, so I admit to have been quite wrong on my most meaningful conclusion: that Buffett had been buying back stock close to the theoretical limit and also for prices above 210 USD. I re-read some of the stuff Buffett wrote on buybacks and again came across a segment from the 1999 letter to shareholders (p. 16-17): http://www.berkshirehathaway.com/letters/final1999pdf.pdf

Here, Buffett writes the following:

"There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the
company has available funds — cash plus sensible borrowing capacity — beyond the near-term needs of the business
and, second, finds its stock selling in the market below its intrinsic value, conservatively-calculated. To this we add
a caveat: Shareholders should have been supplied all the information they need for estimating that value. Otherwise,
insiders could take advantage of their uninformed partners and buy out their interests at a fraction of true worth.
We
have, on rare occasions, seen that happen. Usually, of course, chicanery is employed to drive stock prices up, not down." (my emphasis)

Is there an argument for Buffett now being able to repurchase more than the ca 8-9% of daily volume that he purchased during the days which he repurchased stock? My personal view of that is NO (since he wouldn't have repurchased to start with if he didn't feel like shareholders had been supplied with all the information they would need to estimate intrinsic value).

However, I'd like to hear your opinions on the matter.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 06, 2018, 04:50:35 AM
He doesn't want to influence the price of the stock very much.  It is possible the price ceiling on the repurchase plan is tied to last reported book value, in which case it could be as high as 218 per B share currently.  But it is equally possible that the ceiling remains at 208 or whatever it is and Warren is just wanting to buy the stock cheaper than others believed.

The limiting factor on repurchases in the 3rd quarter was the price.  He would have repurchased a lot more stock if the price had stayed below the floor and their trader was able to be active every single trading day of the quarter.  As it happened, the trader was only able to purchase shares for 14 trading days during the 3rd quarter.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on November 06, 2018, 05:12:13 AM
Don’t know if anyone else has posted this, but it’s worth a read. I note that WB has spoken favorably of Dr Singleton in the past, and since this thread was started regarding the possibility of a tender, this article seems relevant:

http://csinvesting.org/wp-content/uploads/2015/05/Dr.-Singleton-and-Teledyne-A-Study-of-an-Excellent-Capital-Allocator.pdf

Great article UGADAWG,  thanks for sharing it.  I just started to read thru it.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on November 15, 2018, 02:01:21 AM
Some of the cash problem has seemingly disappeared with the entry into JPM during Q3. Approximately $30b more could be deployed into that stock. Being a highly liquid stock ($1.5b worth of trading daily) this could be done relatively swiftly depending on price action. The stake bought in Q3 only corresponds to about 4% of the average daily volume - not all that aggressive. Presumably the purchases have continued into Q4 in light of recent prices compared to Q3.

I expect that this will top out at 10% just like the rest of the bank stocks, barring a sharp move up in price. It is a bit curious why they didn't keep this purchase secret for the time being, like they have done in the past when building large positions (IBM, XOM, some others lately?). Maybe that is a strike against my idea that they will build a maximum size position.

Anyhow, this could conceivably be counted as Buffett scoring an elephant, if in slightly different guise.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on November 15, 2018, 02:44:00 AM
I think the fall in the market from around Oct 10th to 26th was probably sufficient for them to really build their stakes quite aggressively at even better prices than those during Q3. Not sure whether it would be up to 10% of JPM, but I'd imagine they could have put a lot of capital to work in that period on stock purchases and Berkshire buybacks too.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on November 15, 2018, 04:29:16 AM
I think the fall in the market from around Oct 10th to 26th was probably sufficient for them to really build their stakes quite aggressively at even better prices than those during Q3. Not sure whether it would be up to 10% of JPM, but I'd imagine they could have put a lot of capital to work in that period on stock purchases and Berkshire buybacks too.

Could be I guess.  We already know how many shares they repurchased up to October 25th.  Meaningful repurchase activity beyond that depends on if the "ceiling" price on the repurchase plan is adjusted with the increase in last reported book value, or if it stays the same at roughly $208 per B-share.  If it is based on a simple multiple of last reported book value, there is a possibility it could be as high as 218 currently - which would have allowed repurchases to continue.  Still unlikely that repurchases are material relative to Berkshire's size but every bit counts, and we are at least moving in the right direction.

I wonder if Warren still owns 1 million shares of JPM personally.  I would assume yes.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on November 15, 2018, 05:51:45 AM
Given the relative trading volume of Berkshire versus a lot of the recent purchases within their portfolio, I'd imagine the portfolio purchases will put the cash pile to work considerably faster than repurchasing Berkshire stock, but over many years I think the effect of repurchases could be a modest but useful contributor to per share value growth with maybe the occasional negotiated repurchase from an estate.

Clearly we now know that Berkshire was quite busy with the portfolio during Q3, quite possibly the early part of the quarter when prices were lower. Perhaps mid to late October was another time they were busy after the markets fell back about 10%.

I guess the JPM stake (~ 1% of market cap) will have to increase 5x before a 13D or SC 13G filing would reveal any personal stakes (as the DVA filings do for R Ted Weschler).
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: sleepydragon on November 15, 2018, 07:10:23 AM
I think the fall in the market from around Oct 10th to 26th was probably sufficient for them to really build their stakes quite aggressively at even better prices than those during Q3. Not sure whether it would be up to 10% of JPM, but I'd imagine they could have put a lot of capital to work in that period on stock purchases and Berkshire buybacks too.

Could be I guess.  We already know how many shares they repurchased up to October 25th.  Meaningful repurchase activity beyond that depends on if the "ceiling" price on the repurchase plan is adjusted with the increase in last reported book value, or if it stays the same at roughly $208 per B-share.  If it is based on a simple multiple of last reported book value, there is a possibility it could be as high as 218 currently - which would have allowed repurchases to continue.  Still unlikely that repurchases are material relative to Berkshire's size but every bit counts, and we are at least moving in the right direction.

I wonder if Warren still owns 1 million shares of JPM personally.  I would assume yes.

I think there is no compliance/legal problems if his personal trades are the same directions as the BRK trades. So if Buffett is buying JPM he will not be selling in his personal accounts.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on December 06, 2018, 08:31:25 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!

I think this is now more important and concrete. I think the way I asked the question last time must not have been clear because the responses, while good, did not address the issue directly (except for one response). I'm resurrecting this issue because I think it's probably of more interest to people now. The reason I had debated this issue earlier was the expectation that a particular situation might occur. This situation has presented itself: Apple is down from 225 at 9/30 to 171 today. On their 252 million shares, BRK now has a "loss" from last reporting date of $14 billion, less taxes in their BV. This is Apple alone. Then you've got BAC, WFC, etc. which are all down varying amounts from 9/30. Having set the stage, now the question is:

If WEB thinks buying back at 207 was a good idea in the quarter ended 9/30, is the buyback threshold  now:

1. Lower, because (a) securities per share amount is lower (the two-column people), (b) alternative uses of cash are more available or, at least, visible on the horizon
2. The same, because intrinsic value (and look through earnings) of those securities probably has not changed
3. Higher, because, (a) intrinsic value of BRK increases a little each quarter, (b) for companies in which they can't go over 10% they can still increase the per-BRK-share ownership of those companies in the hands of continuing shareholders by buying back stock from other shareholders, (c) rates are lower which serves to increase financial asset values including BRK intrinsic value?

There could be other reasons for choosing either of 1, 2, or 3. Please feel free to suggest them.

PS: If the fall in the market continues, it's possible that BRK BV growth is negative for the quarter. If that happens, it'll help display in the coming Qs how much, if any, of WEB's IV calculation is based on BVs. On the one hand he says BVs are now not appropriate (and I tend to agree with this). On the other hand, he's not one to change his mind/methods too quickly.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on December 06, 2018, 12:22:22 PM
I think they're in there buying shares. See that spike from 204 to 205 about an hour ago on good volume.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Jurgis on December 06, 2018, 12:26:19 PM
I think they're in there buying shares. See that spike from 204 to 205 about an hour ago on good volume.

That was me.


JK


I think.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on December 06, 2018, 12:28:02 PM
You've can be such an asshole. You've spiked my limit orders are 204.10.  >:(
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: StubbleJumper on December 06, 2018, 12:31:44 PM
You've can be such an asshole. You've spiked my limit orders are 204.10.  >:(


You're at $204.10?  Good, now I can penny you!   :P


SJ
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on December 06, 2018, 12:33:09 PM
By selling shares to me at 2014.10  :P
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: IceCreamMan on December 06, 2018, 08:45:14 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!

I think this is now more important and concrete. I think the way I asked the question last time must not have been clear because the responses, while good, did not address the issue directly (except for one response). I'm resurrecting this issue because I think it's probably of more interest to people now. The reason I had debated this issue earlier was the expectation that a particular situation might occur. This situation has presented itself: Apple is down from 225 at 9/30 to 171 today. On their 252 million shares, BRK now has a "loss" from last reporting date of $14 billion, less taxes in their BV. This is Apple alone. Then you've got BAC, WFC, etc. which are all down varying amounts from 9/30. Having set the stage, now the question is:

If WEB thinks buying back at 207 was a good idea in the quarter ended 9/30, is the buyback threshold  now:

1. Lower, because (a) securities per share amount is lower (the two-column people), (b) alternative uses of cash are more available or, at least, visible on the horizon
2. The same, because intrinsic value (and look through earnings) of those securities probably has not changed
3. Higher, because, (a) intrinsic value of BRK increases a little each quarter, (b) for companies in which they can't go over 10% they can still increase the per-BRK-share ownership of those companies in the hands of continuing shareholders by buying back stock from other shareholders, (c) rates are lower which serves to increase financial asset values including BRK intrinsic value?

There could be other reasons for choosing either of 1, 2, or 3. Please feel free to suggest them.

PS: If the fall in the market continues, it's possible that BRK BV growth is negative for the quarter. If that happens, it'll help display in the coming Qs how much, if any, of WEB's IV calculation is based on BVs. On the one hand he says BVs are now not appropriate (and I tend to agree with this). On the other hand, he's not one to change his mind/methods too quickly.

Is it possible that he mentally marks his securities at intrinsic value but with an option to exit at the current market price? This would imply that when one of his securities declines in price, he maintains his original mark, but if/as it rises above his intrinsic value estimate, he marks it closer to market as he considers selling. I guess this would also mean that the effect on Buffett's estimate of Berkshire's intrinsic value depends on the relationship between AAPL's current price and his AAPL intrinsic value estimate (not just the change in AAPL's price alone). For example, if Buffett's intrinsic value estimate for AAPL is $250, then the recent price movement doesn't change his estimate of Berkshire's intrinsic value, but if his estimate is $150, it might. Also, maybe a counteracting force is that when his securities decline with the broader market, he sees more opportunities, so he's less likely to repurchase BRK at the same ratio of price/IV.

One weakness of this theory is that Buffett rarely sells major investments, so it seems like maybe he wouldn't be able to justify marking up securities to market price on the assumption that he might exit soon. He held KO through thick and thin of valuations...

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: IceCreamMan on December 14, 2018, 08:45:43 AM
Another weakness of this theory is that marking securities to the higher of price and intrinsic value might not be considered "conservative," as in "below Berkshire's intrinsic value, conservatively determined." On the other hand, marking securities to the lower of price and intrinsic value might qualify as conservative. This would mean that Buffett uses price when he thinks a holding is cheap, but marks expensive things down to his intrinsic value estimates.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on December 14, 2018, 09:49:39 AM
Given the number of opportunity days to buy, any guesses on how much was actually bought back?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: karthikpm on December 14, 2018, 10:02:34 AM
time to buy more even if there is no buyback
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 14, 2018, 10:07:01 AM
longinvestor,

We have some time ago [-totally unspoken, & unanimously!]""appointed" SwedishValue the curator of such data". [Goes like this : Don't post anything of particular interest here on CoBF! - Your destiny will be cumbersome to keep it updated! [ ; - D ]]

- - - o 0 o - - -

-Any update, SwedishValue? [ : - ) ] [<- SwedishValue, please don't take it too seriously ...]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on December 14, 2018, 12:27:46 PM
longinvestor,

We have some time ago [-totally unspoken, & unanimously!]""appointed" SwedishValue the curator of such data". [Goes like this : Don't post anything of particular interest here on CoBF! - Your destiny will be cumbersome to keep it updated! [ ; - D ]]

- - - o 0 o - - -

-Any update, SwedishValue? [ : - ) ] [<- SwedishValue, please don't take it too seriously ...]

So True John Hjorth!!!  Well said.   I will wait patiently and watch.....   :o
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Jurgis on December 14, 2018, 12:50:51 PM
I wonder if Buffett is buying more AAPL / banks or if he's buying back stock. Or neither. Or both.

Stay tuned.  8)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on December 14, 2018, 04:42:42 PM
I calculate that as of today the top 7 holdings (aapl, bac, wfc, ko, axp, khc, and usb) have declined a total of $24.23B from the prior quarter as of today.  These 7 make up at current value 141B of the 191B market cap of their portfolio according to CNBC tracker.  I didn't bother to calculate the loss on the remaining $50B in securities, but let's just assume it washed with operating earnings QTD.  So the loss from those 7 big positions brings the book value down roughly $10/sh pretax or something like $7.50 after tax.

So it seems like after subtracting portfolio losses Berkshire is trading at around exactly where we know he was buying it back.  That was before marking up for excellent Q3 earnings, but before a plethora of additional opportunities to deploy capital in the markets opened up.  So if I had to guess I would think he's buying slowly just like in Q3.  Maybe a few billion total since there have been more days with a price that may be significantly below IV than there were in Aug-Sep.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 15, 2018, 08:02:24 AM
Today I have taken a stab against doing a calculation/estimate of maximum share buybacks in the past part of this quarter, based on available data on NYSE.com for the quarter, at alternative buyback thresholds, measured as share price for the B, and the equivalent price for A [ x1,500], but for the A based on the price pattern & movements for the A.

I had to make a decision to calculate daily price averages based on daily open/close or on daily high/low. I went on with daily open/close.

First figure : Buyback threshold, expressed as the price for the B share. [Equivivalent for the A: x1,500.]
Second figure : Estimated maximum capital allocation to share buybacks for the period October 1th - December 14th 2018. [USD B]
Third figure : Average cost per share bought back, expressed as a B share equivalent price.

Results:

195 : 00.000 - N/A
196 : 00.000 - N/A
197 : 00.000 - N/A
198 : 00.000 - N/A
199 : 00.382 - 198.77
200 : 00.382 - 198.77
201 : 00.973 - 199.86
202 : 01.831 - 200.59
203 : 02.096 - 200.80
204 : 02.921 - 201.60
205 : 03.169 - 201.80
206 : 03.720 - 202.33
207 : 04.277 - 202.86
208 : 05.454 - 203.82
209 : 06.435 - 204.50
210 : 09.943 - 204.84
211 : 07.154 - 204.99
212 : 07.537 - 205.30
213 : 07.567 - 205.33
214 : 07.976 - 205.71
215 : 08.646 - 207.19
216 : 09.551 - 207.95
217 : 10.441 - 209.18
218 : 12.020 - 209.65
219 : 12.705 - 209.65
220 : 12.943 - 209.83
221 : 13.823 - 210.48
222 : 14.267 - 210.89
223 : 14.660 - 211.11
224 : 14.660 - 211.11
225 : 14.660 - 211.11
226 : 14.660 - 211.11
227 : 14.660 - 211.11
228 : 14.660 - 211.11
229 : 14.660 - 211.11
230 : 14.660 - 211.11

- - - o 0 o - - -

Tool attached.

- - - o 0 o - - -

I'm actually surprised by these figures [larger than I expected] - I wonder if I have screwed up somewhere? - Please feel free to tear it apart!

[Disclaimer : My Excel is setup to Danish - so I actually don't know if formulas and digit separators converts correctly for you.]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on December 17, 2018, 12:46:07 PM
Who thinks BRK is repurchasing it's own stock today?



(https://media.makeameme.org/created/THIS-GUY-RIGHT.jpg)

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Jurgis on December 18, 2018, 08:03:29 AM
Who thinks BRK is repurchasing it's own stock today?

I think that BRK is buying. But I would say that they are buying more other stocks than its own. In other words, I am willing to bet that repurchases are less than 50% of money spent on all purchases this quarter.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: compounding on December 18, 2018, 09:58:31 AM
Who thinks BRK is repurchasing it's own stock today?

I think that BRK is buying. But I would say that they are buying more other stocks than its own. In other words, I am willing to bet that repurchases are less than 50% of money spent on all purchases this quarter.

I would put the over/under at 10-15%.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 18, 2018, 12:55:00 PM
More data! [and a bit less talk ...]:

Estimated Berkshire selfimposed acquisition capacity EOP 2018Q3 per company for AAPL and the US banks [ranked]:

AAPL : USD 50,053 M
JPM   : USD 33,438 M
GS    : USD   4,129 M
BAC  : USD   2,329 M
USB  : USD   1,293 M
BK    : USD      891 M

- - - o 0 o - -

BRK maximum volume based buybacks at price ceiling 208 [<- known for 2018Q3] for period October 1st - December 14th 2018 - a material part of 2018Q4 : USD 5,454 M.

