Author Topic: Buffett buybacks: Could Berkshire tender stock?  (Read 147984 times)

alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #430 on: May 22, 2019, 05:23:01 AM »
Ok, so according to Rule 10b-18 the ADTV of As and Bs are lumped together.

However, you don't necessarily have to abide by the stricter repurchasing rules (volume limit, time restrictions, etc) if you aren't outsourcing the repurchasing to a third party. Which we assume that BRK has not been doing lately, as they seem not to have been repurchasing during the quiet periods since last fall. Then it falls under more general rules about market manipulation and insider trading. Is this correctly concluded?
« Last Edit: May 22, 2019, 05:25:24 AM by alwaysinvert »


John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #431 on: May 22, 2019, 05:51:43 AM »
Thank you for a very useful elaboration on this complicated stuff, Dynamic,

And after studying the FAQ I think that Dynamic must be correct about not lumping together the two share classes while calculating ADTV, subject to seeking Safe Harbor. It's specifically phrased in A to Q8 in the FAQ in a way, that - at least to me personally - leaves no leeway for interpretation.
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Dynamic

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #432 on: May 22, 2019, 06:12:53 AM »
Yes, I would agree, John, that the SEC's FAQ seems quite explicit that the two classes are treated separately for calculating ADTV, and it's over the previous 4 weeks that ADTV is calculated (whatever precisely the previous 4 weeks means).

But in any case, Berkshire isn't necessarily doing anything wrong if it exceeds 25% of ADTV on any class, especially if it makes a single block purchase on a trading day and no other purchases and thereby complies with Safe Harbor. Or if it engages in trading of a type that is clearly not possible to be construed as stock price manipulation it can happily venture beyond the Safe Harbor provisions anyway providing it complies with all the other rules about disclosure.

John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #433 on: May 23, 2019, 03:23:04 PM »
... However, you don't necessarily have to abide by the stricter repurchasing rules (volume limit, time restrictions, etc) if you aren't outsourcing the repurchasing to a third party. Which we assume that BRK has not been doing lately, as they seem not to have been repurchasing during the quiet periods since last fall. Then it falls under more general rules about market manipulation and insider trading. Is this correctly concluded?

Personally, I perceive it as you do here, alwaysinvert,

The last couple of days I've been thinking about to picture what's going on at Berkshire HQ on daily basis in the meaning of daily routines over an "ordinary" year wheel [what ever that may imply] for Mr. Buffett:

Minus 6. Taking care of responses to incoming mail, carefully sorted by a secretary taking care of "a priori defined trivia" sorted out,
Minus 5. Answering phone calls carefully filtered by a competent secretary, who knows exactly how to "filter", refer & delegate,
Minus 4. Sign original filings [presented to him, with the expectation that they are correct & timely],
Minus 3. Take care of all compensation matters for persons referring direct to him,
Minus 2. Write the annual shareholder letter [in cooperation with a professional & experienced editor],
Minus 1. Follow-up on everything inside Berkshire, on which Mr. Buffett wants to do so,

- - - o 0 o - - -

0. And so on, ordered by your personal discretion - please add what ever you prefer, and renumber accordingly, by your personal perception of priority,

- - - o 0 o - - -

1. Berkshire capital allocation [Buybacks and/or deals]

- - - o 0 o - - -

I certainly acknowledge and respect the posts by Dynamic on this matter - But I just can't see Mr. Buffett even considering anything BRK price sensitive on his desk, while at the same time having instructed an employeé to buyback BRK shares.

Based on that, it's extremely fascinating, that your [to me : correct] observations about silent periods vs. actually buybacks provides basis for the opposite.

- - - o 0 o - - -

So, to me, this is the ultimate patience test of shareholders with regard to patience for delayed gratification. We will be opposed to it - or even hate it - until we love it, because of market conditions. [And most likely, when that happens, nobody will talk about opportunity costs.]
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alwaysinvert

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #434 on: July 30, 2019, 01:15:10 PM »
Barron's from today: https://www.barrons.com/articles/berkshire-hathaways-earnings-are-saturday-heres-what-to-watch-51564481706

Select quotes:

Quote
It’s hard to handicap the Berkshire buybacks because Buffett gives no guidance, but bulls may be disappointed. Barclays analyst Jay Gelb , one of only a handful of people covering the stock, expects the second-quarter buyback figure to come in at $1.5 billion, in line with the $1.6 billion in the first quarter, according to a client note.

Quote
Another limiting factor is that Berkshire shares are less liquid than those of most megacap stocks. The average daily trading volume in the Class A and Class B shares totals about $1 billion, about a quarter of the dollar volume in Facebook (FB), which has a similar market value.

Berkshire has a much higher proportion of long-term, buy-and-hold investors than the average large company, resulting in lower trading volume. That makes it harder to repurchase shares without moving the price.

If Berkshire is serious about repurchasing shares, it could make a tender offer to buy a large amount of stock. That isn’t likely, but it would demonstrate Buffett and Munger think the stock is cheap.

