BRK Surplus Cash- Optics of a Buyback

[nickenumbers]

Guys,

 

I don't have the answer to this but I wanted to see what all of you thought.

 

I don't think WEB wants to re-purchase his own shares, and I think it is semi-unrelated to the 120% of Book Value guideline.  I think he has some genius psychology in place that causes him to not want to buy it back.

 

My Guess- as soon as he buys it back, he sends a huge huge signal that he is buying $1 bills for $0.60 [or some such deep discount.]  It establishes a valuation, where now there is only speculation about the value.  I suspect that the companies that are wholly owned by BRK have a much higher value than the market gives them credit for, and BRK is presently at or below the 120% of BV figure.  But this is not large enough to be interesting to WEB.  It could be that BRK is at a 70%, or a 60% of it's current price..

 

But, WEB only gets 1 time in 20 or 30 years to buy a bunch of BRK...  So, just wait and buy Apple, or Southwest, or VISA, or something else that is amusing..

 

Once he starts buying BRK, he has a small window and the price will go up into never never land for a very long time.  I don't believe that BRK has not sniffed 120% of BV, and with all the BRK cash they haven't purchased some shares.  One has to ask WHY??? 

 

What do you guys think?

 

 

Please give me your input on the following:

 

Cash Dividend- He doesn't want to do it for a couple of reasons including, double taxation for shareholders, he can use the cash to purchase assets that return around 3-9% or more, but he is waiting for higher return options, once the cash is given out, it is gone..

 

 

What else am I missing?

 

[LC]

you can try to value the largest subsidiaries on a standalone basis.

[DanielGMask]

Guys,

 

I don't have the answer to this but I wanted to see what all of you thought.

 

I don't think WEB wants to re-purchase his own shares, and I think it is semi-unrelated to the 120% of Book Value guideline.  I think he has some genius psychology in place that causes him to not want to buy it back.

 

My Guess- as soon as he buys it back, he sends a huge huge signal that he is buying $1 bills for $0.60 [or some such deep discount.]  It establishes a valuation, where now there is only speculation about the value.  I suspect that the companies that are wholly owned by BRK have a much higher value than the market gives them credit for, and BRK is presently at or below the 120% of BV figure.  But this is not large enough to be interesting to WEB.  It could be that BRK is at a 70%, or a 60% of it's current price..

 

But, WEB only gets 1 time in 20 or 30 years to buy a bunch of BRK...  So, just wait and buy Apple, or Southwest, or VISA, or something else that is amusing..

 

Once he starts buying BRK, he has a small window and the price will go up into never never land for a very long time.  I don't believe that BRK has not sniffed 120% of BV, and with all the BRK cash they haven't purchased some shares.  One has to ask WHY??? 

 

What do you guys think?

 

 

Please give me your input on the following:

 

Cash Dividend- He doesn't want to do it for a couple of reasons including, double taxation for shareholders, he can use the cash to purchase assets that return around 3-9% or more, but he is waiting for higher return options, once the cash is given out, it is gone..

 

 

What else am I missing?

 

Berkshire has a daily volume of about 700 millions on the B shares (3 months avg) so he could purchase 30-35% of that for 3 months in a row without the need of having to report it before the next filing and that will easily take out more than 20 billions. I don’t think he’s not purchasing it for any specific reason other than thinking about the best alternative available and he clearly sees Apple and cash as a better alternative right now. BRK seems fairly valued and it may certainly become cheaper, in which case he better be prepared, though he will probably find something even cheaper in that case!

[Guest longinvestor]

It’s possible that Berkshire may be eyeing very large acquisitions, beyond current cash on hand. It would be not great to buy back BRK stock now at favorable prices but end up issuing stock at unfavorable prices down the road. Buffett is foresworn to never let BRK depend on the mercy of strangers, which is what market price is. When the number/ size/quality of ideas coming across their desk dwindles, that would be the day of stock buybacks. It appears that now is not that time.

