Author Topic: Buffett buybacks: Could Berkshire tender stock?  (Read 20880 times)

Swedish_Compounder

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #100 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.



John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #101 on: October 02, 2018, 02:02:01 PM »
I realize now, that my post #97 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.

« Last Edit: October 02, 2018, 02:05:01 PM by John Hjorth »
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SwedishValue

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #102 on: October 02, 2018, 11:36:45 PM »
We’re good. I didn’t find it patronizing and I appreciate our discussions.

IceCreamMan

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #103 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?

rolling

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #104 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...
My usual portfolio: Highly concentrated (up to 3 or 4 positions) in smallcaps and microcaps.

globalfinancepartners

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #105 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...

alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #106 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.

globalfinancepartners

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #107 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.

sleepydragon

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #108 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.

John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #109 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.
”In the race of excellence … there is no finish line.”
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