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.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on October 21, 2018, 05:38:30 PM
Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 22, 2018, 06:57:16 AM
Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!

Surely a piece of the IV. But given their focus on increasing the pool of operating earnings (Munger called it converting liquid assets to illiquid ones) the securities portfolio gets smaller over time and perhaps an ever smaller piece of the IV pie.

Something of a corollary here is that identifying stellar owner operators has become more important than just valuing businesses. I would bet that lot of reading activity in Omaha (especially Todd/Ted) is focused on identifying good owner operators. Good news is that just like good businesses, they are not hordes of them running around.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Cigarbutt on October 22, 2018, 08:45:55 AM
Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!
Fascinating question and would add that future opportunities will come from what is available at a cheap price wherever that may be.

Your question is difficult to answer because one has to rely on what is written between the lines and is subject to personal interpretations.
I guess we all have, to varying degrees of formalness, a list of owned stocks and a watchlist tabulating the ratio of price to intrinsic value, that we update on a regular basis. For Mr. Buffett, this may be recorded in a book slipped into his drawer but may simply be in his brain.

The 1979 annual report has useful comments (annual performance based on investments at cost and longer term performance OK with investments at market value) and more recently, Mr. Buffett has described his 2-column valuation "model". If interested, Mason Hawkins at Southeastern Asset Management periodically discusses this aspect when "monitoring" portfolios.

As value investors, typically, our recorded price to intrinsic value ratio should be below one as we allocate entries and exits in our portfolios. At Berkshire, there is a long term mindset and the turnover is relatively low but, in the main and long-term wise, the market has recorded the closing gap between intrinsic value at acquisition and at every year-end reporting. All that to say that I suspect the price to intrinsic value ratio at Berkshire is below 1 but not by much, especially since it has grown so much and because of present circumstances.

Wondering if Mr. Buffett makes adjustments or not, would say that the price to intrinsic value for marketable securities held may have gone down to some degree when capital constraints are felt and when maximum pessimism abounds (time for juicy returns, especially in the early days but also more recently, to a lesser extent) and may have come closer to one in different 180-degrees scenarios. However, I don't think Mr. Buffett needs to make adjustments, especially for the more recent period, for the following conceptual reason. My understanding is that the cash position at Berkshire tends to "naturally" increase when the price to intrinsic value gap decreases in BH portfolios. This happens because, despite cash being associated with an opportunity cost, I assume that Mr. Buffett considers that the temporal optionality value provided more than compensates for the opportunity cost and "naturally" allows to benefit from the widening gap opportunity occasionally seen.

In summary, I think Mr. Buffett does not adjust for the fluctuations of the intrinsic value gap for the marketable securities in his portfolios because of his long term and opportunistic valuation approach using financial flexibilty as an input.

As an aside, the recent "evolution" on the buyback stance may be related to evolving thoughts on the present opportunity cost of cash and the opportunity set (or absence thereof) on the horizon.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on October 22, 2018, 03:58:11 PM
Thank you to both the responses. You have given this particular issue more thought than I have. My question mainly arose because so many times we see something along the lines of... "the portfolio is down 2% since quarter end... so tax-effect and subtract that from the prior BV... add in earnings from operations, etc. etc."

We know that BV has been disowned by WEB... but, on further thought, I also have doubts about whether they use the MV of the securities. Not that they'd use IV either. But it definitely seems frequent adjustments would not be made based on weekly or even monthly moves in stocks. That would require moving the purchase threshold given to their broker (I think it's Citigroup) on a daily or weekly basis. I don't think this is happening (definitely not in a restricted period if they're operating under a 10b-5). So, to me, some of the very-fine tuning... ("Where has IV gone since quarter end") seems like work that would provide little additional information on which to base decisions. What do you guys think?
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: alwaysinvert on October 22, 2018, 04:23:36 PM
Thank you to both the responses. You have given this particular issue more thought than I have. My question mainly arose because so many times we see something along the lines of... "the portfolio is down 2% since quarter end... so tax-effect and subtract that from the prior BV... add in earnings from operations, etc. etc."

We know that BV has been disowned by WEB... but, on further thought, I also have doubts about whether they use the MV of the securities. Not that they'd use IV either. But it definitely seems frequent adjustments would not be made based on weekly or even monthly moves in stocks. That would require moving the purchase threshold given to their broker (I think it's Citigroup) on a daily or weekly basis. I don't think this is happening (definitely not in a restricted period if they're operating under a 10b-5). So, to me, some of the very-fine tuning... ("Where has IV gone since quarter end") seems like work that would provide little additional information on which to base decisions. What do you guys think?

Estimations of look-through owner earnings is the probable answer. My guess is that Buffett has some very simple, rough heuristic in mind, like owner earnings and if the whole company trades below say 20x of that he will be repurchasing stock.

I think that the multiple will be relatively high seeing as the additional cash flowing in from operations has basically no option value at all at this point. The bigger the cash pile grows, the closer the investment hurdle rate gets to that of the treasury yields. Now, he likely would never buy back stock at 40x just because treasuries were at an implied 50x multiple, but I think it is a useful way of conceptualizing the issue anyway.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: John Hjorth on October 22, 2018, 04:42:13 PM
Estimations of look-through owner earnings is the probable answer. My guess is that Buffett has some very simple, rough heuristic in mind, like owner earnings and if the whole company trades below say 20x of that he will be repurchasing stock. ...