[Dynamic]

Once he starts buying BRK, he has a small window and the price will go up into never never land for a very long time.  I don't believe that BRK has not sniffed 120% of BV, and with all the BRK cash they haven't purchased some shares.  One has to ask WHY??? 

 

I think you're saying that Berkshire has dipped below the threshold of 120% of BV (or 110% of BV at the short-lived previous threshold) on a few occasions, but Berkshire has not purchased its own shares (except in the bulk private arrangements announced with the announcement of the repurchase authorization).

 

I believe that Berkshire's interpretation of the authorization is to only act on the basis of publicly disclosed information, in fairness to its shareholders, giving them equal treatment, meaning that Book Value Per Share used to calculate it is based on the last Book Value and the last Shares Outstanding published by the company and filed with the SEC. At present the last know Book Value was at 31st March 2018 and the last published share count was dated 27th April 2018 (see 2018Q1 10-Q for both, the bottom of the front page for the share count).

 

I'm fairly certain that Berkshire's open market price has not traded below the stated threshold in place at any time since the buyback program was introduced so long as you interpret the buyback price limit to be based on the last-published Book Value.

 

Take for example the Jan to early Feb 2016 period, when the last published BV was 2015Q3's figure, giving a buyback limit around $120.83.

 

On 3rd Feb 2016 I bought some BRK.B off market (because the quote had to be denominated in GBP in my tax-exempt ISA) for 85.121 GBP (estimated ~= 124.26 USD ) which was 123.4% of 2015Q3 BVPS.

It turned out to be 119.9% of 2015Q4 BVPS when announced later that February. The price was so low I sold out of my other position in my ISA to fund it, having already spent my cash balance at about $126 on 13th Jan 2016. I had anticipated a rise in BVPS for the quarter just ended, and the 120% threshold increased to $124.40 later in February when the 2015Q4 10-K was released, so whoever got in at the low point of the quarter that same day at $123.55 saw the soft floor rise $0.85 above their purchase price within the month even though they bought above the buyback limit.

 

I bought more BRK.B in my wife's account on 11th Feb 2016 at 86.3759 GBP ~= $124.56 USD (123.7% of 2015Q3 BVPS, 120.2% of 2015Q4 BVPS as it turned out) having brought forward some of our planned cash deposits to take full advantage. The low that day was $124.04.

 

Another good daily low was 25th Jan 2016 at $123.90.

 

All these daily lows were about $3 above the buyback threshold based on the published figures then available, so I don't believe Berkshire was authorized to repurchase its own shares at the open market prices the stock reached. There were no announced buybacks when that quarter's results came out in May 2016, seeming to confirm that they only act on public information not on undisclosed financial figures, unless of course they were too busy buying Apple to buy their own stock!

 

I think the excess cash above the $20bn minimum is not a huge drag on returns, as it's about the same as the insurance float most of the time, but when it does get invested when prices are sufficiently cheap to limit downside and boost upside and there's panic in the markets, it will be leveraged by virtue of being funded by other people's money (and money Berkshire usually gets paid to hold!) thanks to their combined ratio.

[Guest longinvestor]

The topic of “yet-to-be-reported” BV has been discussed on COBF previously. I would be willing to wager a small bet that no one, including CFO Marc Hamburg knows what the BV exactly is at any other point in time than just within the few days of closing the book on the quarter. My understanding of how accounting works at Berkshire is “Add up revenues, subtract costs, pay taxes and report “. There’s likely zero interest (unlike within major public companies) in engaging in activity to generate earnings projections, a week before, month before EOQ. I’ve heard the word “flash” report used during my corporate experience. Berkshire does not play that game. Most others do.

 

Greg Warren of Morningstar was fixated on this topic for a few years and in fact asked a question about this at the annual meeting. Buffett basically said that they would be buying based on reported BV. He even expressly stated that the stock never dipped below BV since the buyback was announced. That didn’t stop Greg W continue to publish reports suggesting that Buffett was going to be buying before reporting BV to the public.