- - - o 0 o - - -

Calculation attached.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on December 18, 2018, 01:24:31 PM
208 was the average price bought at so it couldn't logically have been the ceiling.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 18, 2018, 01:43:47 PM
alwaysinvert,

That's somehow nitpicking. Please feel free to make your own assumption about the buyback ceiling for 2018Q4, and just substitute in my last post with the figure that fits you, from this post (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg355200/#msg355200).

The point is, this is a loose estimation - you could also nitpick that the outstanding shares for each company is not by a clear cut date and so on ... - the point is, that this gives an overall picture, with some slack in the calculations, also an overestimation [in USD M] because of the market price development in 2018Q4.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: marazul on December 18, 2018, 01:45:41 PM
Is there a 25% of daily volume limit on buybacks? Sorry for my ignorance.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 18, 2018, 01:56:50 PM
marazul,

Link to post in this topic by globalfinancepartners (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg347564/#msg347564), where also the rules were discussed in depth. Personally, I consider globalfinancepartners very well wandered in this space of regulation. Please also note globalfinancepartners' personal comments and opinion in this particular post. What I have simulated, is a maximum. Please make your own assumptions based on that.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on December 19, 2018, 07:07:50 AM
My WAG is that they bought around  $10B worth during the quarter. 25% trading volume at average prices during the quarter.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nkp007 on December 19, 2018, 08:14:01 AM
I'm thinking they don't buy back anything substantial.

When the equities they love are selling off like crazy (e.g. financials, Apple, other names across the spectrum), I think they're deploying to those stocks or holding on for more cash expecting more opportunities to emerge, especially as liquidity / financing starts to tighten.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on December 19, 2018, 08:38:19 AM
I would guess that they are repurchasing around $66 million per trading day that the price is below their cap.  What we don't know is what the current cap price on the plan is, which means we can't estimate how many trading days they were in the market purchasing shares.  We know they purchased some subsequent to quarter end and we know they continued purchasing shares when prices came back down.  It is possible that the price cap on their repurchase plan stayed the same, at around 208 per share B share equivalent, in which case they would be active in the market only on days the B shares traded under 208.  Or it could be that the cap is as high as 218 per B share or thereabouts (if it is based on a simple multiple of last reported book value), in which case they would have been active buying shares for more trading days and would have repurchased more shares.

I do not think they are varying the buying under the plan with the price at 195 vs 207 per B-share.  I think it is a target percentage of average daily volume with a price cap, executed as a 10b5-1 plan by a brokerage firm.

Over time, we should be able to figure out if they based their cap on a simple multiple of last reported book value by looking at the number of days they were active in the market and the corresponding market prices on those days.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 19, 2018, 09:24:43 AM
I'll try to reverse engineer the market data for 2018Q3 using my tool. I will need to tweak it a bit to take into consideration blackout periods. I expect to do it between Christmas and New Year. I'll put some charts and diagrams in there, too, to visualize things.

And then repeat the procedure in the beginning of 2019 for the full 2018Q4.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on December 19, 2018, 09:52:54 AM
Just to be clear, there wouldn't be any blackout periods since they are purchasing under a 10b5-1 plan.  And we know they are using that type of 'safe harbor' plan because they made repurchases subsequent to quarter end but before filing their 10Q with the SEC.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on December 19, 2018, 09:53:15 AM
A comment Buffett made at the AGM in the past few years about how CEO’s get it wrong on buybacks (doing it for the wrong reason or simply getting it wrong) has me thinking if the current buyback that is WIP has been assigned to the wards as a developmental opportunity. Thinking Ted and Todd. In essence calculate Intrinsic Business Value. They are likely going to get this task for a longer time to come.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 19, 2018, 09:57:34 AM
Just to be clear, there wouldn't be any blackout periods since they are purchasing under a 10b5-1 plan.  And we know they are using that type of 'safe harbor' plan because they made repurchases subsequent to quarter end but before filing their 10Q with the SEC.

Thanks for pointing that out for me, globalfinancepartners,

But for 2018Q3 we discussed some time ago, that the new buyback scheme would not get effective untill a certain date in 2018Q3. Am I right that this date was the release date of 2018Q2 10-Q?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on December 19, 2018, 11:09:43 AM
A comment Buffett made at the AGM in the past few years about how CEO’s get it wrong on buybacks (doing it for the wrong reason or simply getting it wrong) has me thinking if the current buyback that is WIP has been assigned to the wards as a developmental opportunity. Thinking Ted and Todd. In essence calculate Intrinsic Business Value. They are likely going to get this task for a longer time to come.


They were unusually specific about this:

"Under the amendment adopted by the Board of Directors, share repurchases can be made at any time that both Warren Buffett, Berkshire’s Chairman and CEO, and Charlie Munger, a Berkshire Vice Chairman, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined."

http://www.berkshirehathaway.com/news/jul1718.pdf

Also - because it is a 10b5-1 plan, there is nothing but set a cap for Ted or Todd to do.  The trading decisions have to be made by the broker without interference or they lose the safe harbor of the plan.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on December 19, 2018, 11:18:33 AM
Yes, the amendment to the plan (removing the 1.2x rule) went into effect after the 2nd quarter earnings were released.  The first trade was actually on Tuesday, so they waited an additional day to start - for whatever reason.  But that was a one time delay.  They didn't want to look like they had material nonpublic information (which of course they always have, but they are trying their best to be "fair")

Going forward there are no blackout periods except the final few minutes of the trading day.  So far this quarter, they might have repurchased something like $1.7-1.9 Billion of stock.  If they moved the cap up to 218 or something like that, it would be a higher number because they would have been active on additional trading days.  If BRK stays below whatever the cap is for the rest of December, the 1.7-1.9 billion number will continue to go up by approximately $66 million per day.  That is my guess.  We'll figure out more over time.

Just to be clear, there wouldn't be any blackout periods since they are purchasing under a 10b5-1 plan.  And we know they are using that type of 'safe harbor' plan because they made repurchases subsequent to quarter end but before filing their 10Q with the SEC.

Thanks for pointing that out for me, globalfinancepartners,

But for 2018Q3 we discussed some time ago, that the new buyback scheme would not get effective untill a certain date in 2018Q3. Am I right that this date was the release date of 2018Q2 10-Q?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Jurgis on December 19, 2018, 11:24:35 AM
Also - because it is a 10b5-1 plan, there is nothing but set a cap for Ted or Todd to do.  The trading decisions have to be made by the broker without interference or they lose the safe harbor of the plan.

So for the 10b5-1 plan, they have to set an absolute price (what you call "cap") at or below which to buy and the size? And they cannot do anything fancy like relative price? And they cannot change the size either?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on December 19, 2018, 12:22:36 PM
They don't have to set an absolute price.  It can be a pretty involved formula or something as long as it is laid out ahead of time and not changed later.  They can change their size up to a point.  I just don't think they are so far.  We'll see

Also - because it is a 10b5-1 plan, there is nothing but set a cap for Ted or Todd to do.  The trading decisions have to be made by the broker without interference or they lose the safe harbor of the plan.

So for the 10b5-1 plan, they have to set an absolute price (what you call "cap") at or below which to buy and the size? And they cannot do anything fancy like relative price? And they cannot change the size either?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on December 19, 2018, 12:35:19 PM
Yes, the amendment to the plan (removing the 1.2x rule) went into effect after the 2nd quarter earnings were released.  The first trade was actually on Tuesday, so they waited an additional day to start - for whatever reason.  But that was a one time delay.  They didn't want to look like they had material nonpublic information (which of course they always have, but they are trying their best to be "fair")

GFP, how do you know the days when they traded i.e. that the first trade was on Tuesday?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on December 19, 2018, 12:39:18 PM
They don't have to set an absolute price.  It can be a pretty involved formula or something as long as it is laid out ahead of time and not changed later.  They can change their size up to a point.  I just don't think they are so far.  We'll see

Also - because it is a 10b5-1 plan, there is nothing but set a cap for Ted or Todd to do.  The trading decisions have to be made by the broker without interference or they lose the safe harbor of the plan.

So for the 10b5-1 plan, they have to set an absolute price (what you call "cap") at or below which to buy and the size? And they cannot do anything fancy like relative price? And they cannot change the size either?

They could conceivably have a stop if the market falls x% in order to favor buys in the stock portfolio, but I strongly doubt that they would bother with any complicated stuff at current cash levels. More likely they have a ceiling for the total possible buybacks in each period either via a total dollar cap and/or via a cap as a percentage of daily traded volume.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on December 19, 2018, 12:41:25 PM
Yes, the amendment to the plan (removing the 1.2x rule) went into effect after the 2nd quarter earnings were released.  The first trade was actually on Tuesday, so they waited an additional day to start - for whatever reason.  But that was a one time delay.  They didn't want to look like they had material nonpublic information (which of course they always have, but they are trying their best to be "fair")

GFP, how do you know the days when they traded i.e. that the first trade was on Tuesday?

That info is in the 10-Q. Aug 7-Aug 24
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on December 19, 2018, 01:19:27 PM
Thank you.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on December 19, 2018, 02:01:43 PM
This trading day disclosure (which is not required so it's curious that Warren is telegraphing this information) is how we arrive at the theory that there is a cap price and what their average daily purchase volume is on days they are in the market.  I should add that a lot of what I post is my opinion, but it's not a totally uninformed opinion.  Earlier there were a lot of folks saying Berkshire was going to be buying hand over fist and that just didn't jibe with what Warren has said and done over the years.  If he gets some big block trades presented to him and he's not in a blackout period, he can act aggressively on those outside of this trading plan.  He probably knows where potential big blocks of stock are - but someone has to want to part with it.

If he can average $10 Billion of repurchases annually under this plan it is not going to make much of a difference, but it's better than nothing.  We used to get excited when Berkshire announced a $10 Billion cash acquisition!

Personally, if we stay below 200/b share I would love to see the company take in a ton of stock, but it would surprise me.  Painting the tape into the end of the year is much more of a Biglari thing than a Buffett thing.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on December 19, 2018, 03:06:18 PM
I ran some calculations to add additional perspective to market price change in Berkshire since prior quarter end and its portfolio holdings.  I used the data from the CNBC portfolio tracker and I excluded the handful of stocks under $400mm in holdings which in the aggregate are less than $1 billion total.  I attached my spreadsheet with more details but I wanted to point out a few things:

Berkshire's market cap has fallen much slower than the average stock it holds.  In fact, the majority of the decline since prior quarter's end was the decline in portfolio value.  Assuming a tax rate of 21%, Berkshire's portfolio has lost 11.69 in per B share value after tax, compared to the market price drop of 18.94 over the same period.  The roughly 42% of market cap weighted to the portfolio accounted for 62% of Berkshire's decline.   If you subtract out the impact of the investment portfolio then Berkshire's market cap of remaining assets dropped by 5.82%. 

So effectively Berkshire the operating company is 5.82% cheaper that it was on 9/30, when the average company in the S&P 500 is 13.8% cheaper.  I would have to think that heavily skews in favor of NOT buying in Berkshire over other opportunities.  Or maybe he's buying back so much that the price is propped up a bit and otherwise would have fallen closer to market average.

As an aside, how much do you think the market is going to overreact when they see Berkshire's enormous net loss for the quarter?  We're already at something like $25 billion after tax loss here assuming good operating earnings.  Since it seems like everything is more volatile and short-term oriented lately I could see a big drop if we are still in a weak market then, even though it is obviously old news by that point.  That might be the time the buybacks kick into high gear.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on December 20, 2018, 05:29:40 AM
Thanks aws.  It could be a bit worse than those numbers, of course, as we would presume that Warren continued buying certain financial stocks after quarter end.  The big quarterly mark passing through the income statement will be announced when the annual report comes out - which tends to obscure focus on the 4th quarter alone.  In any event, it will be a long time before that comes out.  Berkshire is seen as decently defensive and that is probably why it outperformed some stocks during the recent market decline.

I think Warren & Charlie pay a lot more attention to the valuation disconnect caused by their insurance and operating companies than the quarterly fluctuations in the stock prices of investees (most of whom are engaged in very large repurchase programs themselves).

Here's hoping Berkshire can find a wholly owned subsidiary to add to the collection with this recent fade in enthusiasm and uptick in financing costs for leveraged buyers.

I happened across a private company in Chicago called Reyes Holdings.  What a gem - would fit perfectly into BRK but why would they ever sell...
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on December 21, 2018, 11:52:18 AM
Seems to be big volume today. Is there anything special going on in terms of options settlements or something?

Anyway, I added to my position after it was filed that Ajit Jain bought stock over the market. Interesting times.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on December 21, 2018, 12:10:02 PM
yes it is. It's witching day. A quadruple witching day to be exact.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: karthikpm on December 21, 2018, 01:10:27 PM
The Barron's article & Jain's purchase probably caused the bump
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 22, 2018, 11:34:45 AM
There are 4½ trading days left right now on NYSE in 2018 [December 24th [half trading day], 26th, 27th, 28th & 31st], right?

- - - o 0 o - - -

I think I'll start updating my tool for 2018 tomorrow. Based on the thoughts posted here by globalfinancepartners, I'll add the optionality to change the percentage of daily volume bought by Berkshire from 25 percent to whatever you may personally expect between 0 and 25 percent, as a separate input variable. It shouldn't be that time consuming.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 23, 2018, 02:15:00 PM
Attached is my stab of today at reverse engineering of Berkshire 2018Q3 buybacks.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: wescobrk on December 24, 2018, 12:46:16 PM
At where it closed today, I think it is around 1.25 book reasonably projected for year end?
It if closes lower again then we are pretty close to the 1.2. Looks like getting close to an all in on Berkshire?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on December 24, 2018, 01:53:00 PM
Don't forget to subtract the massive portfolio losses from book value.  I haven't calculated it exactly but it's closer to 1.40 than to 1.20 for sure.  Part of it would depend on if they need to write down their Kraft, not sure of the rule on that.  Market value is below Kraft book value but they account for it on the equity method.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 24, 2018, 02:04:44 PM
Why are you gents even discussing Berkshire book value per share in relation to what's ongoing in this topic? The rest of the crowd here at CoBF in this topic left that paradigm July 17th 2018 (http://berkshirehathaway.com/news/jul1718.pdf).
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on December 24, 2018, 02:06:49 PM
I think $169-$170 is likely closer to 120% of year end Book Value assuming today's prices hold for the remaining trading days, possibly a bit lower if they've been buying a lot of stocks and they've gone down further since. However I think Intrinsic Value will have increased a little since Q3 so today's price would still be attractive in the long run

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on December 24, 2018, 02:38:24 PM
Why are you gents even discussing Berkshire book value per share in relation to what's ongoing in this topic? The rest of the crowd here at CoBF in this topic left that paradigm July 17th 2018 (http://berkshirehathaway.com/news/jul1718.pdf).

Why are folks still using a BV multiple, that too in the 1.1x to 1.3x zip code? It’s the number that’s readily calculable. And there’s comfort in anchoring to the paradigm. Plus Buffett is no longer tipping his hand as to calculating intrinsic business value. “Do your own calculation” was the message they sent as they changed the buyback regime. And Buffett admitted to being wrong about the prior scheme. May the market be slow to come to it’s senses. “If there weren’t so many idiots, we wouldn’t be so rich, would we, Warren?” Munger at the 2016 AGM.

At this point, back of the envelope math is all that’s needed. Subtract investment portfolio from market cap and see what the rest of the company is selling for! It’s mouth watering enough that I am 90% in Berkshire.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 24, 2018, 03:12:32 PM
Attached is my stab of today at reverse engineering of Berkshire 2018Q3 buybacks.

Comments:

Posted by globalfinancepartners in this topic several months ago - on October 6th 2018, actually:


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...

To me, this "hunch" of globalfinancepartners' appears to me almost spooky. It seems to be totally spot on. Please also look up posts by globalfinancepartners since October 6th 2018 in this topic for more confirmation on that particular matter.

- - - o 0 o - - -

-Maybe globalfinancepartners is psychic, or perhaps he just happens to own a crystal ball, that actually works!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on December 26, 2018, 08:25:20 AM
I updated my spreadsheet on portfolio losses to today's numbers.  Pretax QTD market loss is now 49.1B, which is 38.8B or 15.76 per B share after tax if you use a 21% tax rate.  With a total market cap loss of 64.9B QTD on Berkshire overall, that implies the operating company and cash are worth 8.51% less today than on 9/30.  And since you figure they probably had decent operating profits it's more like a 10% drop.  Certainly seems much more in the buyback range now than it did a week ago, although obviously all other stocks they are looking at probably dropped more than 10%, so we'll have to wait and see what they actually did.

Edit: Post didn't age well as I wrote it when the market was down for the day.


