Buffett buybacks: Could Berkshire tender stock?

[longinvestor]

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

[rolling]

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.

[Cigarbutt]

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.

[John Hjorth]

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 30^th 2018 in the topic "Berkshire - cheap?", posts #195 to #202.

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?

[longinvestor]

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 30^th 2018 in the topic "Berkshire - cheap?", posts #195 to #202.

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

[John Hjorth]

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.

[John Hjorth]

I'm still thinking about longinvestor's last post in this topic.

From the special [anniversary] letter released February 27^th 2015, p. 36:

... 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 17^th 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

[SwedishValue]

”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.

[longinvestor]

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.

[sleepydragon]

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