 

 

[DanielGMask]

Guys,

 

I don't have the answer to this but I wanted to see what all of you thought.

 

I don't think WEB wants to re-purchase his own shares, and I think it is semi-unrelated to the 120% of Book Value guideline.  I think he has some genius psychology in place that causes him to not want to buy it back.

 

My Guess- as soon as he buys it back, he sends a huge huge signal that he is buying $1 bills for $0.60 [or some such deep discount.]  It establishes a valuation, where now there is only speculation about the value.  I suspect that the companies that are wholly owned by BRK have a much higher value than the market gives them credit for, and BRK is presently at or below the 120% of BV figure.  But this is not large enough to be interesting to WEB.  It could be that BRK is at a 70%, or a 60% of it's current price..

 

But, WEB only gets 1 time in 20 or 30 years to buy a bunch of BRK...  So, just wait and buy Apple, or Southwest, or VISA, or something else that is amusing..

 

Once he starts buying BRK, he has a small window and the price will go up into never never land for a very long time.  I don't believe that BRK has not sniffed 120% of BV, and with all the BRK cash they haven't purchased some shares.  One has to ask WHY??? 

 

What do you guys think?

 

 

Please give me your input on the following:

 

Cash Dividend- He doesn't want to do it for a couple of reasons including, double taxation for shareholders, he can use the cash to purchase assets that return around 3-9% or more, but he is waiting for higher return options, once the cash is given out, it is gone..

 

 

What else am I missing?

 

Interesting news!

 

The Board of Directors of Berkshire Hathaway Inc. has today authorized an amendment to Berkshire’s share repurchase program. The earlier share repurchase program provided that the price paid for repurchases would not exceed a 20% premium over the then-current book value of such shares. Under the amendment adopted by the Board of Directors, share repurchases can be made at any time that both Warren Buffett, Berkshire’s Chairman and CEO, and Charlie Munger, a Berkshire Vice Chairman, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.

[John Hjorth]

Berkshire has a daily volume of about 700 millions on the B shares (3 months avg) so he could purchase 30-35% of that for 3 months in a row without the need of having to report it before the next filing and that will easily take out more than 20 billions. I don’t think he’s not purchasing it for any specific reason other than thinking about the best alternative available and he clearly sees Apple and cash as a better alternative right now. BRK seems fairly valued and it may certainly become cheaper, in which case he better be prepared, though he will probably find something even cheaper in that case!

 

Daniel,

 

Several CoBF board members haven't considered Berkshire fairly valued recently, and have been adding to their positions.

[DanielGMask]

Berkshire has a daily volume of about 700 millions on the B shares (3 months avg) so he could purchase 30-35% of that for 3 months in a row without the need of having to report it before the next filing and that will easily take out more than 20 billions. I don’t think he’s not purchasing it for any specific reason other than thinking about the best alternative available and he clearly sees Apple and cash as a better alternative right now. BRK seems fairly valued and it may certainly become cheaper, in which case he better be prepared, though he will probably find something even cheaper in that case!

 

Daniel,

 

Several CoBF board members haven't considered Berkshire fairly valued recently, and have been adding to their positions.

 

I am aware, I’ve read their posts.

[boilermaker75]

Berkshire has a daily volume of about 700 millions on the B shares (3 months avg) so he could purchase 30-35% of that for 3 months in a row without the need of having to report it before the next filing and that will easily take out more than 20 billions. I don’t think he’s not purchasing it for any specific reason other than thinking about the best alternative available and he clearly sees Apple and cash as a better alternative right now. BRK seems fairly valued and it may certainly become cheaper, in which case he better be prepared, though he will probably find something even cheaper in that case!

 

Daniel,

 

Several CoBF board members haven't considered Berkshire fairly valued recently, and have been adding to their positions.

 

Indeed. BRK was my largest position and I have added 25% to it over the last few months. Plus a lot of written put options that have expired out-of-the money.