Author Topic: How to Increase Berkshire Share Price?  (Read 4914 times)

nickenumbers

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How to Increase Berkshire Share Price?
« on: May 11, 2019, 08:46:21 AM »
All,

I want your input, but I would prefer not to debate the premise in this topic as I really want to understand what you guys think.

Given Assumptions-
1.  Assume that BRK.B is worth say $250 per share (IV).
2.  Currently trading around $209 per share.
3.  Lets ignore the China/US current events on trade.

How does Berkshire close the gap between it's traded price and it's intrinsic value???


If it were a smaller company folks could attempt a tender offer or take a significant position and wage some type of proxy battle.
Or if WEB and CM believed there was value and timing, they would just go ALA Singleton [Teledyne], and start buying up shares.  Share repurchase.

If someone had big gigantic chutzpah they would take over/gain control and auction off the parts.


What else?


Perhaps when WEB or CM checks out to the big hotel in the sky, they are going to get off that gigantic pile of cash and finally start repurchasing shares.

Or, perhaps, I just need a bit more PATIENCE while WEB and CM play their hand.


What thoughts do the great members of COBF land have??

Thank you.
The fastest Cheetah still waits for the lame baby antelope.  ..patience..


longinvestor

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Re: How to Increase Berkshire Share Price?
« Reply #1 on: May 11, 2019, 09:23:19 AM »
You preceded me in posting on this topic. Only that (as uncomfortable it is for me), I honestly think that Buffett (but not Munger) is doing all he can to tamp down any expeditious rise in the stock price. My own wag on his reason for doing so are three fold:

1. Talking up the stock will keep them from executing plan B of buying  >$100 B of stock. Plan A is to wait for the phone to ring with the guy on the other end has his hat out for >$100B. Buffett would rather not think about plan C or D. He would much rather check in to the hotel High.
2. The expectation of beating the index is hard enough for him lately; he’s preparing shareholders to lower expectations on the next guy. Should a lot of the shareholder base move over to the index, the next Guy will be able to buy lots of stock back. It will become Plan A for him.
3. Entering shareholders are likely to be disappointed if the stock trades above IV or even at IV. The expectation of outperformance is etched deep in the collective consciousness. Buffett has 70 years of experience dealing with partners’ expectations and Act II is coming up with the transition. Act I was in 1967-69.

Personally I can endure another 2-5 years of prices in the current realm of pricing.
« Last Edit: May 11, 2019, 09:25:36 AM by longinvestor »

cubsfan

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Re: How to Increase Berkshire Share Price?
« Reply #2 on: May 11, 2019, 12:02:32 PM »
You preceded me in posting on this topic. Only that (as uncomfortable it is for me), I honestly think that Buffett (but not Munger) is doing all he can to tamp down any expeditious rise in the stock price. My own wag on his reason for doing so are three fold:

1. Talking up the stock will keep them from executing plan B of buying  >$100 B of stock. Plan A is to wait for the phone to ring with the guy on the other end has his hat out for >$100B. Buffett would rather not think about plan C or D. He would much rather check in to the hotel High.
2. The expectation of beating the index is hard enough for him lately; he’s preparing shareholders to lower expectations on the next guy. Should a lot of the shareholder base move over to the index, the next Guy will be able to buy lots of stock back. It will become Plan A for him.
3. Entering shareholders are likely to be disappointed if the stock trades above IV or even at IV. The expectation of outperformance is etched deep in the collective consciousness. Buffett has 70 years of experience dealing with partners’ expectations and Act II is coming up with the transition. Act I was in 1967-69.

Personally I can endure another 2-5 years of prices in the current realm of pricing.

I think this is insightful and as Howard Marks might say - second level thinking. Buffett and successors have a tough job but they remain disciplined on
what they are willing to pay. At the shareholder meeting, everyone trying to pin them down on a buyback number, etc.   This reminds me of those several years prior to 2008, when so many shareholders screamed at each meeting about him carrying so much cash.

Late in the cycle he said something to the effect of "you won't like the conditions that exist if we can put all this money to work".
Worth remembering that.

nickenumbers

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Re: How to Increase Berkshire Share Price?
« Reply #3 on: May 11, 2019, 04:46:08 PM »
Cubsfan does have me thinking. 

Related, perhaps they are waiting on another 2008 crash and they are going to repurchase a significant number of shares then...  I kinda buy it but I would like to see them dial up the repurchase now, and should there be a significant down turn, they buy like crazy..  I think they are still limited by the daily trading volume.