Seems like maybe Andrew has been reading COBF.

DooDiligence

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #435 on: July 30, 2019, 07:43:58 PM »
I hope he didn't buy squat.

More cash piles up.

Shares go below $200.

(beep, beep, beep - trucks backing up)

Then they start buying shares over the next ? years (or not.)

Great bunch of businesses.

It's like an Easter egg.
Healthcare 20.8% - EW NVO // BRK.B - 22.7% // Auto's & Oil 13.2% - CLB GPC VDE

Entertainment 4.7% - DIS // Banking 10.3% - WFC // Drinkers & Smokers 6.9% - MO

%'s held @ MV 11/20/2019 minus 21.4% investable cash

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John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #436 on: July 31, 2019, 04:30:35 AM »
... Seems like maybe Andrew has been reading COBF.

Thank you for sharing, alwaysinvert,

Yes, it appears quite striking. Let's see Saturday, how the last quarter has played out.
« Last Edit: July 31, 2019, 04:32:09 AM by John Hjorth »
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Dynamic

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #437 on: July 31, 2019, 09:12:48 AM »
Here goes, another long post!

Personally, I'm not anticipating a particularly large level of buybacks this quarter, though I wouldn't exactly be shocked if it doubled from Q1 either, but still I'm not expecting a truly enormous buyback volume that some fellow investors are hoping for.

I imagine with the current IV estimate and the last reported Book Value and 2018Q3 high point of reported Book Value, we'd probably need prices in the low $190s or less to see really substantial buybacks, so perhaps compared to the old 120% of Book Value, maybe we'd be looking at somewhere below 125% of Book Value (or 125% of the highest reported Book Value) as the point where buyback eagerness would really start to ramp up. It's quite possible that later this year or early next, if compound growth continues and, if BVPS on BRK.B reaches, say $163 which is certainly quite plausible, prices below $204 or so might begin to fall into the range where some buyback eagerness might become evident.

Basically, we haven't really had those sort of price/book ratios since about January/February 2016 when I personally laid my hands on all the money I could to load up on Berkshire around 123% of Book Value (one tranche costing just under 120% of 2015Q4 Book Value that hadn't been released, and another a fraction over 120%), those being prior to the 2017 Tax Cut. Even the $186 low in July 2018 was 132% of known book and 128% of the as-yet-unknown 2018Q2 Book Value. The 24th December 2018 $187.11 low was 123% of last known book value (despite a -20% bear market) and 132% of the eventual 2018Q4 Book Value that was unknown at the time and it hasn't dipped a low as $190 since that single day.

I'd expect large buybacks to remain a rarity. Over time, BV may become further detached from IV, but IV is probably still running at a near-constant multiple of BVPS that might be very gradually changing over time, and would change a little more rapidly if there were significant buybacks.

From re-reading the Semper Augustus 2018 letter, I'm thinking that now is not a time when Buffett is salivating over equity prices generally, though there are some sensible things to buy.
Today it doesn't match the position where there was huge Berkshire overpricing of the late 1990s when it bought Gen Re with Berkshire stock trading at close to twice IV, considerably reducing the exposure to the greatly overpriced stock portfolio by buying in a bond-heavy operation.

I suspect that on the whole Berkshire is currently trying to do little more than invest the cash thrown off by the operating companies and other cash inflows such as dividends, roughly keeping cash and short-term investments balanced with insurance float (which I imagine will be around $125 billion at end of Q2). It will be interesting to see whether the Occidental deal during Q2 will be additional to the typical spending on equities or will have replaced some of Berkshire's equity buying appetite. We do know they added just over 31 million shares of BAC by 17th July, accounting for $0.8-0.9 billion, but the rest of their activity is still unknown.

Although this cash-to-float parity may be somewhat coincidental rather than intentional, I do feel it absolves Berkshire from having an overall cash drag to count against them, it's just that Berkshire will, when the time and price is right, have ample dry powder to take on deeply undervalued investments in stocks or whole businesses, taking advantage of non-callable float-funded leverage at just the right time. To me it's all about patience and the long game, waiting for the fat pitch and locking in a substantial increase in intrinsic value when it arrives with the use of a little float leverage too. Buffett's patience far exceeds most of ours!

In the mean time, compounding Book Value at 9-11% cagr over a decade or two of low inflation and low interest rates without leverage is a great performance for such a large diversified business. Now the P/BV multiple has declined about as low as it's likely to outside extreme events, I'd expect that the future BV compounding rate ought to pretty well be reflected in the stock price compounding rate, and if that remains in the 9-11% cagr region, that's a good enough return for a low risk business in a low rate, low inflation environment, especially when the current P/BV ratio probably implies a fairly limited short-term downside risk.