I ran some calculations to add additional perspective to market price change in Berkshire since prior quarter end and its portfolio holdings.  I used the data from the CNBC portfolio tracker and I excluded the handful of stocks under $400mm in holdings which in the aggregate are less than $1 billion total.  I attached my spreadsheet with more details but I wanted to point out a few things:

Berkshire's market cap has fallen much slower than the average stock it holds.  In fact, the majority of the decline since prior quarter's end was the decline in portfolio value.  Assuming a tax rate of 21%, Berkshire's portfolio has lost 11.69 in per B share value after tax, compared to the market price drop of 18.94 over the same period.  The roughly 42% of market cap weighted to the portfolio accounted for 62% of Berkshire's decline.   If you subtract out the impact of the investment portfolio then Berkshire's market cap of remaining assets dropped by 5.82%. 

So effectively Berkshire the operating company is 5.82% cheaper that it was on 9/30, when the average company in the S&P 500 is 13.8% cheaper.  I would have to think that heavily skews in favor of NOT buying in Berkshire over other opportunities.  Or maybe he's buying back so much that the price is propped up a bit and otherwise would have fallen closer to market average.

As an aside, how much do you think the market is going to overreact when they see Berkshire's enormous net loss for the quarter?  We're already at something like $25 billion after tax loss here assuming good operating earnings.  Since it seems like everything is more volatile and short-term oriented lately I could see a big drop if we are still in a weak market then, even though it is obviously old news by that point.  That might be the time the buybacks kick into high gear.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on December 29, 2018, 06:21:54 AM
With now one trading day left in 2018, based on the reverse engineering of the 2018Q3 market data and data about actual buybacks in 2018Q3, it looks like buybacks for USD ~4 B at an average share price of USD ~201 [at 10 percent of average daily volume, & average buyback price calculated as B share equivalents] for 2018Q4.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: compoundsnowly83 on January 02, 2019, 03:40:30 AM
Seems to make sense. I always wondered from a capital allocation perspective why Berkshire would rather own other stocks than buyback his own shares as the implied assumption is that the other stocks are a better valuation.

However, I think the analysis is somewhat flawed in that it ignores a key point of capital allocation.  Berkshire has the option of buying back stock which includes all of his shares at the new "discount" and this should not be ignored from the decision making process. It also allows capital to be allocated to some securities (i.e. the bank stocks) where the ownernship is capped at 10% and buying the individual stock is not an option.

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 02, 2019, 05:04:40 AM
compoundsnowly,

The tool calculates buybacks measured in USD as a function of buyback threshold and percentage of daily volume, based on actual market data. [It can't think! [ : - ) ]]

- - - o 0 o - - -

PS : I like your board handle!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on January 02, 2019, 05:42:50 AM
Seems to make sense. I always wondered from a capital allocation perspective why Berkshire would rather own other stocks than buyback his own shares as the implied assumption is that the other stocks are a better valuation.

However, I think the analysis is somewhat flawed in that it ignores a key point of capital allocation.  Berkshire has the option of buying back stock which includes all of his shares at the new "discount" and this should not be ignored from the decision making process. It also allows capital to be allocated to some securities (i.e. the bank stocks) where the ownership is capped at 10% and buying the individual stock is not an option.

This is true. My emphasis on all. The freedom from limits is a huge opportunity over everything else (securities, even whole companies) given the size of Berkshire. Arguably they can keep buying for the next decade at the right price. To maximize the opportunity to buy, we should expect management to talk down (or don't talk at all) the stock versus talk it up, like all other managements do. My curiosity is up as to how the annual letter addresses the topic of the attractiveness of the buyback, how it is clothed. As a shareholder, low stock prices makes me feel richer. It is slowly sinking in for me that this is a good thing. Test of patience. Additionally, it will be fascinating to watch how the market pricing mechanism adjusts to buybacks. Should be fun days ahead.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on January 02, 2019, 06:43:14 AM
Thanks for the spreadsheet John.  Am I reading it correctly that your spreadsheet would predict somewhere between $4 Billion and $6.25 Billion in Q4 repurchases under the most likely set of 'rules' for their repurchase program?  (either 'cap' unchanged from Q3 or 'cap' based on fixed multiple of last reported BVPS)

It may disappoint some, but $5 Billion a quarter can be really great for BRK over time.  It's just a new, incremental, positive in the mix.  They are still looking for operating companies to buy

With now one trading day left in 2018, based on the reverse engineering of the 2018Q3 market data and data about actual buybacks in 2018Q3, it looks like buybacks for USD ~4 B at an average share price of USD ~201 [at 10 percent of average daily volume, & average buyback price calculated as B share equivalents] for 2018Q4.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 02, 2019, 07:27:57 AM
You're welcome, globalfinancepartners,

And yes, you interpret the output correctly. I have uploaded it here, with a "default setup" as the reverse engineered result [best fit from using the tool on 2018Q3 data "marked with the red cells". [Buyback threshold for the B share = 209, combined with 10 percent of daily volume.]

If you have alternative / other expectations for the buyback threshold for 2018Q4, they are available for you in the spreadsheet, right there too, assuming 10 percent of daily volume while buying back.

I've chosen that particular default setup for the sheet, based on that I've been absolutely amazed - almost spooked - about that your in advance prediction for 2018Q3 was totally spot on.

- - - o 0 o - - -

I'll update the sheet with the last trading day data [that won't change much, though] and also put in there some "bling" [charts and diagrams].

- - - o 0 o - - -

And I agree with you : Over time - if the share price stays low for prolonged periods - it could get meaningful for earnings per share going forward.

Berkshire is running at a clip now at about USD ~3 B per month in cash generation [mind provoking to think about, actually], so perhaps in the area of USD 4 B in buybacks in a quarter isn't that bad.

Naturally, what really matters the most - as also mentioned by compoundsnowly & longinvestor today - is what has happened in 2018Q4 with that available capital of USD 111 B EOP 2018Q3 - how much of it is put to work, and in what?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: compoundsnowly83 on January 02, 2019, 07:20:47 PM
This will be a great tool that will continue to get refined as we continue to learn more about the buyback strategy.

One crazy question that I haven't seen posted before... could the change in buyback policy be a response to the large increase in net worth of Bezos? We all know how competitive Warren is and the increase in buyback and the increased ownership percentage may be the only way that Warren thinks he could become the richest person in the world.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on January 02, 2019, 08:24:34 PM
This will be a great tool that will continue to get refined as we continue to learn more about the buyback strategy.

One crazy question that I haven't seen posted before... could the change in buyback policy be a response to the large increase in net worth of Bezos? We all know how competitive Warren is and the increase in buyback and the increased ownership percentage may be the only way that Warren thinks he could become the richest person in the world.
Surely you know about his giving program? He is actively trying to make his wealth go to zero.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 02, 2019, 11:35:11 PM
This will be a great tool that will continue to get refined as we continue to learn more about the buyback strategy.

One crazy question that I haven't seen posted before... could the change in buyback policy be a response to the large increase in net worth of Bezos? We all know how competitive Warren is and the increase in buyback and the increased ownership percentage may be the only way that Warren thinks he could become the richest person in the world.
Surely you know about his giving program? He is actively trying to make his wealth go to zero.

This exchange is actually a bit funny! [ : - ) ] - Serious mistake in those original gift letters, giving away 5 percent each year, while Berkshire grows ~10 percent each year. So he fails miserably! [ :  -  ) ] -Mr. Munger would call Mr. Buffett a young, failing overachiever, still collecting more nudgets than he gives away!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on January 03, 2019, 09:48:36 AM
With today's selloff Berkshire seems the most relatively undervalued that I have seen since I have been tracking it.  It's only 3.2% off the lows from Christmas eve, compared to a 5.2% gain for the S&P 500.  Also, even with Apple trading at new lows the overall Berkshire portfolio is up 4.6% since that time so that doesn't explain any of the difference.  So relatively speaking Berkshire is about 2% cheaper than it was at the market lows late last year.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Spekulatius on January 03, 2019, 11:09:46 AM
With today's selloff Berkshire seems the most relatively undervalued that I have seen since I have been tracking it.  It's only 3.2% off the lows from Christmas eve, compared to a 5.2% gain for the S&P 500.  Also, even with Apple trading at new lows the overall Berkshire portfolio is up 4.6% since that time so that doesn't explain any of the difference.  So relatively speaking Berkshire is about 2% cheaper than it was at the market lows late last year.

Brkb still significantly outperformed the SPY over 1,3,6,12 month periods. I bought it cheaper in May last year. The stock was a safe haven until Dec 2018 when it started to crater with the market.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on January 03, 2019, 12:39:17 PM
I'm aware there has been outperformance vs. the S&P this past year, mostly due to the pops from the buyback announcement and Q3 earnings.  As an aside though, you can extend that time frame further back and find periods of underperformance despite that.  For example the S&P total return since 12/31/14 is 30% and Berkshire over the same time is 29%.

Anyway, my point isn't that it's the cheapest it has ever been.  I just have been tracking the interplay between Berkshire's share price, the S&P 500, and Berkshire's portfolio (as a proxy for Berkshire book value).  I expect those are the three most important things Warren would be looking at when making buyback decisions.  We have some data from prior repurchases about what things looked like when he was buying shares, so I'd just like to have a handle on how those factors have moved since then.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 03, 2019, 05:10:39 PM

The exact level of buybacks might not be clear, but what is clear is that it amounts to bugger-all in the context of BRK's cash balances.  The finished the quarter with, what, $95 billion in cash and short term investments?  So dropping a bil on buybacks hardly constitutes an aggressive, high conviction move.

I say either get serious about deploying some of that cash on buybacks, or institute a considerable cash dividend.  Buying Apple sharss soaked up some cash, but it really doesnt inspire confidence in management given previous observations about circle of competence.


SJ
If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.

StubbleJumper & alwaysinvert,

How do you feel and think about the whole thing today Monday?

- In a time context, your posts was just after the Berkshire 10-Q was released. Now we have had ongoing discussion during the weekend and analysis of the 10-Q, and it has come up that about ~USD 15B has been allocated to financials during 2018Q3 [- of the ~USD 15 B ~USD 6 B allocated to BAC -], on top of the share buyback of ~USD 1 B in the quarter.

Furthermore considerations/speculations [ time will tell ] that more capital has been allocated to perhaps BK, USB & GS, perhaps even new positions in financials.

Personally, I was a bit disappointed just after the release of the 10-Q, too. After a couple of nights sleep on it, I have a good feeling about this here Monday morning. The upward trend in liquidity surplus has been turned, and Berkshire is still the Rock of Gibraltar. All in all, not that bad, because it's actually able to generate good earnings and cash flow as it is.


John,

Since the beginning, I have been skeptical of the Apple position because it struck me as outside of WEBs circle of competence and it has always struck me as a desperate move to deploy a large amount of cash.  The catalyst for that move has never quite been obvious to me -- what has Apple done in the past 12 or 18 months that suddenly merited such a large chunk of shareholders' capital?  The price didn't plunge rapidly to make it a 50 cent dollar.  Nope it was bought on fundamentals and operating results.  But, after racking up $110B± of cash it looks like brk is grasping for reasons to not initiate a healthy sized dividend or to not buy back a large slug of shares.

Turning to the purchase of large US financial companies (banks), nearly everybody on this board took a high conviction position about 5 or 6 years ago and we have made out like bandits.  The banks are still a buy, IMO, but are not as cheap as when we were all pounding on the table about BAC or JPM back in '11 or '12.  So why is brk suddenly taking a high(er) conviction position in the banks right at this moment?  A what point during the past five or so years were the US banks not an obvious purchase?  To be blunt, it was value in plain sight.  How did brk accumulate $110B± of cash when the banks have been an obvious outlet to deploy cash for the past 20 or so quarters?

The actions of the past year or so have struck me as a desperate effort to deploy cash and deny a basic reality.  That reality is that cash from ops is basically $40b per year.  Take off something for maintenance capex, new plant and equipment, and opportunistic acquisitions and you're looking at reasonably reliable cash surplus of about $20b per year.  The opportunities to deploy that much capital on an ongoing basis are not available in sufficient quality and high enough expected return to continue retaining 100 percent of earnings.


SJ

I'm sorry for the dense quotation above - Here I'm going back to this particular post by StubbleJumper from about two months ago, which was a direct reply to me, which I somehow managed to miss to thank you for StubbleJumper.

So, thank you StubbleJumper, & please accept my apology for a very late reply here.

- - - o 0 o - - -

Here, this is particularly for me about Berkshire's position in Apple. Yes, it's in a way "controversial" to me, too. I've been thinking a lot about it lately, and have also felt forced to do some work on the company to get a better understanding, simply because of the size of the position for Berkshire.  -And yes, then comes in the recent events with Apple...

I'm in my early innings with Apple, still, but I like it. What has happened while Mr. Buffett has built the position - now to the largest one - is so far to me like a page intentionally left blank. So I have tried to do something about that, by just looking at some data, in a structured way, yet without getting into some real tinkering with data.

So the file contains right now just a pile of data, but on the tab "Interim overall assessment" I have structured them to give a visual overview for the first three quarters of 2018. [Data for building the position for 2016 & 2017 I just consider history - but important data for understanding Berkshire's cost of the AAPL position].

Just by looking at the structured data for the three quarters, I feel quite confident, that Mr. Buffett hasen't been buying at wrong prices in 2018Q4, because he hasen't bought much in 2018Q3 on its way up. At least that feels comforting. [Personally, I'm totally indifferent towards the wild gyrations in the stock lately - but the cost of the position matters to me long term].

Some time ago I posted here in this topic some calculations of what Mr. Buffett max. could pour into AAPL, based on EOP 2018Q3 market prices [USD ~50 B], which I ref. above feel confident hasen't taken place in 2018Q4.

- - - o 0 o - - -

The liquidity of the AAPL stock is much better than BRK.A/BRK.B - So how do you think Mr. Buffett has instructed the broker to buy AAPL during the first three quarters of 2018? - Let me hear you, and I'll start tinkering the data.

- - - o 0 o - - -

File attached.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on January 03, 2019, 05:18:18 PM
I have a funny feeling that Berkshire has provided liquidity for Apple in the first quarter of 2019.  :D
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: StubbleJumper on January 03, 2019, 05:33:49 PM
I have a funny feeling that Berkshire has provided liquidity for Apple in the first quarter of 2019.  :D


I don't doubt it one bit.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: StubbleJumper on January 03, 2019, 05:39:23 PM

The exact level of buybacks might not be clear, but what is clear is that it amounts to bugger-all in the context of BRK's cash balances.  The finished the quarter with, what, $95 billion in cash and short term investments?  So dropping a bil on buybacks hardly constitutes an aggressive, high conviction move.

I say either get serious about deploying some of that cash on buybacks, or institute a considerable cash dividend.  Buying Apple sharss soaked up some cash, but it really doesnt inspire confidence in management given previous observations about circle of competence.


SJ
If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.

StubbleJumper & alwaysinvert,

How do you feel and think about the whole thing today Monday?

- In a time context, your posts was just after the Berkshire 10-Q was released. Now we have had ongoing discussion during the weekend and analysis of the 10-Q, and it has come up that about ~USD 15B has been allocated to financials during 2018Q3 [- of the ~USD 15 B ~USD 6 B allocated to BAC -], on top of the share buyback of ~USD 1 B in the quarter.

Furthermore considerations/speculations [ time will tell ] that more capital has been allocated to perhaps BK, USB & GS, perhaps even new positions in financials.

Personally, I was a bit disappointed just after the release of the 10-Q, too. After a couple of nights sleep on it, I have a good feeling about this here Monday morning. The upward trend in liquidity surplus has been turned, and Berkshire is still the Rock of Gibraltar. All in all, not that bad, because it's actually able to generate good earnings and cash flow as it is.


John,

Since the beginning, I have been skeptical of the Apple position because it struck me as outside of WEBs circle of competence and it has always struck me as a desperate move to deploy a large amount of cash.  The catalyst for that move has never quite been obvious to me -- what has Apple done in the past 12 or 18 months that suddenly merited such a large chunk of shareholders' capital?  The price didn't plunge rapidly to make it a 50 cent dollar.  Nope it was bought on fundamentals and operating results.  But, after racking up $110B± of cash it looks like brk is grasping for reasons to not initiate a healthy sized dividend or to not buy back a large slug of shares.

Turning to the purchase of large US financial companies (banks), nearly everybody on this board took a high conviction position about 5 or 6 years ago and we have made out like bandits.  The banks are still a buy, IMO, but are not as cheap as when we were all pounding on the table about BAC or JPM back in '11 or '12.  So why is brk suddenly taking a high(er) conviction position in the banks right at this moment?  A what point during the past five or so years were the US banks not an obvious purchase?  To be blunt, it was value in plain sight.  How did brk accumulate $110B± of cash when the banks have been an obvious outlet to deploy cash for the past 20 or so quarters?

The actions of the past year or so have struck me as a desperate effort to deploy cash and deny a basic reality.  That reality is that cash from ops is basically $40b per year.  Take off something for maintenance capex, new plant and equipment, and opportunistic acquisitions and you're looking at reasonably reliable cash surplus of about $20b per year.  The opportunities to deploy that much capital on an ongoing basis are not available in sufficient quality and high enough expected return to continue retaining 100 percent of earnings.


SJ

I'm sorry for the dense quotation above - Here I'm going back to this particular post by StubbleJumper from about two months ago, which was a direct reply to me, which I somehow managed to miss to thank you for StubbleJumper.

