Corner of Berkshire & Fairfax Message Board

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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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: globalfinancepartners 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.