Again, we are mentally in synch here, alwaysinvert. I suppose that some staff member regularly provides him the numbers, or per specific & ad hoc request.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Spekulatius on October 23, 2018, 04:09:43 AM
Estimations of look-through owner earnings is the probable answer. My guess is that Buffett has some very simple, rough heuristic in mind, like owner earnings and if the whole company trades below say 20x of that he will be repurchasing stock. ...

Again, we are mentally in synch here, alwaysinvert. I suppose that some staff member regularly provides him the numbers, or per specific & ad hoc request.

I think we should use market value of the holdings, not intrinsic value. If the market value of Buffets shareholding’s goes down, very likely the general market goes down too and other stocks competing for dollars to be invested in BRK will get more attractive as well.

I wish I could mark up some illiquid stocks I own to fair value  :o
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: longinvestor on October 23, 2018, 08:54:59 AM
My $208 filled. Hope my $202 does as well.

It did! I was not going to wait for 19x to happen.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: globalfinancepartners on October 23, 2018, 09:25:16 AM
I'm adding today as well.  Something like 500 Billion at today's price
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Jurgis on October 23, 2018, 09:58:20 AM
I'm adding today as well.  Something like 500 Billion at today's price

Nice to hear that you have 500B to spare.  ;)

Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: bizaro86 on October 23, 2018, 11:24:35 AM
I'm adding today as well.  Something like 500 Billion at today's price

Nice to hear that you have 500B to spare.  ;)

Probably want to use limit orders on that one.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: Dynamic on October 24, 2018, 09:20:56 AM
To the question of how Charlie and Warren value the investments, I don't think it matters so long as they are suitably conservative and are not in excess of market value.

Using Market Value itself or applying a discount to Market Value to apply a windage factor to normalize to a more typical market valuation is one approach.

If they valued the companies independently they would either be calculating IV with a high enough discount rate or capitalization rate to be conservative or they'd calculate a more fully-valued IV then apply a suitable discount to be conservative. (And in a similar way they would be valuing subsidiaries with a similarly conservative assessment of what they're worth given the current normalized earning power)

Whichever approach they take they'd arrive at a similar figure, being conservative, I'm sure.

At the end they may choose how to account for cash held and how to value float and normalized underwriting profits.

A few commentators have noticed that over the years the cash balance is usually pretty close to the float liability and only dips significantly below float during bear markets or similar opportunities to make large acquisitions, and that remains roughly the case today. To me this offsets the feeling that there may be a cash drag if the cash doesn't get invested fast enough, but instead limits the multiplying effect of the float leverage except when cash is being used up to buy cheap assets.

Float is a liability, but the funds are so likely to endure (3% per year decline rate at most, but more likely to gradually increase over time) and to remain cost-free (thanks to profitable underwriting) that one could effectively count as much as 70% of float as an effectively enduring asset whose economic earning power is worth paying for. Perhaps, being more conservative, we'd value it at less or apply a margin of safety at the end of calculating the full IV.

To be frank, I'd expect them to make a relatively simple calculation with amply conservative assumptions built in rather than going to great lengths to adjust market values of securities very much. They're still intending to pay significantly less than IV, but perhaps a 5-10% discount to a conservatively calculated IV amounts to the same as a 30-50% discount to an IV that represents the line between fully valued and overvalued.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: SwedishValue on October 26, 2018, 11:24:20 AM
Buying today gives you a quite decent discount to the price that Buffett started the repurchases. With increased volume during this October turmoil, Buffett has been presented with the option of buying back significantly more stock compared with the previous months. Not that it protected the downside that much (I didn't expect Berkshire to drop more than the market during the so far worst parts of the turmoil).

In this type of market environment, will Mr. Market approve or disapprove of a communicated and big Buffett buyback? A month ago, I was very confident that it would be the headline. Today? Not as sure.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: valueinvesting101 on October 26, 2018, 12:15:49 PM
Positively surprised by Berkshire fall too. It is good since buyback can happen at an attractive price.

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

Also, an update for the volume traded in October:

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

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

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

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

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

Also, an update for the volume traded in October:

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

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

SwedishValue,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No further repurchase activity during the quarter.

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

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


It's out.

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

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

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

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

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

It's out.

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

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

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

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

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


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


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

No further repurchase activity during the quarter.

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

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

globalfinancepartners,

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

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

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

No further repurchase activity during the quarter.

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

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

globalfinancepartners,

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

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

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


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

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

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

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

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

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

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


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

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

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

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

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


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

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

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

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

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

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


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

StubbleJumper & alwaysinvert,

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

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

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

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

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


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

StubbleJumper & alwaysinvert,

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

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

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

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

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

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

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

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

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

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

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


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

StubbleJumper & alwaysinvert,

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

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

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

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


John,

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What did I miss?  What do you guys think?

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

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

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

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

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

What did I miss?  What do you guys think?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

AdjustedEarnings,

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

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

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

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

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

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

AdjustedEarnings,

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

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

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

Here, Buffett writes the following:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I think there is no compliance/legal problems if his personal trades are the same directions as the BRK trades. So if Buffett is buying JPM he will not be selling in his personal accounts.
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: AdjustedEarnings on December 06, 2018, 08:31:25 AM
Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!

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

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

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

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

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

That was me.


JK


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


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


SJ
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: rb on December 06, 2018, 12:33:09 PM
By selling shares to me at 2014.10  :P
Title: Re: Buffett buybacks: Could Berkshire tender stock?
Post by: IceCreamMan on December 06, 2018, 08:45:14 PM
Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!

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

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

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

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

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

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

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