So, thank you StubbleJumper, & please accept my apology for a very late reply here.

- - - o 0 o - - -

Here, this is particularly for me about Berkshire's position in Apple. Yes, it's in a way "controversial" to me, too. I've been thinking a lot about it lately, and have also felt forced to do some work on the company to get a better understanding, simply because of the size of the position for Berkshire.  -And yes, then comes in the recent events with Apple...

I'm in my early innings with Apple, still, but I like it. What has happened while Mr. Buffett has built the position - now to the largest one - is so far to me like a page intentionally left blank. So I have tried to do something about that, by just looking at some data, in a structured way, yet without getting into some real tinkering with data.

So the file contains right now just a pile of data, but on the tab "Interim overall assessment" I have structured them to give a visual overview for the first three quarters of 2018. [Data for building the position for 2016 & 2017 I just consider history - but important data for understanding Berkshire's cost of the AAPL position].

Just by looking at the structured data for the three quarters, I feel quite confident, that Mr. Buffett hasen't been buying at wrong prices in 2018Q4, because he hasen't bought much in 2018Q3 on its way up. At least that feels comforting. [Personally, I'm totally indifferent towards the wild gyrations in the stock lately - but the cost of the position matters to me long term].

Some time ago I posted here in this topic some calculations of what Mr. Buffett max. could pour into AAPL, based on EOP 2018Q3 market prices [USD ~50 B], which I ref. above feel confident hasen't taken place in 2018Q4.

- - - o 0 o - - -

The liquidity of the AAPL stock is much better than BRK.A/BRK.B - So how do you think Mr. Buffett has instructed the broker to buy AAPL during the first three quarters of 2018? - Let me hear you, and I'll start tinkering the data.

- - - o 0 o - - -

File attached.



John,

Thanks for the note.  I tend to be very cynical about management teams and suspicious about the alignment of their interest with that of smaller shareholders.

I expect that when the numbers come out we will see more of the same from BRK.  The Apple position will be larger, the large slug of financial companies will almost certainly be a larger slug, and the BRK buybacks will be trivial.  IMO, this is a crying shame.  With BRK<$200 these days, it should be a no-brainer to buy back shares to increase SV for continuing shareholders. 

IMO, it's a case study of a misalignment of priorities.


SJ
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on January 03, 2019, 05:51:04 PM
SJ, 10 billion dollars here, 10 billion dollars there, 20 billion dollars there.... Pretty soon we're talking big money. The buyback is what it is. It's been discussed here a lot. It's been suggested it's simple. My feeling, given WB's views of the issue, is that he has designed a smarter buyback system that has been suggested. It's simply not in the man's genes to just do what everyone else does.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Spekulatius on January 03, 2019, 08:29:19 PM
i bet Warren weighs the price declines for his holdings vs the price declines for BRK, and BRK until today has actually outperformed. My guess is that he put much more funds into adding to his holding than buying back BRK shares. This may changes, when the relative value proposition changes.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: StubbleJumper on January 04, 2019, 05:58:56 AM
SJ, 10 billion dollars here, 10 billion dollars there, 20 billion dollars there.... Pretty soon we're talking big money. The buyback is what it is. It's been discussed here a lot. It's been suggested it's simple. My feeling, given WB's views of the issue, is that he has designed a smarter buyback system that has been suggested. It's simply not in the man's genes to just do what everyone else does.


If only it were $10b here and $20b there....  So far, it's been more like $1b here $500m there. I guess we'll soon see whether he has stepped on the gas pedal.


SJ
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on January 04, 2019, 06:20:43 AM
It's just a function of how many trading days the stock is below the cap.  He isn't making a 'step on the gas pedal' type decision - the market is either offering up Berkshire for a low enough price on more trading days or it isn't.  $5 Billion a quarter is doable if the market offers Berkshire below his cap price.  But the plan can only purchase so much each day - so it really matters how many days the market allows them to be active purchasers.

SJ, 10 billion dollars here, 10 billion dollars there, 20 billion dollars there.... Pretty soon we're talking big money. The buyback is what it is. It's been discussed here a lot. It's been suggested it's simple. My feeling, given WB's views of the issue, is that he has designed a smarter buyback system that has been suggested. It's simply not in the man's genes to just do what everyone else does.


If only it were $10b here and $20b there....  So far, it's been more like $1b here $500m there. I guess we'll soon see whether he has stepped on the gas pedal.


SJ
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 04, 2019, 06:39:43 AM
Exactly - what globalfinancepartners just said. So from here: High hopes for continued scrambling around below 200 for the B, combined with high daily volumes!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Rod on January 04, 2019, 06:57:59 AM
Does anyone have an up to date estimate of book value? I'm thinking if I could get in at 1.3x or less, I would do it.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on January 04, 2019, 07:07:19 AM
I don't have a current estimate of BV, but others here probably have a spreadsheet that gets you pretty close.  Book value is lower than Q3 mark, which was 152.47 per share on the B shares.  I would say low 180's per share will get you your 1.3x number.  You don't have to be exactly right about it.  Say 182...

Does anyone have an up to date estimate of book value? I'm thinking if I could get in at 1.3x or less, I would do it.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Libs on January 04, 2019, 08:17:33 AM
Getting back to the Apple discussion - I concur with Stubble. Putting such a huge % of BRK's market cap into Apple bothered me from the start. I hope he's done adding. I rarely question Buffett's purchases but the bear case here is worrisome.

I've been trying to find BRK's ( most recent) cost basis in Apple. Does anyone have it?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on January 04, 2019, 08:19:54 AM
Just a quick update that I did the math on Berkshire's approximate Apple cost basis as of end of Q3 2018.  I know you did the same, John, but I couldn't really see an exact number in your spread sheet.  Maybe I am reading it wrong.

Anyway, here is the last know Apple position at Berkshire and it's cost basis:

255.16 million shares, total cost basis of $36.209 Billion, for an average cost basis of 141.91 / share.

This excludes pension fund holdings.

The first 166.713 million shares were disclosed in the AR as having a 125.73 / share average cost.

Getting back to the Apple discussion - I concur with Stubble. Putting such a huge % of BRK's market cap into Apple bothered me from the start. I hope he's done adding. I rarely question Buffett's purchases but the bear case here is worrisome.

I've been trying to find BRK's ( most recent) cost basis in Apple. Does anyone have it?


The exact cost basis won’t be disclosed until the annual report. You can estimate it using last years AR and shares added each quarter since using average quarterly prices.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 04, 2019, 08:20:48 AM
Libs,

It's in my last attachment in this topic. [The last known one, that is, ref. globalfinancepartners.]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on January 04, 2019, 09:03:24 AM
The under performance for the week continues today with Berkshire lagging the S&P by more than 1%.  Berkshire down 3.54% for the week with the S&P up 1.39% as I write this, for an underperformance of 4.93%.  For perspective, that's the worst week of relative performance since 2009.  If this keeps up I'm guessing there will be plenty of opportunities for buybacks.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on January 04, 2019, 09:21:25 AM
“Gas pedal to the floor” to Omaha will look like deploying some $200B to buyback over the next decade. The privatization in slow motion of sorts would be deja vu for Buffett; he never wanted this many partners anyway. Watch out Singleton!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on January 04, 2019, 09:24:04 AM
Rod, my rough guess of Book Value from the last known portfolio I track for Look Through holdings and earnings (trying to account for pension holdings and New England Asset Management's 13-F as best as I can) is that BRK.B BV/share ended 2018 on a small stock market recovery since Christmas Eve at just under $144 of Book Value per class B share, depending on actual operating company earnings after tax during the quarter, which might actually provide a little boost, so that would imply around $187 is your 1.3x BV figure, near enough.

So it's not far below 2018Q2's BVPS. I remember BRK.B trading around $185-189 in late June 2018 before Q2 ended, and the previous quarter's BVPS was $140.79 (1.3x last reported BV was then $183.03), in a rising market, marking the low point for 2018. I added to my already high BRK.B exposure on 24th December 2018 when prices dipped as low as $187-189.

In reality, I would expect that Intrinsic Value per share has actually increased since 30th Sep 2018, despite the decline in Book Value from the market value declines, so 1.3x BV now is a bigger discount to IV than it was then, in keeping with the declines in most of the market.

And it's possible that Berkshire has been adding to positions on the way down, so they'll have lost a fraction more in Book Value than my estimate based on the 13-F as the market prices have fallen further, while nonetheless increasing IV by buying with a good margin of safety, assuming IV for each position hasn't taken a serious permanent hit and remains largely intact.

Also, I'm generally assuming that any decline in market value of positions is partly offset by about 21% reduction in deferred tax liability when calculating the change in Book Value caused by the portfolio market price change. That might not be quite true for new positions that have declines to below their cost basis (e.g. ORCL), but will hopefully be roughly true for long-established positions with a much lower cost basis, which is probably the majority of Berkshire's portfolio, so probably roughly right.

I could still imagine BRK.B going lower, the way markets have been behaving lately, and there probably won't be any rosy financials published in BV terms until the Annual Meeting weekend in May, but operating earnings might conversely have been exceptionally good this quarter, so I'm not predicting one way or another whether Mr Market will view the results positively or negatively.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on January 04, 2019, 09:29:48 AM
Thanks Dynamic - I knew you would have an estimated BVPS figure.  Float should be up from the MLMIC acquisition plus whatever other float growth Ajit could manage.  Berkshire likely continued buying financials during the quarter, just not WFC, BAC or AXP.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: StubbleJumper on January 04, 2019, 09:56:14 AM
“Gas pedal to the floor” to Omaha will look like deploying some $200B to buyback over the next decade. The privatization in slow motion of sorts would be deja vu for Buffett; he never wanted this many partners anyway. Watch out Singleton!


They'll almost certainly have the cashflow to buyback $200b of shares over a decade.  Heck, they have the cashflow to do that today!  Given the $1b that was bought back last quarter, they'll really need to step on the gas to make that happen.  Maybe a dividend is a better idea.


SJ
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 04, 2019, 10:27:41 AM
... Maybe a dividend is a better idea. ...

StubbleJumper,

I know for a fact that won't happen as long as Mr. Buffett is alive - perhaps not even before his estate is finally settled. The reason is that it hoses some dividend taxes into the coffers of the US IRS, generates cash for Mr. Buffet that he does not want or need, and thereby also dilutes his gift promises. So you know it, too.

The wonders of having a controlling shareholder ... I think it's called so.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Libs on January 04, 2019, 12:26:36 PM
Libs,

It's in my last attachment in this topic. [The last known one, that is, ref. globalfinancepartners.]

Thanks Hjorth. I'd missed that. I'm getting the low 160's as the basis through Q3.

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 04, 2019, 01:01:35 PM
Libs,

It's in my last attachment in this topic. [The last known one, that is, ref. globalfinancepartners.]

Thanks Hjorth. I'd missed that. I'm getting the low 160's as the basis through Q3.

You're welcome Libs,

Today I've been  thinking more about how to proceed with this reverse engineering of the AAPL position. I've come an interim conclusion so far, that I'm on a wild goose chase here, contemplating to do Sisyphus (https://en.wikipedia.org/wiki/Sisyphus) work.

This is about what's been going on with Berkshire's AAPL position i 2018Q3 [not so much for the two quarters prior in 2018]. The point here is, that Mr. Buffett may have trimmed the AAPL position on it's way up in the run-up to the top near EOP 2018Q3, and may have have trimmed it further down on the slide on the other side of the top, perhaps even without buying near yearend and its recent lows as of now. There is no legal way to find out, until we see the next Berkshire portfolio report on EDGAR mid February. There is nothing to triangulate on, nor even to intercept on - because we have only two dots hanging up in the sky [on EDGAR] - Berkshire's EOP 2018Q2 & EOP 2018Q3 AAPL positions.

So please stay open minded towards that Berkshire's AAPL position at YE2018 [with regard to number of shares] may be lower than at EOP 2018Q3.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on January 04, 2019, 02:06:22 PM
I would be shocked if the share count of Apple decreased.  He's not one to try to flip shares for a quick profit even if they start to look overvalued, and the best he could have done is record something like a 30% gain on his recent purchases.  I'd bet there is a higher chance he nearly doubled it than reduced it.  We know he added tens of millions of shares at prices around 25% above where we are right now so he must have thought it was a big bargain then, and I can't see anyway he could think it has been impaired so much by a little blip like a 9% revenue miss in a single quarter.

It's a huge position, but the percentages are tiny compared to what he worked with before.  Don't forget he put 1/3rd of Berkshire's net worth into Coke, and for most of the 90s its value was something like half of Berkshire's book value and he never sold a share.  I believe the latter he views as a mistake, but that was when he was sitting on a 10-bagger in ten years, not less than a double like he had with Apple.  Apple was never more than around 6% of Berkshire's net worth at cost or more than 10% at market value.  The numbers are bigger now, but I don't think that would scare him if he still has conviction in Apple. 

I could see him going to the 9% range - probably not up to 10 because then he'd be immediately selling along with the repurchases - which would be around 430 million shares total or 177.5 million in new purchases.


Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SHDL on January 04, 2019, 02:17:15 PM
I would be shocked if the share count of Apple decreased.  He's not one to try to flip shares for a quick profit even if they start to look overvalued, and the best he could have done is record something like a 30% gain on his recent purchases.  I'd bet there is a higher chance he nearly doubled it than reduced it.  We know he added tens of millions of shares at prices around 25% above where we are right now so he must have thought it was a big bargain then, and I can't see anyway he could think it has been impaired so much by a little blip like a 9% revenue miss in a single quarter.

It's a huge position, but the percentages are tiny compared to what he worked with before.  Don't forget he put 1/3rd of Berkshire's net worth into Coke, and for most of the 90s its value was something like half of Berkshire's book value and he never sold a share.  I believe the latter he views as a mistake, but that was when he was sitting on a 10-bagger in ten years, not less than a double like he had with Apple.  Apple was never more than around 6% of Berkshire's net worth at cost or more than 10% at market value.  The numbers are bigger now, but I don't think that would scare him if he still has conviction in Apple. 

I could see him going to the 9% range - probably not up to 10 because then he'd be immediately selling along with the repurchases - which would be around 430 million shares total or 177.5 million in new purchases.

I must not be the only one who's secretly hoping he sold it all in early October and bought twice as much back during the last two weeks.   8)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 04, 2019, 02:54:12 PM
aws,

Yes, very provoking statement from me in my last post, I'll give you that. But - at least to me - that's just a part of being a Berkshire investor - a positive one, may I add. [Mr. Buffett operating in the fat [read: [almost] unthinkable] tails. He is [historically proven] extremely good at this.

Again, please look at the data, that I've provided in my last attachment in this topic. Berkshire AAPL position EOP 2018Q3 [ex. NEAM] : 252,478,779. Average daily volume according to Yahoo Finance : 42,876,784.

So, why shouldn't Mr. Buffett trade it, if he felt inclined to? -He is not constrained by liquidity in the stock here and can do the trade without any kind of flagging.

My above statement was not some sort of prediction.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 04, 2019, 03:16:13 PM
... I'd bet there is a higher chance he nearly doubled it than reduced it. ...

Thank you for a mutual mind provoking statement. Time will tell.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 09, 2019, 11:26:48 AM

More data! [and a bit less talk ...]:

Estimated Berkshire selfimposed acquisition capacity EOP 2018Q3 per company for AAPL and the US banks [ranked]:

AAPL : USD 50,053 M
JPM   : USD 33,438 M
GS    : USD   4,129 M
BAC  : USD   2,329 M
USB  : USD   1,293 M
BK    : USD      891 M

- - - o 0 o - -

BRK maximum volume based buybacks at price ceiling 208 [<- known for 2018Q3] for period October 1st - December 14th 2018 - a material part of 2018Q4 : USD 5,454 M.

- - - o 0 o - - -

Calculation attached.

Bumping this up by quoting, with attachment!

- - - o 0 o - - -

Anybody of my fellow board members willing to take firm, unconditional & binding  WAG [<- learned that expression from longinvestor! [ : - D ]] stab at:

? [ : - ) ]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on January 10, 2019, 10:47:22 AM
Just a quick update that I did the math on Berkshire's approximate Apple cost basis as of end of Q3 2018.  I know you did the same, John, but I couldn't really see an exact number in your spread sheet.  Maybe I am reading it wrong.

Anyway, here is the last know Apple position at Berkshire and it's cost basis:

255.16 million shares, total cost basis of $36.209 Billion, for an average cost basis of 141.91 / share.

This excludes pension fund holdings.

The first 166.713 million shares were disclosed in the AR as having a 125.73 / share average cost.

*** edit: this is kind of funny since the low from 1/3/2019 was $142/share. ***

Getting back to the Apple discussion - I concur with Stubble. Putting such a huge % of BRK's market cap into Apple bothered me from the start. I hope he's done adding. I rarely question Buffett's purchases but the bear case here is worrisome.

I've been trying to find BRK's ( most recent) cost basis in Apple. Does anyone have it?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on January 10, 2019, 11:23:13 AM
One would have to assume that Apple is worth more now than when Buffett initially bought his stock. It's not like they've been breaking even.