They had a chance in 2008 and they didn't take it.  I get that times change and their options/alternatives have changed.. 
The fastest Cheetah still waits for the lame baby antelope.  ..patience..

longinvestor

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Re: How to Increase Berkshire Share Price?
« Reply #4 on: May 11, 2019, 07:59:58 PM »
Something else to consider. Buffett has been clearly saying that the businesses they are being offered for outright purchase have not been at prices they are willing to pay. Relative to what? Berkshire Hathaway shares. I suppose they are watching the delta and it could soon be “obvious” in Munger’s words. It’s been their script forever to judge deals with the next best one. One day the best one could  be their own stock.

John Hjorth

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Re: How to Increase Berkshire Share Price?
« Reply #5 on: May 12, 2019, 03:57:19 AM »
... How does Berkshire close the gap between it's traded price and it's intrinsic value??? ...

nicke,

Here, I'm not debating your premises - more the question asked. And my basis is the question asked - literally.

Your question contains two components :

a. Market/trading price, &
b. Intrinsic value.

As a long term Berkshire long, I want b. Intrinsic value to go up going forward. a. Market/trading price is for me [from here, going forward] maybe an opportunity. Also for tax reasons [based on the local tax regime, that my family and I [no "we" here! [ ;- ) ]] are subject to, I actually want the market/trading price to go down going forward from here. [This may seem crazy, I'll be happy to elaborate, if wanted.]

- - - o 0 o - - -

So, the answer to your question depends on ones personal perspective [naturally]. Potential future net Berkshire buyers don't want the gap to close, while potential future Berkshire sellers want the gap to close.
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Spekulatius

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Re: How to Increase Berkshire Share Price?
« Reply #6 on: May 12, 2019, 11:04:53 AM »
I believe they WEB is more concerned with increasing BRK’s intrinsic value than with closing the gap to NAV. Generally, NAV will follow Intrinsic value anyways and if there is a large gap between the two (I mean 40% or more, not the current 15-20% by my estimate) I think WEB will absolutely buy back or tender stock in size they my surprise some.
To be a realist, one has to believe in miracles.

John Hjorth

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Re: How to Increase Berkshire Share Price?
« Reply #7 on: May 12, 2019, 12:15:45 PM »
I believe they WEB is more concerned with increasing BRK’s intrinsic value than with closing the gap to NAV. Generally, NAV will follow Intrinsic value anyways and if there is a large gap between the two (I mean 40% or more, not the current 15-20% by my estimate) I think WEB will absolutely buy back or tender stock in size they my surprise some.

I hope you're right, Spekulatius,

Because like nicke, I think that Berkshire, - at least as of now - trades well below intrinsic value.

- - - o 0 o - - -

If I should elaborate a bit on my prior post, based on a more "loose approach" to the question asked by nicke, I think it could basically be boiled down to:

The way that the word "meaningful" is used [or abused?] in recent years at Berkshire headquarter [to me, at least by Mr. Buffett].

Please try to think of the phrase - so to say - "mirrored"/inverted in relation to frugality and cost conscience : "Every cent counts to get the dollars".

To me, there is some kind of shade of arrogance over it. I could also phrase it as if Berkshire investors are living with a condition of an extra [hidden] opportunity cost related to Mr. Buffett's definition - in this context - of "meaningful".

I suppose the meaning, perception and understanding of "meaningful" at Berkshire HQ also is relative with respect to individual persons. So, it's fairly easy countered by handing over materially more AUM to Mr. Combs & Mr. Weschler. I don't know if such decision is a board decision, or a decision to be made by Mr. Buffett alone, perhaps in cooperation with Mr. Munger, or perhaps even contractually laid out in advance with the two CIOs.
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nickenumbers

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Re: How to Increase Berkshire Share Price?
« Reply #8 on: May 12, 2019, 01:37:23 PM »
Something else to consider. Buffett has been clearly saying that the businesses they are being offered for outright purchase have not been at prices they are willing to pay. Relative to what? Berkshire Hathaway shares. I suppose they are watching the delta and it could soon be “obvious” in Munger’s words. It’s been their script forever to judge deals with the next best one. One day the best one could  be their own stock.

Wow, that is an interesting flip of the analysis.  I hope that is the case and BRK is willing to repurchase.

Spekulatius also has some great points.  I am measuring success by closing the differential between IV and quoted Share price, and Buffett is assumed to be looking longer than that and focusing on increasing long term IV...  I think I am a little like the fan at the baseball park screaming "Would you SWING already...  you BUM!!!  SWING!!"
The fastest Cheetah still waits for the lame baby antelope.  ..patience..

Viking

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Re: How to Increase Berkshire Share Price?
« Reply #9 on: May 12, 2019, 07:15:36 PM »
The challenge i have with Berkshire as a long term hold is if the stock trades below intrinsic value when Buffett is alive will this gap not get worse when he is no longer around?

Are people thinking Berkshire will trade at a higher (average) valuation when Buffett is no longer abound?

It is a conglomerate. Do these not typically trade at a fairly steep discount to the value of the underlying assets? Especially when breaking the company up is not an option.