While I can't claim to predict the short term, I suspect that a lack of heavy buybacks in Q2 wouldn't be enough to keep Berkshire's price down once Saturday's results are out. GAAP earnings will surely be huge thanks in part to the portfolio's market value increases (excluding KHC). The share of KHC's results for Q1 and Q2 may also be included in earnings if they have caught up on reporting deadlines by Friday. And the Book Value Per Share is almost certain to be up about 3.7% since Q1 clocking a new all-time high about 2.3% above 2018Q3, with prospects for 2019Q3 looking like also showing a worthwhile increase from there. It could be that a degree of measured optimism or at least reduced pessimism about Berkshire will break out in the coming weeks and months.
 
In the slightly longer term, headlines about underperforming or barely outperforming the S&P500 could be on the wane. It's quite a tough 10-year comparison to compare Berkshire to the depth of the 2009 Great Financial Crisis bear market (2nd March 2009 was 1435 for the SP500TR, now 6053, and 1104 for the S&P500 capital index, which is now over 3000, and BRK is up only 334% versus 386% for the total return index since that trough) and this tough comparison will ease somewhat over time for the 10-year side-by-side. This is an observation I received from someone else.

Even if Berkshire is re-rated upwards a little it might yet take a bear market for Berkshire to gain a clear lead. Interestingly a chart from March 2002 to today, shows that Berkshire more or less matched the index until mid 2007 then gained a lead by December as the market fell, a lead that it never really gave back, although the index almost caught it in May 2011.

I think Berkshire's success if it does retain an edge over the index in the long run, is likely to be a lumpy affair where it has periods of great opportunity where it generates substantial additional value which then gets recognised in its price, punctuating long stretches of roughly market-matching performance. And there may also be moments of market mania where the index temporarily peaks well above Berkshire. I doubt that Berkshire's price is likely to ever greatly exceed IV again like the late 90s such as June 1998, but even for someone buying then, Berkshire eventually caught up after years of lagging the index.

Anyway, Saturday's will be an interesting 10-Q to read through and perhaps we'll develop more of a picture of a few facets of Berkshire's capital allocation mindset.

longinvestor

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #438 on: July 31, 2019, 02:08:13 PM »
Here goes, ...

I think Berkshire's success if it does retain an edge over the index in the long run, is likely to be a lumpy affair where it has periods of great opportunity where it generates substantial additional value which then gets recognised in its price, punctuating long stretches of roughly market-matching performance. And there may also be moments of market mania where the index temporarily peaks well above Berkshire. I doubt that Berkshire's price is likely to ever greatly exceed IV again like the late 90s such as June 1998, but even for someone buying then, Berkshire eventually caught up after years of lagging the index.
...,,

Buffett has been preparing shareholders for the modest, if any, edge in the future. He has also consistently said that he’d rather prefer Berkshire shares to sell (slightly) below IV. If your long term prediction comes true, it’ll be good for the next CEO. He won’t disappoint new shareholders that way. This is an important part of the coming transition because Berkshire’s shareholders will be an important piece of the culture remaining intact. This is something that current management has not had to deal with. So far. But, boy, there’re some pi$$ed off folks right now, who may be more p’ed off come Saturday 😉


John Hjorth

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Re: Buffett buybacks: Could Berkshire tender stock?
« Reply #439 on: July 31, 2019, 03:39:11 PM »
Here goes, ...

I think Berkshire's success if it does retain an edge over the index in the long run, is likely to be a lumpy affair where it has periods of great opportunity where it generates substantial additional value which then gets recognised in its price, punctuating long stretches of roughly market-matching performance. And there may also be moments of market mania where the index temporarily peaks well above Berkshire. I doubt that Berkshire's price is likely to ever greatly exceed IV again like the late 90s such as June 1998, but even for someone buying then, Berkshire eventually caught up after years of lagging the index.
...,,

Buffett has been preparing shareholders for the modest, if any, edge in the future. He has also consistently said that he’d rather prefer Berkshire shares to sell (slightly) below IV. If your long term prediction comes true, it’ll be good for the next CEO. He won’t disappoint new shareholders that way. This is an important part of the coming transition because Berkshire’s shareholders will be an important piece of the culture remaining intact. This is something that current management has not had to deal with. So far. But, boy, there’re some pi$$ed off folks right now, who may be more p’ed off come Saturday 😉

Thank you for sharing your thoughts, gents,

Not so long ago, longinvestor posted something about Berkshire hasn't moved one whit within the last year with regard to market price. Now please make that the last 18 months - so or so.

I suppose, quite some "socalled long term investors" [three months, six months, one year, or so], have lost all patience, and have sold. [Duly noting, that among money managers, "long term" orientation is used as an excuse for lack of performance.]

- - - o 0 o - - -

To me, the real "dark horse" here [with regard to stock buybacks] is what's going on with the Berkshire positions of the early Berkshire investors over time. [That could move the needle, at least somewhat.]
« Last Edit: August 01, 2019, 04:14:48 AM by John Hjorth »
”In the race of excellence … there is no finish line.”
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