For what it's worth, I'm surprised that Berkshire has underperformed Apple AND DAL since they had their profit warnings. I guess the market has its ways.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on January 11, 2019, 01:54:16 PM
I'm sorry for an unclear post above of mine, globalfinancepartners,

It's about my try to reverse engineer Berkshire's Apple position. To do it I had to make additional assumptions to try to triangulate it. The difference to the reverse engineering of Berkshire buybacks is we have an "extra" fixpoint based in the information in the 10-Qs about buybacks and a reasonable assumption [you did it, and what you proposed made perfect sense to me] how the buy order to the broker is bolted together.

That fixpoint we don't have for the Apple position [quarterly]. So it would be pure guesswork based on my own speculations, and what may come out of the Excel crushing the numbers would most likely be a self-fulfilling prophecy. In short, I would just be fooling myself. So I didn't try to proceed with the calculations. Also, I hope my fellow board members got a good laugh of this brainfart of mine! [ : - ) ]

Also - and especially - the fact that aws has expressed a variant expectation to mine, which is as good as mine, gave me confirmation that doing the calculations was a no-go. Better to wait to mid February to see the size of the Apple position EOP 2018Q4 and the cost of it at a later moment in the Berkshire 2018 10-K.

That said, rough estimates of the cost of the additions to the Apple position for the first 3 quarters of 2018 can still be done now, yes.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on February 06, 2019, 03:41:56 PM
I haven't followed traded volume in BRK lately. Has someone here done continual updates? Q4 report is drawing closer.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on February 06, 2019, 11:21:36 PM
I've been busy with other stuff the last few days, but I'll provide an update for 2018Q4 soon, before we will have the 10-K. That will be Saturday February 23rd 2019, right?

- - - o 0 o - - -

Next thing must be the 2018Q4 13F-HR on Friday just after market close next Friday, Friday 15th 2019. -I can almost hear the silence around Berkshire lately! - Only 6 [six] SEC filings since last [2018Q3] 13F-HR!

- - - o 0 o - - -

Tracking the volume on a continuing basis is a great idea. I'll just have to "merge" the files I already have. Personally, I have trouble imagine that the price of Berkshire will stay in "buyback territory" [whatever that specifically means] going forward for prolonged time spans - I consider it too good to think that it will actually happen. Time will tell.

- - - o 0 o - - -

What are your interim thoughts about the "buyback ceiling" [maximum price for share buybacks] for 2018Q4, gents? gfp has earlier expressed and shared thoughts with us about that it would be adjusted quarterly, perhaps related in a way to the quarterly development in book value per share. [That line of thinking makes sense to me, personally.]

Furthermore, rb has posted earlier, that perhaps the buyback scheme is a bit more nuanced and not so simple as what the reverse engineering of the buybacks for 2018Q3 showed support for. Perhaps a larger percentage than 10 percent of average daily volume, if the market price deviates materially downwards from the buyback ceiling, like we experienced around Christmas?

- - - o 0 o - - -

Daily volumes for January 2019 - just by looking at a chart - looks about similar to volumes in 2018Q4 - and I would expect Berkshire has been buying back the whole month.

Privately negotiated deals will continue to stay a joker until next 10-Q or 10-K.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on February 09, 2019, 08:19:03 AM
Which one is better for shareholders?

Co buying back aggressively, say $10 B over the past quarter? Then wait for another opportunity to buy aggressive ly?

“A little” like a couple of billion a quarter for 10 years?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on February 09, 2019, 08:47:54 AM
Hard to say what is better for shareholders.  But Berkshire isn't going to repurchase stock aggressively unless it gets really cheap.  The current plan takes in 5-10% of the average daily volume on days the stock is below a cap price. The current plan takes in 10% of ADV as a target, but actually was something like 11% on the B-shares for the 11 actual days they were active.  Harder to calculate on the A-shares because they traded at a premium to the B's during the 7/7-7/24 period, and may not have had the same cap.  It allows them to be active during what would otherwise be blackout periods and it accomplishes Buffett's goal of not manipulating the share price (much).

If he got some big blocks of stock offered to him he would probably take them.  But those seem infrequent, so this slow dribble of - at best - less than $4 Billion per quarter will probably be all we get.

I estimate Q4 repurchases were somewhere between $1.5 Billion and $2.7 Billion $2 Billion and $3.5 Billion, depending on how they figure the cap price.  I would expect that they continued share repurchases subsequent to quarter end as well, which we will be able to tell when they file the 10K with a share count as of mid-Feb.


Which one is better for shareholders?

Co buying back aggressively, say $10 B over the past quarter? Then wait for another opportunity to buy aggressive ly?

“A little” like a couple of billion a quarter for 10 years?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on February 09, 2019, 02:45:23 PM
In the case of Berkshire Hathaway price is arguably influenced more by disclosure that they have been buying via SEC filing than the percentage of ADV that they actually bought. The stock price has not moved much no matter whether they bought 5% or 25% over the past 4 months. It’s not moved because of buyback volume at least in one quarter.

From all answers provided by Buffett on this subject they are likely to be opportunistic, aggressive but always relative to what other (better) opportunities they are presented with at any given point in time. Buffett has made some comments of late that they are not currently being offered greater deals. I get the sense that buybacks are always plan B for Buffett and Munger. For the next guy it could well be plan A.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on February 09, 2019, 05:15:17 PM
Attached is the file I posted on December 29th 2018, now updated with the last trading day in 2018, December 31st 2018.

I have [mechanically] projected the reverse engineering outcome from 2018Q3 to 2018Q4 [I have no other reasonable fixpoints as of now - the information will be available in the 10-K that we will see soon].

The file indicates a bit north of USD 4 B in buybacks [~ USD 4.2 B] for 2018Q4.

The file also indicates a quarterly volume of USD 75 B, indicating monthly volume of USD 25 B for the quarter at an average volume based stock price of 207.66. [Elaboration: If the buyback threshold was 230, the broker running the buybacks would be buying 10 percent of everything every day, then indicated in that case, that the buybacks would be USD 7.453 B - ten times that figure is ~ USD 75 B for the quarter.]

Still no bling in the file.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rolling on February 15, 2019, 03:40:10 PM
Upon reading this thread, some points make me raise a few questions:
1) 208 price cap: why would the cap have stayed the same? My guess is he updates the number every quarter, either in an automatic fashion or not. My guess would be a roughly 2% increase every quarter, which would amount to an 8-9% IV increase every year

2) 10% volume cap: why should it be static? It would be much more Buffett like say: 0-10% discount to IV, buy up to 10%, 10-15%, up to 15, 15-20, up to 20%, ovee 20% discount go all in to the 25% limit.

I guess we might soon know some of the answers.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on February 15, 2019, 03:55:23 PM
Yeah we don't know if its a static / manually adjusted price cap on the plan.  We'll probably be able to reverse engineer the plan rules after a few more quarterly disclosures.  It could very well be that the cap is based on a multiple of last reported BVPS.

Warren would be willing to buy big blocks of shares outside the broker-executed plan when he's not in a restricted period.  For the automatic plan, he really doesn't want to affect the trading price of the stock much - or establish any type of "floor."

Upon reading this thread, some points make me raise a few questions:
1) 208 price cap: why would the cap have stayed the same? My guess is he updates the number every quarter, either in an automatic fashion or not. My guess would be a roughly 2% increase every quarter, which would amount to an 8-9% IV increase every year

2) 10% volume cap: why should it be static? It would be much more Buffett like say: 0-10% discount to IV, buy up to 10%, 10-15%, up to 15, 15-20, up to 20%, ovee 20% discount go all in to the 25% limit.

I guess we might soon know some of the answers.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on February 16, 2019, 03:08:30 AM
aws posted this in the "General News" topic:

Net buys were only about 1b for the quarter, and unless they got lucky and bought RHT before the IBM news then most of that is probably just a merger arb.  Not exactly swinging for the fences on one of the worst quarters in recent memory.  I wonder if he was expecting it to get a lot worse, or if he was spending all his funds on Berkshire stock.  Berkshire did do relatively well compared to the market up until the start of the year, so maybe he was buying a lot then but has been locked out lately.

I was surprised to see the number mentioned in this post by aws for net buys. However it's true. Attached is my estimation. [EOP 2018Q3 prices used for positions liquidated in 2018Q4, EOP 2018Q4 prices for the rest.]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on February 21, 2019, 12:05:18 AM
There was some discussion about implications for capital allocation possiblities in light of the latest 13F. Some people drew the conclusion that this makes large market buybacks more likely. I disagree with that - it's hard to see why that would meaningfully move the size of market buybacks since funds are far from scarce anyway.

However, I would contend that the possibilities of a tender buyback have materially increased from the recent dearth of stock purchases and acquisitions. Soon enough there will be no other reasonable way of allocating the excess capital. Except the dreaded taxable event of a dividend, that is. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on February 21, 2019, 08:20:54 AM
I'm going to go out on a limb and suggest that we should expect a fairly big buyback for the quarter ($5 bn +, maybe even $7bn), given the following fact pattern:

1. First quarter: S&P -0.76%, net equity purchases of $10.5 billion
2. Second quarter: S&P 3.43%, net equity purchases of $1.3 billion
3. Third quarter: S&P 7.71%, net equity purchases of $12.6 billion, buyback $0.9 billion
4. Fourth quarter: S&P -13.52%, net equity purchases of $0.9 billion (the lowest of the year at the most attractive point and it's not like they didn't have cash).
5. Much of the additions during the year were banks and Apple. These fell even more than the market in Q4. None of the major holdings were materially reduced (except to remain below 10%, etc.) so the attractiveness of these to WEB seems to continue. Yet, they were not purchased even at lower prices. In fact, it was the lowest quarter for net equity purchases. So there must've been an alternative to get the cash out.
6a. Stock was below 3Q18 buyback levels. One could question, does the buyback threshold come down because of the fall in the market value of the portfolio. It's possible, but nothing changes on a look-through earnings basis. From that view, buying back BRK becomes a better way (than purchasing stocks) to increase exposure to the same portfolio.
6b. Ajit Jain purchased $30mm of stock for his personal account, which would seem to support 6a. Jain is also on the board and, hence, familiar with WEB's valuation and buyback level.
7. Daily volume considerations would easily allow a buyback of $5-$10 billion.

If BRK didn't buy back and just let cash build and build despite the market fall and the flagging share price, we'll have to revisit our assumptions on long-term ROE. On the other hand, if they buy back a lot of stock, it's a clear indication that they think this is the best large cap opportunity out there (and JPM?). So there... that's what I think will happen. We'll find out soon enough.

Also, even though remote, I think the possibility of a dividend is higher now, especially if it turns out they haven't bought back much. Otherwise cash levels will become simply unmanageable/ridiculous and we'll have a permanently low ROE due to the drag. In a regular recession, they could not get $100 billion invested.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on February 21, 2019, 11:00:57 AM
A big factor in buying back is the market co-operating with Berkshire by offering the stock at  (well) below intrinsic value. If Buffett tips his hand about the new price he’s willing to buy, the market will immediately close the door to buybacks. Exactly what happened at 1.1x and 1.2x BV. And the buyback is meant to gobble up some $200 B over the next decade. They need the buying opportunities for a long time to come. If “a little “ or whatever that means is the way to get more opportunities that’s likely what they do. On the other hand, they are seldom known to waver when they see good opportunities, the wheelbarrow thing. We’ll see soon enough
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on February 23, 2019, 05:44:07 AM
Extremely light buyback!

$BRKB repurchased $418 million worth of $BRKA and $BRKB and another $14 million through Feb 14.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on February 23, 2019, 06:52:47 AM
Post by gfp in "Annual Letter" topic just short time ago :


Only $417 million in share repurchases in Q4.  Only active from 10/11-10/18 and 12/13-12/24 - so much for figuring out their plan!  Further, they only repurchased class A shares during the fall culminating on Christmas Eve - not what I would have guessed.

page K-29 for those interested.

It makes no sense to me, what has been going on with the buybacks in the days just before Christmas. B-shares - the most liquid of the two classes - were bought at an average price of 205.09 in the period October 11th - 18th, and none were bought in December, where the share price for the B went below ~205 at around December 17th, and even at few days were below 200!

- - - o 0 o - - -

Cash is being built up at parent company level, EOP 2018Q4 USD 26.394 B. Why? [p. K-111.] Perhaps needless to say that I'm in the same camp as alwaysinvert with regard to dividends - well, now I "said" it.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on February 23, 2019, 08:30:35 AM
I guess we shouldn't be too surprised that he wasn't that active during this dip, as it happened and was over so quickly. If Buffett sprang into action on every 15% dip, then he would never have any cash left for when things get really bad.  I guess it was just the wrong type of dip.  If prices had stabilized at a lower level then he probably would have been a much bigger buyer.

My guess is he is still waiting for that super elephant that will cap his career, and he wants a huge amount of capital for that.  Buybacks permanently take away capital even if it enhances per share intrinsic value, while cash stored in open market purchases can be sold to help pay for that super deal.

The longer stocks and private business values stay elevated the less likely he will make a big deal.  I guess he will just continue to spend dribs and drabs to avoid building up cash absurdly high, but won't be aggressively buying back shares.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on February 23, 2019, 08:43:52 AM
I guess we shouldn't be too surprised that he wasn't that active during this dip, as it happened and was over so quickly. If Buffett sprang into action on every 15% dip, then he would never have any cash left for when things get really bad.  I guess it was just the wrong type of dip.  If prices had stabilized at a lower level then he probably would have been a much bigger buyer.

My guess is he is still waiting for that super elephant that will cap his career, and he wants a huge amount of capital for that.  Buybacks permanently take away capital even if it enhances per share intrinsic value, while cash stored in open market purchases can be sold to help pay for that super deal.

The longer stocks and private business values stay elevated the less likely he will make a big deal.  I guess he will just continue to spend dribs and drabs to avoid building up cash absurdly high, but won't be aggressively buying back shares.


+1. This is a most plausible scenario. It'd be silly if he drained the cash, albeit for buying back at attractive prices and then has to raise large amounts of capital later. At unfavorable conditions! It could put them "at the mercy of the kindness of strangers" something they are foresworn against in the fortress that is Berkshire.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: wisowis on February 23, 2019, 10:02:54 AM
So in the beginning of the letter he says he is changing how the value of Berkshire is reported in his letters.

Quote
Long-time readers of our annual reports will have spotted the different way in which I opened this letter. For
nearly three decades, the initial paragraph featured the percentage change in Berkshire’s per-share book value. It’s
now time to abandon that practice

He then goes on to say this about buybacks:

Quote

When a company says that it contemplates repurchases, it’s vital that all shareholder-partners be given the
information they need to make an intelligent estimate of value. Providing that information is what Charlie and I try to
do in this report. We do not want a partner to sell shares back to the company because he or she has been misled or
inadequately informed.

Call me crazy, but that sounds to me like reluctance to buy back in size when he was providing investors with per-share book value as the metric to be used to calculate intrinsic value.

I think this is him telegraphing that he is now open to large buybacks, now that potential sellers have been "warned".
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Gregmal on February 23, 2019, 10:59:46 AM
I guess we shouldn't be too surprised that he wasn't that active during this dip, as it happened and was over so quickly. If Buffett sprang into action on every 15% dip, then he would never have any cash left for when things get really bad.  I guess it was just the wrong type of dip.  If prices had stabilized at a lower level then he probably would have been a much bigger buyer.

My guess is he is still waiting for that super elephant that will cap his career, and he wants a huge amount of capital for that.  Buybacks permanently take away capital even if it enhances per share intrinsic value, while cash stored in open market purchases can be sold to help pay for that super deal.

The longer stocks and private business values stay elevated the less likely he will make a big deal.  I guess he will just continue to spend dribs and drabs to avoid building up cash absurdly high, but won't be aggressively buying back shares.

I think if this is the case its even more troubling. Translated, this essentially means he is putting his legacy and the "exclamation mark" on his career ahead of easy and obvious, not to mention more traditional method of creating per share value.

On one hand he thinks valuations are excessive(which could also just be an excuse for making some mistakes), yet if this is the case what is the need for all the cash if you think your own equity is cheap? Further, I saw a comment here or maybe in the annual letter thread about "he's shouldn't just buy the dip on every 15% correction". Well, first off, if you know the value of what you are buying, this is irrelevant, and second, how many 15% corrections have we had in the past two decades? And where would one be had they bought BRK or any other number of market proxies during those drawdowns? Just seems like an awful lot of excuse making. Are shareholders really comfortable with this guy, and his track record of late, spending $50B-$75B on an acquisition???
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on February 23, 2019, 11:02:11 AM
Are shareholders really comfortable with this guy, and his track record of late, spending $50B-$75B on an acquisition???
Yep!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on February 23, 2019, 11:08:03 AM
Quote
Third, it is likely that – over time – Berkshire will be a significant repurchaser of its shares, transactions that will take place at
prices above book value but below our estimate of intrinsic value.

I guess the question is still exactly how that will be achieved but I interpret that sentence as being very close to a promise.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on February 23, 2019, 12:11:40 PM
I think if this is the case its even more troubling. Translated, this essentially means he is putting his legacy and the "exclamation mark" on his career ahead of easy and obvious, not to mention more traditional method of creating per share value.

I don't know that I would go that far.  It's a balance between buying back some of your own shares for a small discount against the hope of a future deal at what would hopefully be a much bigger discount.  A great acquisition could add substantially more to the long-term EPS than a few percent in buybacks.   However, as the years grind by without an acquisition the drag from the underperformance of cash means the acquisition in the end would have to be all the more valuable to justify the losses by waiting.

At this point, at least in hindsight, he's probably waited too long.  It's hard to imagine a $50B acquisition today having been better than just buying back $50B of stock over the past five years.  The gap between their return on equity and the return on cash has been like 9% a year, so even if they buy something returning 12% tomorrow, the few lost years of compounding will take a very long time to make up.  But no one knew in advance that this business cycle would go on this long, that M&A valuations would stay so high, or that some sweetheart deal wouldn't just fall into his lap.

Overall, I'm much more comfortable with him being a little too conservative, than to go down the value destructive path of much of the market with buybacks and M&A regardless of the price. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on February 23, 2019, 12:17:40 PM
... I guess we shouldn't be too surprised that he wasn't that active during this dip, as it happened and was over so quickly. If Buffett sprang into action on every 15% dip, then he would never have any cash left for when things get really bad.  I guess it was just the wrong type of dip.  If prices had stabilized at a lower level then he probably would have been a much bigger buyer. ...

aws,

Have you studied any of the data provided in this topic?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on February 23, 2019, 12:55:07 PM
... I guess we shouldn't be too surprised that he wasn't that active during this dip, as it happened and was over so quickly. If Buffett sprang into action on every 15% dip, then he would never have any cash left for when things get really bad.  I guess it was just the wrong type of dip.  If prices had stabilized at a lower level then he probably would have been a much bigger buyer. ...

aws,

Have you studied any of the data provided in this topic?

What specifically are you referring to?  I've skimmed the topic and seen a lot of speculation about maximum repurchase amounts, but that's clearly not been any limiting factor for them.  No one really knows exactly what Buffett is going to do and when.  The most useful data regarding buybacks has been the actual reports, and that shows that he's had little interest in buying aggressively. 

To me, it made sense, and I had contributed some spreadsheets showing that Berkshire market value during the dip was dropping much slower than the market as a whole, making repurchases less attractive than open market purchases of additional portfolio securities.  Then we got the 13f and saw he didn't really buy anything there, so one had to wonder if it was him putting a floor under the price with a lot of repurchases.  And today we got the answer that no, he wasn't buying much of anything in Q4.  YTD that trend has reversed and Berkshire has underperformed a lot, but now everything else is also more expensive.  Berkshire swung down less, and rebounded less, probably never putting IV that far below the bounds he would want for big buys.

All we know for sure is that he doesn't like cash getting too much more than $100B, so he will begrudgingly buy stocks or repurchase shares if he can't find a better use for the capital.  He likes Berkshire well enough in this range that it's been in to repurchase some, but has no desire to buy aggressively.  Maybe he would have bought more of everything if prices stayed 15% down for more than a week, maybe he's waiting for 20-30% discounts to do that. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on February 23, 2019, 01:27:48 PM
aws,

I'm specifically referring to the attachment in this post (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg361293/#msg361293) of mine, and to gfp's very detailed elaboration in several posts in this topic about all the details in a "safe harbour" buyback plan.

To me, this can be analyzed data driven - which I have done - here, in this topic. If you look at the data, Berkshire could have bought B shares for USD 1.9 B below 205 in December 2018 [like it - at least - did in a part of October 2018]. [<- The data for what I'm writing here are in the attachment mentioned above.]

Why did that not happen?

To me, the answer to that is not about some "general considerations", but about data analysis, combined with straight thinking based on logic, taking existing and ruling regulation into consideration.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on February 23, 2019, 02:04:23 PM
This was surprising to me and it is a choice Warren made.  In October they were only active for 6 days, buying both classes of shares at around $30.6 million per day on average.  Then they stopped on October 19th - with prices the same as when they were buying.  And they stayed out fo the market the rest of October, when prices declined as low as 197.29 / b share. 

Then they started buying again 12/13 through Christmas Eve, which is 8 trading days.  Surprisingly they only purchased A shares during this period, at an average of about $29.2m worth per day.  Why on earth they would not purchase B - shares during this period is a mystery to me, unless these were purchased in blocks that were offered directly to Berkshire and this is just the number that happened to be offered. 

It seems like there was not an active safe harbor 10b5-1 plan during most of the quarter, or if there was it had a lower cap price after 10/18 and didn't trigger any purchases afterwards.  The December purchases seem like they were made outside of the plan, if one existed after 10/18.

I suppose Warren knows market participants will try to reverse engineer his buying and it could end up, over time, with a situation similar to the 1.2x rule that kept him from being able to do much.  So he changes it up a bit.

It could also be that he wanted to get the Annual Report out and now he won't feel as bad about 'taking advantage' of exiting shareholders  - his former partners.  But that seems like wishful thinking.  We'll see over time.  Maybe he got bearish like everyone else in December and thought better opportunities would come in 2019.  Not very Buffett-like, but we saw Apple freeze up on buying as well.  People seemed to get spooked.

Why on earth wasn't he buying any shares on 12/26?  I can only guess that it's because none were offered to him with a phone call, and there was no active 10b5-1 plan 'automatically' buying on Berkshire's behalf (or there was one but the cap price was lower).

We'll see..  I was certainly off in my expectations
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Viking on February 23, 2019, 05:57:04 PM
So in the beginning of the letter he says he is changing how the value of Berkshire is reported in his letters.

Quote
Long-time readers of our annual reports will have spotted the different way in which I opened this letter. For
nearly three decades, the initial paragraph featured the percentage change in Berkshire’s per-share book value. It’s
now time to abandon that practice

He then goes on to say this about buybacks:

Quote

When a company says that it contemplates repurchases, it’s vital that all shareholder-partners be given the
information they need to make an intelligent estimate of value. Providing that information is what Charlie and I try to
do in this report. We do not want a partner to sell shares back to the company because he or she has been misled or
inadequately informed.

Call me crazy, but that sounds to me like reluctance to buy back in size when he was providing investors with per-share book value as the metric to be used to calculate intrinsic value.

I think this is him telegraphing that he is now open to large buybacks, now that potential sellers have been "warned".

Wisowis, i think you have nailed it. In the past Berkshire has pretty much NEVER bought back much stock; even when the shares were dirt cheap. However, 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:
1.) remove the handcuffs he has self imposed: In the past Buffett has said BRK might buy back stock when it trades at a certain price level to book value (1.2 then 1.4). In this letter he shreds this commitment. He says BV is no longer a good measure to use when valuing BRK; this is a massive change for Buffett and BRK. Now Berkshire will buy shares when they feel they are cheap and shareholders will find out when quarterly results are published; no longer being constrained to only re-purchase when the stock drops below a pre-specified price to book amount is a big benefit to BRK.

And what is cheap? Whatever Berkshire decides.

2.) provide current shareholders with an updated way to properly value the company: he spends a great deal of the current letter doing this and he lays it out quitewell. I am sure there is a reason for this.

Buffett did not repurchase in Q4 because he first wanted to communicate Berkshire’s new philosophy in the Feb shareholder letter, which was probably written before the Dec meltdown. Buffett always looks longterm; the stock will get cheap again and now he will have no self imposed constraints on when to buy back shares.

And, perhaps most importantly, Buffett has now gone out of his way to ‘warn’ or ‘inform’ investors. If they sell and Berkshire subsequently buys back a big amount of shares and this leads to a higher share price they cannot blame Berkshire for not being transparent.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: wabuffo 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
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: vinod1 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
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: wabuffo 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).

(http://i67.tinypic.com/jfw6s1.jpg)

Snowball...man, snowball!

wabuffo
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Viking 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).
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: bennycx 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
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Cigarbutt 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: shalab 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!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: scorpioncapital 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)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert 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?"
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on February 25, 2019, 01:18:41 AM
I used to think that there was a cash drag at Berkshire, but that it would be invested eventually at good rates of return.

Now, I think that there is no cash drag at times like these, because the amount of uninvested cash is remarkably close to float, an offsetting liability, albeit one that does not need to be paid back for many years as it would decline, in the worst case, at about 3% per year.

So in normal times, Berkshire's net worth is approximately fully invested and Book Value tends to compound at about 9-11% per year.

In times of market panic, where capital is in short supply, Berkshire then tends to spend a lot of the float-funded cash very rapidly on equities, and favourable preferred and warrants, taking advantage of float leverage to juice the returns without a risk of a margin call (as they did for almost the entirety of the 1970~1996 period when they could find many bargains in the stock market that would move the needle). Their credit rating also allows them to take on a modicum of debt if necessary to fund an extra large acquisition, at very cheap rates, while maintaining their $20bn liquidity cushion, and the firm's enormous cash flow will pay off such debt in short order.

This seems appropriate when it's no longer possible to operate a deep-value portfolio of small cap bargains, and for this phase of its life, now as a mega-conglomerate, where Berkshire is hoping to moderately out-pace the SP500TR each decade, with lower risk, I'm happy with it.

To be clear, 2018 was not a serious bear market ripe for massive investments. The market barely fell below the levels at which they closed 31/12/2017 (itself the end of a boom year in the markets), having been flat to falling in Q1, having risen sharply in the 2nd and 3rd quarters, then falling back close to 20% in the 4th quarter to leave the market about 4-5% below where it started 2017 (and 4-5% lower than a pretty high level, is still high). Prices of a lot of things got pretty expensive in Q3, and while a few names went on sale at prices that we small investors could jump at, most large caps were not deeply undervalued for very long at all, so Berkshire had very little time to accumulate significant positions at compelling prices, unlike some private investors. If the S&P index since 2010 or so has returned rather more than the growth in the businesses, it would require quite a significant drop, to bring relative values back to 2010 levels on average.

I'm thinking there's a good chance of at least a moderate recession in the next year or two, possibly even out as far as 2022, though it won't stop me buying when I think things are well priced. If market prices were to fall sufficiently in the next 2-3 years, I could see Berkshire deploying some seriously significant amounts of its float-funded cash. Berkshire needs a sustained reduction in general prices to deploy such large sums with a high margin of safety, and some point in the next 2-4 years might very well provide such an opportunity.

As to buybacks, sure, I think there could a reasonable amount coming soon, probably keeping cash fairly close to float when combined with purchases of other stocks. But I don't think the time of large 'elephant' acquisitions or sweetheart financing and reputation-lending deals has passed (like BAC and GS warrants/preferreds that pay off handsomely after the Global Financial Crisis). But I think it may take a while for the private equity bubble and general stock market valuations to play out and offer decent chances of such opportunities.

In the meantime, Berkshire's Intrinsic Value continues to offer more than acceptable growth, and the stock appears to remain almost permanently valued at a fair to good discount to IV, so I'm very happy to keep it as a mainstay of my portfolio and usually my default "far better than cash with a modest downside risk" option for new funds that I accumulate unless something particularly promising appears on my radar. Even if Berkshire were to drop 10-15% after I park my cash there, it's likely to be a short-lived drop, and otherwise I'm likely to earn around 10% annualised while waiting for my next high conviction opportunity (e.g. something without about 40-50% margin of safety).
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on February 25, 2019, 02:26:11 AM
Carrying a post by obtuse_investor over here from the "Annual Letter 2018" topic:

To all who are disappointed in the buyback volume last quarter: please be patient.

Buffett has been playing a multi decade game; and he is still playing it. He isn’t going to let his mortality stop him. ...

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on February 25, 2019, 04:16:23 AM
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
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on February 25, 2019, 05:14:16 AM
Thank you for sharing, gfp,

To me, this explains a lot of what we have discussed here on CoBF within the last two weeks about Berkshire's capital allocation. An elephant in sight, that got away, in short. Just too bad - one cannot win them all.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: cubsfan on February 25, 2019, 10:55:00 AM
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

I love this guy:

--When pressed for further details on the mystery deal, Buffett says, "I'll give you a hint. It's on this planet."
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on February 25, 2019, 01:14:05 PM
I -really- feel that someone asking Mr. Buffett about the possibility of a tender offer would be justified. It is a matter in which his personal view on the matter can have huge implications for an outsider trying to value Berkshire. It is possible that he believes a tender offer would be unjustifiably "coercive", potentially luring retail investors into tendering stock at a price that looks like a good deal but really is a much better deal for continuing shareholders. It is also possible Buffett would approve of a tender, but find the likelihood of it happening to be tiny for different reasons. It is also possible that Buffett actively considers it an option, among others, for deploying excess capital.

Am I alone in thinking this question deserves more attention than the usual questions regarding GE/KHC/KO/AAPL/Bitcoin? To me, depending on the answer given by Buffett to the above question, I would alter my personal valuation of Berkshire by several % (ergo, if he believes a tender offer immoral, I would increase the likelihood of Berkshire ending up with 200+ BN in cash to be much higher than if he communicated that he believed a tender offer both is possible and reasonable to happen at some point).

How can we get this question across to Mr. Buffett?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Spekulatius on February 25, 2019, 01:43:13 PM
Thank you for sharing, gfp,

To me, this explains a lot of what we have discussed here on CoBF within the last two weeks about Berkshire's capital allocation. An elephant in sight, that got away, in short. Just too bad - one cannot win them all.

Yes, the CoBF lynch mob can put the pitch fork back into the shed. It’s too bad that he couldn’t fire off the elephant gun and he missed the opportunity to add to equities, but things can happen. Warren will now more likely return money to shareholders via buybacks unless he has another elephant in his crosshairs, which seems unlikely in the near term.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on February 25, 2019, 02:14:33 PM
Must have been some elephant if he stopped buying while sitting on 100+ billion in cash.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on March 07, 2019, 06:58:37 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?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on March 07, 2019, 07:04:22 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws 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.

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: ragu 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?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: DooDiligence 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
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: sleepydragon 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...
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws 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%
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Lemsip 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)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws 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?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: omagh 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.

- O

Code: [Select]
"If you speak up and put it [investment idea] on record, you end up getting too wedded to your thesis
and that's dangerous because everything you're invested in is a function of the facts and circumstances on
a given day, it changes" -- Ted Weschler
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth 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 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg363018/#msg363018) 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 (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. [ ; - ) ]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Lemsip 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 (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-buybacks-could-berkshire-tender-stock/msg363018/#msg363018) 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 (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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: tenyearsout 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
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws 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. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: DanielGMask 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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on April 03, 2019, 10:12:27 AM
Can everybody throw out an estimate of what they think the buyback was and we'll see how close our consensus is when the real number comes out? I was waaaay off last time. Given that, through Feb 14, there had not been much in the way of the buyback, I think it's going to be light AGAIN. Maybe 300mm to 800mm, probably closer to the lower end of that. One thing I'm learning is (I posted on this before) that while WEB's rationale and his actions are mostly in sync, but not always. And the buyback is one of those anomalies where he'll tell you stocks are not expensive if rates are low, that BRK is not expensive, then the whole discourse he gave Steve Jobs about buybacks, etc. etc. and then not do anything about BRK's own buyback.

The reasons leave a lot to be desired: Don't want to take advantage of our partners.... well is it fair to take advantage of those who are staying for the sake of those who would leave? Do they not feel bad taking advantage of shareholders of companies where they're buying stock, such as Delta. I don't buy this taking advantage argument at all. When you buy back $1.4 billion of stock, is it okay to take advantage of some shareholders if it's on a small scale? Or that some or other acquisition is in the offing.... when you are WEB, you always have deals you are looking at. There simply are not enough 50bn+ dollar deals out there in companies that BRK can/will buy. The cash balance is truly getting silly now. There have been too many mistakes when they have done something (General Re, IBM, not selling KO, GOOG, etc.) Yet, I'm almost certain nothing will be done about it, except a lot of talk about what SHOULD be done. In fact, when they didn't follow through on the 2000 and 2011 buybacks, both times WEB/CM said that it was a mistake not to do so. And yet, here we are.

I feel like I'm turning into a cynic here but I think WEB has given folks a lot of reasons to feel that way. We'll soon be at 1 yr anniversary of the buyback announcement, the stock has been cheap during that time, and nothing of consequence has been done. Just imagine if Apple stopped their buyback because of the pending TV service. I don't think WEB would be very happy about that. With rates now at sub 3% for much longer, WEB/CM must really reconsider their priorities here. What are your estimates on the buyback?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on April 03, 2019, 12:13:29 PM
Unless he ends up buying back more than his foundations end up selling, which is on the order of $5 billion a year, then on a net basis he isn't even taking any shares out of the public float. 

I agree that I think it's going to be very low, maybe $400-500mm to put a narrow range around it.  Obviously I'm hoping for a lot more, but the shares were so weak in the quarter and I would expect a big buyback to be more noticeable. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Lemsip on April 03, 2019, 01:17:32 PM
I would expect a range of $1 to $1.5bn unless he has been working on other deals.

Not having bought much by Feb 14 does not really matter. If you look at Q3 2018, all the buying of about a billion was concentrated in the space of 10 working days in August. The pattern was the same in Q4 with a block of a week to 10 days in October and December  accounting for all the buys with no buys on any of the other weeks .
So if he wanted to, he could have bought upto $2bn between Feb 14 and end of March. My guess would be closer to the amount seen in Q3 August i.e $1bn.
 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: villainx on April 04, 2019, 10:16:54 AM
I'm kinda assuming it's just something that Buffett has to be comfortable with and then it's going to happen in a major way.  Either it will make sense or not, and when it clearly makes sense quarter after quarter, then Buffett will just own it.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Swedish_Compounder on April 04, 2019, 10:58:27 AM
My guess for this quarter is 1,5 BUSD.

I believe that he wanted to distribute the annual letter explaining how to value Berkshire before initiating buybacks in a big way.

He has probably bought lots of JPM during the quarter.

I would not be surprised to see annual buybacks of between 20-30 BUSD going forward, unless he makes major acquisitions that requires the cash on hand, because they will probably always go first, even if there would be more value in buybacks.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on April 04, 2019, 12:36:32 PM
... He has probably bought lots of JPM during the quarter. ...

Welcome back, Swedish_Compounder,

Yes, exactly. Buybacks is only a part the whole allocation task at Berkshire. Last time I made a calculation about JPM, I think I ended up with Berkshire could put about USD 30 B to work by building a full 10 percent position in JPM.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on April 04, 2019, 10:31:48 PM
Question for clarification: was there a silent period in which Buffett could not file the specific form to permit repurchases during the month leading up to the the release of the 10-k? Think I know the answer but I’d rather have some American hero help me out.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on April 05, 2019, 05:25:12 AM
This might have already have been discussed, but it was a little obscure to me and so I didn't want to attempt to search the thread.


If BRK was to repurchase shares directly from a shareholder with a large position, like THE GATES Foundation:


In common old Virginia talk-  If BRK is buying from The Gates foundation $2B a week for 10 weeks, when and how will we know?  If BRK doesn't want to tip its hand, does it just wait until the end of some regulated deadline and do the transfer for $20B at the last minute?  Why?  So as to not bid up the price and force BRK to potentially pay more?


Thank you in advance Super Brains of CoBF.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: DooDiligence on April 05, 2019, 05:53:15 AM
This might have already have been discussed, but it was a little obscure to me and so I didn't want to attempt to search the thread.


If BRK was to repurchase shares directly from a shareholder with a large position, like THE GATES Foundation:

  • When BRK transfers money to The Gates Foundation [or their stock agent] in exchange for the shares, would the transaction have to be reported into the public markets at the end of the day?
  • If not at the end of the day when would it have to be reported?
  • Can some thoughtful person speculate if there would be strategy to tranfering the money at the end of some period or reporting date so as to benefit BRK?  What strategy might there be in the timing of the purchase?

In common old Virginia talk-  If BRK is buying from The Gates foundation $2B a week for 10 weeks, when and how will we know?  If BRK doesn't want to tip its hand, does it just wait until the end of some regulated deadline and do the transfer for $20B at the last minute?  Why?  So as to not bid up the price and force BRK to potentially pay more?


Thank you in advance Super Brains of CoBF.

I can here the clicking & whirring of a fabulous brain on the North Shore.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on April 05, 2019, 11:03:06 AM
I just cannot imagine any chance of that happening.  It would just look shady to an outsider and I cannot imagine either party agreeing to that.  Imagine you didn't know the parties involved and heard that:

A CEO transferred stock to a private foundation and claimed a massive tax deduction, then using his control of a corporation negotiated buying back the same stock he personally donated, and the foundation despite supposedly being independent of both parties agreed to the sale outside of the market.

It would look like a CEO is funneling billions of dollars of shareholder money from a corporation he controls but does not own outright, to a private foundation, all while claiming billions of dollars of tax deductions, and raising questions if the transactions happened at fair prices under the circumstances.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: DooDiligence on April 05, 2019, 01:36:03 PM
I just cannot imagine any chance of that happening.  It would just look shady to an outsider and I cannot imagine either party agreeing to that.  Imagine you didn't know the parties involved and heard that:

A CEO transferred stock to a private foundation and claimed a massive tax deduction, then using his control of a corporation negotiated buying back the same stock he personally donated, and the foundation despite supposedly being independent of both parties agreed to the sale outside of the market.

It would look like a CEO is funneling billions of dollars of shareholder money from a corporation he controls but does not own outright, to a private foundation, all while claiming billions of dollars of tax deductions, and raising questions if the transactions happened at fair prices under the circumstances.

I hadn't considered that.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Gregmal on April 05, 2019, 02:05:51 PM
This might have already have been discussed, but it was a little obscure to me and so I didn't want to attempt to search the thread.


If BRK was to repurchase shares directly from a shareholder with a large position, like THE GATES Foundation:

  • When BRK transfers money to The Gates Foundation [or their stock agent] in exchange for the shares, would the transaction have to be reported into the public markets at the end of the day?
  • If not at the end of the day when would it have to be reported?
  • Can some thoughtful person speculate if there would be strategy to tranfering the money at the end of some period or reporting date so as to benefit BRK?  What strategy might there be in the timing of the purchase?

In common old Virginia talk-  If BRK is buying from The Gates foundation $2B a week for 10 weeks, when and how will we know?  If BRK doesn't want to tip its hand, does it just wait until the end of some regulated deadline and do the transfer for $20B at the last minute?  Why?  So as to not bid up the price and force BRK to potentially pay more?


Thank you in advance Super Brains of CoBF.

I would imagine both parties find BRK to be of value. Why would one engage with the other in facilitating a transaction that undoubtedly would cause the value of said position to increase, only to no longer have as much of that position to benefit from? Would this not effectively be to the detriment of the Gates foundation?

Or, if the angle is that Warren if pulling strings, Bill and Melinda look like patsies and of course, the issues aws raised arise.

I also dont get why people not only give the benefit of the doubt, but often ASSUME, Buffett to be this kind old man handing out dollar bills to everyone, and handing out $100s to his shareholders. He is shrewd and savvy and historically cut throat while maintaining an excellent reputation through clever PR and admirable ethics. But he is certainly not bending over backwards to orchestrate some overnight, Houdini like buyback transaction that will blow everyone away...in fact, to me its clear that at this point, despite it being to the detriment of his shareholders(via a massive cash drag), his only remaining goal is to find one last, giant elephant for his trophy room.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: james22 on April 06, 2019, 01:03:13 AM
BRK bought back $1.2B from an individual's estate in 2012.

I don't remember anyone questioning the mutually beneficial logic then.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on April 06, 2019, 06:59:46 AM
I think that the Gates Foundation has an interest in selling BRK.B shares as slowly as they are allowed to.  They have special permission to sell BRK.B shares as slowly as they are currently. 

And remember, Warren can't really make use of the tax deduction from donating his shares - so it's hard to spin the whole 'Billionaire transfers controlling stake to foundation, takes multi-billion dollar tax deduction, then repurchases the foundation shares with corporate money' angle as untoward.

When he decides to repurchase material amounts of BRK shares, daily purchases in the open market should be enough over time.  I assume he has started doing that after the annual letter came out.  But who knows, maybe he wants to drill it down one more time at the annual meeting to clear his conscience.  Or maybe they buy something enormous this Sunday..
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on April 06, 2019, 10:35:23 AM
Thank you very much, gfp,

I have a specific question for you, related to the matter just discussed in this topic. July 24th 2018 you posted the following in the "Buffett/Berkshire - general news" topic [link to post (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-news/msg339459/#msg339459)]:

This list shows the gist of how much the Gates foundation sells on a daily basis, for those who are curious -

https://www.sec.gov/Archives/edgar/data/902012/000110465918046338/a18-17436_1ex99d1.htm (https://www.sec.gov/Archives/edgar/data/902012/000110465918046338/a18-17436_1ex99d1.htm)

I have tried to reverse engineer the URL to find those filings for later periods, unfortunately so far to no avail for me.

So, how do I look them up at the SEC website? - Thank you in advance.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: valueinvesting101 on April 06, 2019, 11:17:30 AM

I also dont get why people not only give the benefit of the doubt, but often ASSUME, Buffett to be this kind old man handing out dollar bills to everyone, and handing out $100s to his shareholders. He is shrewd and savvy and historically cut throat while maintaining an excellent reputation through clever PR and admirable ethics. But he is certainly not bending over backwards to orchestrate some overnight, Houdini like buyback transaction that will blow everyone away...in fact, to me its clear that at this point, despite it being to the detriment of his shareholders(via a massive cash drag), his only remaining goal is to find one last, giant elephant for his trophy room.

Going by actuarial tables, average 88 year male has ~87% chance of living another year and ~40% of another five years. Odds for women are around ~50% for living another 5 year.  Being a billionaire with a very different lifestyle, more resources than average person and going by experience of CM, Buffet may have more than 50% chance of working at BRK for another 5-7 year.

That will require deployment of another 120-150 billion in addition to the existing cash pile. So hopefully more than one giant elephant especially if we hit downturn in next few years. 
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on April 06, 2019, 02:10:36 PM

I also dont get why people not only give the benefit of the doubt, but often ASSUME, Buffett to be this kind old man handing out dollar bills to everyone, and handing out $100s to his shareholders. He is shrewd and savvy and historically cut throat while maintaining an excellent reputation through clever PR and admirable ethics. But he is certainly not bending over backwards to orchestrate some overnight, Houdini like buyback transaction that will blow everyone away...in fact, to me its clear that at this point, despite it being to the detriment of his shareholders(via a massive cash drag), his only remaining goal is to find one last, giant elephant for his trophy room.

Going by actuarial tables, average 88 year male has ~87% chance of living another year and ~40% of another five years. Odds for women are around ~50% for living another 5 year.  Being a billionaire with a very different lifestyle, more resources than average person and going by experience of CM, Buffet may have more than 50% chance of working at BRK for another 5-7 year.

That will require deployment of another 120-150 billion in addition to the existing cash pile. So hopefully more than one giant elephant especially if we hit downturn in next few years.

Somehow, this discussion is getting a bit morbid, right?

Somehow, I'm OK with that, and yet not. [Somehow, it's age related for each of us, and for my part, financial planning related to death in separate generations in our families started about six years ago. It's an incredibly hard topic to handle inside a family in the family open, for the future.]

valueinvesting101's last post contain - at least to me - a logical flaw : To be the CEO and Chairman of Berkshire does not require you only to be alive - it requires you to be fit & proper. [So cut back on valueinvesting101's probabilities.]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: nickenumbers on April 06, 2019, 04:40:40 PM
This has been a good continued discussion and I have enjoyed it.

I do not assume anything nefarious with the BRK potential purchases from The Gates Foundation.  Nothing of the kind.  I am confident it would be on the up and up.


BUT, CAN SOMEONE PLEASE TELL ME WHEN ANY PRIVATE PARTY SHARE PURCHASE WOULD BE REPORTED?  WOULD IT BE AT THE END OF THE TRADING DAY AS SOME SUPPLEMENTAL REPORTING Date OR SOMETHING ELSE.

How would any above board purchase of a large block of shares directly from another be made known to the public?

Thanks.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on April 06, 2019, 05:19:41 PM
This has been a good continued discussion and I have enjoyed it. ...

nicke,

alwaysinvert has earlier in this topic expressed that he consider this topic as a horse already beaten to death. Personally, I expect it to be alive & kicking for years! [ : - ) ]

Basically, your question boils down to buying back shares from early Berkshire investors [or their estates] and foundations embraced by Mr. Buffett's gift pledges back in 2006, with amendments [as I read your question].

Only Melinda & Bill Gates Foundation [of them] has a shareholder size, so it's subject for regulatory filing. [It's different for early investors on the Berkshire Board, controlling & owning Berkshire stock.]

So, by logic, you'll see the information no later than in the next 10-Q, ref. the Berkshire 2018 10-K, p. K-29, ref. "Total number of shares purchased as part of publicly announced program" [inverted].
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on April 06, 2019, 05:31:18 PM
Hey John-

The Gates foundation only files periodically, when they rise above or below the 5% threshold.  The most recent filing was when they fell back below the 5% threshold and the link you referenced was an exhibit to that filing -

https://www.sec.gov/Archives/edgar/data/902012/000110465918059501/a18-36147_1sc13da.htm


Basically, they are required to sell shares to "facilitate compliance with federal excise tax rules limiting excess business holdings by private foundations" - and when Warren gives them a big block of stock they cross above the 5% level, then as they sell they have been falling back below.
----------

A little bit of detail on why the Gates Foundation is required to sell BRK.B shares:  A private foundation is not permitted to control a business.  It is also not permitted to own over 20% of a business (in most cases, including this one).  Seems like no problem, but you are required to add to the Foundation's stake the stakes of any "disqualified persons," which includes both Warren and Bill Gates.  And Warren currently controls 31.4% of the vote and 16.5% of the economic interest of Berkshire.  And Bill owns some personally through Cascade as well.  So they are required to sell to "facilitate compliance" and they are allowed to violate the rules as long as they are selling to work towards compliance.

-------------

One last thing John - that filing you referenced was the most recent filing (when they passed below 5% of the class of B shares, not the company as a whole).  But the proxy statement has an update.  On September 28, 2018, the date of the linked filing, the foundation held 62 million shares of BRK.B.  On 3/6/2019, the foundation held 55,277,174 shares of BRK.B.


Thank you very much, gfp,

I have a specific question for you, related to the matter just discussed in this topic. July 24th 2018 you posted the following in the "Buffett/Berkshire - general news" topic [link to post (http://www.cornerofberkshireandfairfax.ca/forum/berkshire-hathaway/buffett-news/msg339459/#msg339459)]:

This list shows the gist of how much the Gates foundation sells on a daily basis, for those who are curious -

https://www.sec.gov/Archives/edgar/data/902012/000110465918046338/a18-17436_1ex99d1.htm (https://www.sec.gov/Archives/edgar/data/902012/000110465918046338/a18-17436_1ex99d1.htm)

I have tried to reverse engineer the URL to find those filings for later periods, unfortunately so far to no avail for me.

So, how do I look them up at the SEC website? - Thank you in advance.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on April 06, 2019, 05:37:49 PM
This has been a good continued discussion and I have enjoyed it.

I do not assume anything nefarious with the BRK potential purchases from The Gates Foundation.  Nothing of the kind.  I am confident it would be on the up and up.


BUT, CAN SOMEONE PLEASE TELL ME WHEN ANY PRIVATE PARTY SHARE PURCHASE WOULD BE REPORTED?  WOULD IT BE AT THE END OF THE TRADING DAY AS SOME SUPPLEMENTAL REPORTING Date OR SOMETHING ELSE.

How would any above board purchase of a large block of shares directly from another be made known to the public?

Thanks.

Yeah, John answered you but I would add that it is not reportable unless the selling shareholder is a reporting insider.  So if First Manhattan sells a block of stock back to Berkshire, they would have to file a Form 4 within 3 business days because Sandy Gottesman is on the board of directors.  If Charlie personally sold a block back to BRK, same deal.  If Charlie's kids sell a block back to BRK, no filing.  We find out the total repurchase in the 10Q.  Any more detail is at the discretion of management

(correction - Sandy is no longer required to report sales from First Manhattan, only his personal shares which are far fewer as seen in his recent Form 4 gifts of A shares)
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on April 07, 2019, 02:04:50 AM
Thank you very much, gfp,

I would like to express that I consider it an enormous privilege to have you around here on CoBF and taking the time to explain this stuff. - Enjoy your Sunday! [ : - ) ]
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gfp on April 07, 2019, 09:23:56 AM
Yo Doo - I live in the city!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on April 25, 2019, 06:25:39 AM
Quote
The only way Buffett will countenance reducing the company’s massive pile of shareholder equity is to buy back shares when they are selling at a price he thinks is lower than their true value. This amounts, in his view, to buying out a partner at an attractive price. He says the time may come when the company buys back as much as $100bn of its shares (it bought back $1.3bn last year).

From FT today.

http://archive.is/XkAtS
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: aws on April 25, 2019, 03:10:15 PM
I hope “There’s only 1,645,000 seats in our church” is an accidental overstatement, as there were closer to 1,641,000 seats left when the 10-K was filed.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on May 03, 2019, 01:08:13 AM
With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.   
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on May 03, 2019, 05:44:06 AM
With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.

The "planting" of the Berkshire investment in Amazon Inc. at Becky Quick by Mr. Buffett released by CNBC within the last 24 hours may be an intentional effort of diversion from that fact.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on May 04, 2019, 09:28:47 AM
So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.

Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.

I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on May 04, 2019, 10:12:01 AM
Some of the early questions around buybacks were decent but Buffett was dancing around them. My impression is that he would be much more aggressive if the stock was trading at a 25%-30% discount to intrinsic value. From this we can infer that Buffett most likely doesn’t believe that the intrinsic value of Berkshire is above 250 USD per B-share. This is somewhat surprising to me, as my intrinsic value estimate would have been above 250 USD prior to Buffett’s comments.

Another thing that surprised me was Buffett saying that their aggressiveness in repurchasing shares will not change whether they have. 50, 100 or 200 BN in cash - but only change as a function of Berkshire’s price  relative to intrinsic value. Before today I would have thought aggressiveness should pick up if Berkshire somehow ended up having hundreds of billion in cash, now I am not so sure.

What frustrates me a bit, is that Buffett suggested that if Berkshire were to buyback 100 BN, he would do so at prices that would redeem more that 1/5th of outstanding shares. I understand full well that his desire is to not pay up - however, I do not understand in which way Buffett could buyback such huge sums in the open market or through private block purchases. And those were the two only options discussed by Buffett.

Somebody ought to ask the question, and specifically ask about possibility of a tender, but it seems like people care too much about other important aspects such as KHC, Buffett’s political endorsements or about management at WFC. Maybe one day someone will actually ask the question.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: gary17 on May 04, 2019, 10:14:29 AM
Some of the early questions around buybacks were decent but Buffett was dancing around them. My impression is that he would be much more aggressive if the stock was trading at a 25%-30% discount to intrinsic value. From this we can infer that Buffett most likely doesn’t believe that the intrinsic value of Berkshire is above 250 USD per B-share. This is somewhat surprising to me, as my intrinsic value estimate would have been above 250 USD prior to Buffett’s comments.

Another thing that surprised me was Buffett saying that their aggressiveness in repurchasing shares will not change whether they have. 50, 100 or 200 BN in cash - but only change as a function of Berkshire’s price  relative to intrinsic value. Before today I would have thought aggressiveness should pick up if Berkshire somehow ended up having hundreds of billion in cash, now I am not so sure.

What frustrates me a bit, is that Buffett suggested that if Berkshire were to buyback 100 BN, he would do so at prices that would redeem more that 1/5th of outstanding shares. I understand full well that his desire is to not pay up - however, I do not understand in which way Buffett could buyback such huge sums in the open market or through private block purchases. And those were the two only options discussed by Buffett.

Somebody ought to ask the question, and specifically ask about possibility of a tender, but it seems like people care too much about other important aspects such as KHC, Buffett’s political endorsements or about management at WFC. Maybe one day someone will actually ask the question.

Then Charlie said we will be more liberal about repurchase lol
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on May 05, 2019, 05:56:19 AM
With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.
So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.

Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.

I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.

After sleeping on observing the whole Berkshire AGM thing yesterday, I think this is a precise description of the issue at hand. Depending on how the markets evolve going forward, my overall perception is, that Berkshire will likely be a company sitting on a cash pile north of USD 100 B for a prolonged period going forward while growing at a certain clip its businesses - also depending on how in particular the US economy & the global economy in general evolves going forward.

Unfortunately, the specific tender question did not come up.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on May 05, 2019, 06:48:24 AM
With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.
So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.

Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.

I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.

After sleeping on observing the whole Berkshire AGM thing yesterday, I think this is a precise description of the issue at hand. Depending on how the markets evolve going forward, my overall perception is, that Berkshire will likely be a company sitting on a cash pile north of USD 100 B for a prolonged period going forward while growing at a certain clip its businesses - also depending on how in particular the US economy & the global economy in general evolves going forward.

Unfortunately, the specific tender question did not come up.

Not sure about them always sitting on $100B for a long time. The options we heard yesterday included the potential 25% SEC limit, an insurance industry blow up of idiot capital, an elephant or two, “100B into Utilities “ and of course buybacks in Munger’s “We’ll be quite good when it is obvious”. Plus there could be more Occidental types in the future.

Besides all of the above someone asked if they should be parking their cash in low cost index funds instead of T-bills. That is not off the table for the next guy.

And then can always issue a dividend.

There’s no calamity in my mind. Berkshire’s price is well below value.

Munger kept repeating the theme that we have to endure their stubbornness. They are not about to change. The next guy could be way worse in other ways.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: shalab on May 05, 2019, 09:37:40 AM
I agree with Charlie that the buyback rules will be relaxed over time. It is obvious in Berkshire's case as well - where P/B kept moving up from 1.1, 1.2 and in an interview he said the buyback threshold may be close to 1.3. Then they bought back at 207 when P/B was more than 1.3. Essentially this helps inform the shareholders before they turn on the spigot.

Tender offer is highly unlikely for two reasons:
     - berkshire itself doesnt go into auctions when buying companies
     - he has said he doesn't want to take advantage of partners - mentioned it several times in the meeting yesterday

I am happy with 0.3% per quarter buy back rate or about 1% of outstanding shares per year. This can go up to 2-3% per year eventually. If berkshire deploys 100B to buybacks, it won't be Berkshire anymore that can take advantage of market downturns or buy other companies. As Buffett mentioned, a lot of people have invested a lot of cash in Berkshire as a fortress of value and he doesn't want to break that promise. I agree with that.

With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.
So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.

Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.

I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.

After sleeping on observing the whole Berkshire AGM thing yesterday, I think this is a precise description of the issue at hand. Depending on how the markets evolve going forward, my overall perception is, that Berkshire will likely be a company sitting on a cash pile north of USD 100 B for a prolonged period going forward while growing at a certain clip its businesses - also depending on how in particular the US economy & the global economy in general evolves going forward.

Unfortunately, the specific tender question did not come up.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on May 05, 2019, 10:46:03 AM
What matters most is the “conservatively calculated”. More so than the yardstick itself. The best question yesterday was the one about the four Grove method of valuation. It has been discussed around here, why not the insurance business? Buffett was not willing to be pinned down with a number on that.

How much?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on May 05, 2019, 01:02:18 PM
I absolutely fail to see how a tender offer would take more advantage of shareholders than open market buybacks. If anything, the terms and proceedings are way more upfront. I think the issue, if any, is precisely the opposite - it would be hard to get people to sell at a price that makes sense when they positively know that Buffett is on the other side of the trade. But there could be ways of framing it that would up the acceptance rate and still be honest, for example saying that we will not make another offer for x years and we will not pay a dividend so this is your only chance of a payout, etc.

My impression was that Buffett wanted to be somewhat vague on his plans for buybacks whereas Munger, to Buffett's chagrin, blurted out the honest truth - they will have to pay up more as time goes by. I'm not sure that he actually meant that BRK *didn't* trade at 60-70% of intrinsic value - that was more theoretical reasoning, i.e. saying that obviously we want to buy more if it's cheaper. If he actually has in mind that he will buy lots of stock only when it trades at levels for 170-180 or something of the sort, well, that will probably never happen except in cases where all other stocks fall way more and thus are more attractive. Or, possibly, when he dies.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: CassiusKing1 on May 06, 2019, 01:12:43 PM
What are the rules around Buffett's stake that he's donating to the Gates foundation?  Can those shares be bought back in private transaction blocks?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: james22 on May 06, 2019, 08:06:01 PM
Or, possibly, when he dies.

Yeah, don't understand why people fear the share price dropping with Buffett's death when BRK itself would be buying if it fell.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on May 22, 2019, 03:31:24 AM
This is an observation from SwedishValue. 675 A-shares traded over the market between February 26 and 28 according to nyse.com. Despite that Berkshire bought back as many as 293 shares. Which raised the following questions:

1. Is the 25% of daily volume limit divided up on the different share classes or is it total traded volume in all common stock?*

2. Is there a rule that you have to report private transactions or has this only been a general assumption due to the last estate repurchase (when they also announced a higher buyback limit)? 

*The average purchase price level compared to the market prices on said dates seems to indicate that they could not feasibly have been bought over the market.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on May 22, 2019, 04:12:41 AM
Cornell Law School - Legal Information Institute : 17 CFR § 240.10b-18 - Purchases of certain equity securities by the issuer and others. (https://www.law.cornell.edu/cfr/text/17/240.10b-18)

Quote
(1)ADTV means the average daily trading volume reported for the security during the four calendar weeks preceding the week in which the Rule 10b-18 purchase is to be effected.

If one press on the embedded link "security", you get a pop-up with the legal definition of the word "security" in this context :

Quote
security
(5) The term security shall include any security defined as such pursuant to section 3(a)(10) of the Act, but shall exclude any class of security having a preference or priority over the issuer's common stock as to dividends, interest payments, redemption or payments in liquidation, if the voting rights of such securities only become effective as a result of specified events, not relating to an acquisition of the common stock of the issuer, which reasonably can be expected to jeopardize the issuer's financial ability to meet its payment obligations to the holders of that class of securities.

So, ref. alwaysinvert's question 1, I conclude ADTV is calculated based on total volume for the A and the B.

- - - o 0 o - - -

Edit:

Cornell Law School - Legal Information Institute : 17 CFR § 229.703 - Purchases of equity securities by the issuer and affiliated purchasers. (https://www.law.cornell.edu/cfr/text/17/229.703)

Please note:

Quote
... Instruction to paragraph (b)(1) of Item 703: Include in this column all issuer repurchases, including those made pursuant to publicly announced plans or programs and those not made pursuant to publicly announced plans or programs. Briefly disclose, by footnote to the table, the number of shares purchased other than through a publicly announced plan or program and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, tender offers, in satisfaction of the company's obligations upon exercise of outstanding put options issued by the company, or other transactions). ...

and

Quote
... Instruction to Item 703: Disclose all purchases covered by this Item, including purchases that do not satisfy the conditions of the safe harbor of § 240.10b-18 of this chapter.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on May 22, 2019, 05:04:47 AM
They only need to follow Rule 10b-18 (https://www.investopedia.com/terms/r/rule10b18.asp) if they want to obtain the Safe Harbor protections that come with it, but it's voluntary and you can deviate from those guidelines if you don't need the safe harbor protections.

That link isn't fully comprehensive regarding what to do in the event of having two classes of shares, but the SEC's 10b-18 FAQ (https://www.sec.gov/divisions/marketreg/r10b18faq0504.htm) says that each class of shares must be treated separately. It also states that just because you exceed the trade outside of the safe harbor provisions, they will not assume that you are acting in a fraudulent or manipulating manner.

In the amended 10b-18 rules (https://www.sec.gov/rules/final/33-8335.htm) they state:
Quote
Although the safe harbor conditions are intended to offer issuers guidance when repurchasing their securities in the open market, Rule 10b-18 is not the exclusive means of making non-manipulative issuer repurchases. As the Rule states, there is no presumption that bids or purchases outside of the safe harbor violate Sections 9(a)(2) or 10(b) of the Exchange Act, or Rule 10b-5 under the Exchange Act. Given the widely varying characteristics in the market for the stock of different issuers, it is possible for issuer repurchases to be made outside of the safe harbor conditions and not be manipulative.

They detail the suggested amendments and the results of the consultation process, then outline the amendments they actually adopted:
Quote
d. Adopted amendments to the volume condition

After carefully considering the comments received, and upon thorough examination of current market practices and the underlying purposes of the safe harbor, we are adopting the proposed amendments relating to the volume condition's treatment of block purchases, with some modifications in response to comments received. Under the amended volume condition, to qualify for the safe harbor, an issuer's total volume of Rule 10b-18 purchases effected on any single day must not exceed 25% of the ADTV in its security, which includes any block-size purchases by or on behalf of the issuer for that day. Issuers, however, can include their block-size purchases when calculating its security's four-week ADTV.

In view of commenters' concerns that eliminating the block exception would negatively affect issuers with moderate or low average daily trading volumes that rely heavily on block purchases to implement their repurchase programs, we have decided to allow issuers to make (within the safe harbor) one block purchase per week, provided that the issuer does not make any other Rule 10b-18 purchases on that day. Thus, alternatively, once each week the issuer may purchase one block of its common stock in lieu of purchasing under the 25% volume limitation for that day. However, shares purchased by the issuer relying on this amended block exception may not be included when calculating a security's four-week ADTV under the Rule. This amended block exception is intended to provide issuers with moderate or low ADTV greater flexibility in carrying out their repurchase programs. However, this amended block exception does not include any amount of securities that a broker or dealer, acting as principal, has accumulated for the purpose of selling to the issuer, if the issuer knows or has reason to know that such amount was accumulated for such purpose.

We also wish to reiterate that Rule 10b-18 is not the exclusive means by which issuers and their affiliated purchasers may effect purchases of the issuer's stock without manipulating the market. In fact, the Commission has long recognized that there may be circumstances under which an issuer could effect repurchases outside the volume limitation without raising manipulative concerns, and indeed that failure to satisfy the conditions of the safe harbor does not give rise to any presumption that the activity is manipulative.

There had been a suggestion about allowing 500 share block trades even if they exceeded 25% of ADTV but I don't think this was adopted.

So, first the average volume (ADTV) is over 4 weeks preceding the purchase (or possibly preceding the Monday of the week in which the purchase took place - you'd have to dig into the references to be sure).

I think Berkshire will be careful not to be manipulating its own stock and to have evidence they are not in case of an investigation, even if they chose to deviate from 10b-18 provisions. They would be careful not to be deviate from rule 10b-18 safe harbor provisions if they're ever involved in any potential acquisition bids where they would pay partly in Berkshire stock and could be accused of inflating their stock to make their bid look more attractive.

There are also amendments allowing a certain amount of repurchasing during Off Hours Trading at lower of the primary market's closing price and the lowest bid in the Off Hours trading provided they don't make the first OHT purchase after the close.

There is scope to read the whole thing from the SEC, but I think we're clarifying the general picture and realising that Berkshire is quite at liberty to repurchase outside the scope of Rule 10b-18 so long as they do not act in any fashion that could be deemed to be stock manipulation or fraudulent activity if investigated by the SEC (in particular, activity aimed at artificially boosting the stock price above the fair value that would be arrived at by independent market participants. I'd imagine that buying at or below the independent bid and avoiding trading to near the open or close, would probably satisfy that.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on May 22, 2019, 05:23:01 AM
Ok, so according to Rule 10b-18 the ADTV of As and Bs are lumped together.

However, you don't necessarily have to abide by the stricter repurchasing rules (volume limit, time restrictions, etc) if you aren't outsourcing the repurchasing to a third party. Which we assume that BRK has not been doing lately, as they seem not to have been repurchasing during the quiet periods since last fall. Then it falls under more general rules about market manipulation and insider trading. Is this correctly concluded?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on May 22, 2019, 05:51:43 AM
Thank you for a very useful elaboration on this complicated stuff, Dynamic,

And after studying the FAQ I think that Dynamic must be correct about not lumping together the two share classes while calculating ADTV, subject to seeking Safe Harbor. It's specifically phrased in A to Q8 in the FAQ in a way, that - at least to me personally - leaves no leeway for interpretation.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on May 22, 2019, 06:12:53 AM
Yes, I would agree, John, that the SEC's FAQ seems quite explicit that the two classes are treated separately for calculating ADTV, and it's over the previous 4 weeks that ADTV is calculated (whatever precisely the previous 4 weeks means).

But in any case, Berkshire isn't necessarily doing anything wrong if it exceeds 25% of ADTV on any class, especially if it makes a single block purchase on a trading day and no other purchases and thereby complies with Safe Harbor. Or if it engages in trading of a type that is clearly not possible to be construed as stock price manipulation it can happily venture beyond the Safe Harbor provisions anyway providing it complies with all the other rules about disclosure.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on May 23, 2019, 03:23:04 PM
... However, you don't necessarily have to abide by the stricter repurchasing rules (volume limit, time restrictions, etc) if you aren't outsourcing the repurchasing to a third party. Which we assume that BRK has not been doing lately, as they seem not to have been repurchasing during the quiet periods since last fall. Then it falls under more general rules about market manipulation and insider trading. Is this correctly concluded?

Personally, I perceive it as you do here, alwaysinvert,

The last couple of days I've been thinking about to picture what's going on at Berkshire HQ on daily basis in the meaning of daily routines over an "ordinary" year wheel [what ever that may imply] for Mr. Buffett:

Minus 6. Taking care of responses to incoming mail, carefully sorted by a secretary taking care of "a priori defined trivia" sorted out,
Minus 5. Answering phone calls carefully filtered by a competent secretary, who knows exactly how to "filter", refer & delegate,
Minus 4. Sign original filings [presented to him, with the expectation that they are correct & timely],
Minus 3. Take care of all compensation matters for persons referring direct to him,
Minus 2. Write the annual shareholder letter [in cooperation with a professional & experienced editor],
Minus 1. Follow-up on everything inside Berkshire, on which Mr. Buffett wants to do so,

- - - o 0 o - - -

0. And so on, ordered by your personal discretion - please add what ever you prefer, and renumber accordingly, by your personal perception of priority,

- - - o 0 o - - -

1. Berkshire capital allocation [Buybacks and/or deals]

- - - o 0 o - - -

I certainly acknowledge and respect the posts by Dynamic on this matter - But I just can't see Mr. Buffett even considering anything BRK price sensitive on his desk, while at the same time having instructed an employeé to buyback BRK shares.

Based on that, it's extremely fascinating, that your [to me : correct] observations about silent periods vs. actually buybacks provides basis for the opposite.

- - - o 0 o - - -

So, to me, this is the ultimate patience test of shareholders with regard to patience for delayed gratification. We will be opposed to it - or even hate it - until we love it, because of market conditions. [And most likely, when that happens, nobody will talk about opportunity costs.]