Buffett buybacks: Could Berkshire tender stock?

[alwaysinvert]

That's great if they can buy some future estates in privately negotiated transactions, but nobody but Buffett himself owns enough shares to make a sizable dent for the remaining owners. There are Sandy Gottesman and Munger on the board and *maybe* a select few people outside with comparable ownerships of a few thousand A-shares. But as a whole this is not going to be a consequential thing. Also, I think Munger has indicated that his children will keep holding Berkshire stock.

 

Maybe there could be a big buyback of Buffett's shares once that day comes, but I don't see how it will be in the interests of the foundations holding that stock to sell all those shares in one fell swoop rather than trickling them out on an as-needed basis (just like the Gates foundation currently does).

[John Hjorth]

I think you don't read my post according to my sincere intentions, alwaysinvert,

 

My post was meant the way, that Mr. Buffett actually does not want to reduce the overall level of cash & T-bills, based on ruling market conditions as is right now [and for quite some time], while at the same time trying to give some particular investors a fair way out their Berkshire investment [alive, or dead].

 

So, in short, I consider your reply based on what you want, not what Mr. Buffett wants to do going forward. Rest assured, that this fact has been incredible hard to live with for me, too, with the wide swings in the USD compared to my own functional currency. Personally, I would never hold cash in USD [i actually can at my broker], and I would personally never invest directly in US T-bills. [My actual risk free deposit interest rate is 0.9%, with no currency risk.]

[alwaysinvert]

I guess it is possible that the Gates foundation instead of selling their 5 million shares a quarter over the market as usual, has started selling them directly to Berkshire itself. That would make some sense from both perspectives, but I don't know if they would announce that or not or if there would be any disclosure rules applicable. It also squares well with the relatively low trading volume, even if the Gates foundation would not have amounted to a very big proportion of daily volume. 

 

[alwaysinvert]

"We've bought back a little stock" says Buffett on CNBC just now.

[Guest longinvestor]

"We've bought back a little stock" says Buffett on CNBC just now.

 

We’ll see what “a little” is soon.

 

More importantly he confirmed what many of us have been saying for some years now. BV has become less meaningful in tracking IV.

[nickenumbers]

My reasoned speculation is the BRK is buying as much as they are able, but stopping short of driving up the daily price significantly.

 

A little bit is a totally subjective measure/term.  I think it is a WEB calibrated term.

 

BRK owns a little bit of Costco, $1B, and a little bit of VISA $1.5B.  They own $16B of AMEX, but maybe that is a little bit too.. 

 

 

WEB and CM like to go scoop up $10 and $20 bills when they are laying in the middle of the floor with a dump truck.  They are not going to go with a little bucket and leave some easy money for their friends on Wall Street.

 

 

I think they are playing their cards as perfect as they can, as quiet as they can...  But this is a very significant development.

[alwaysinvert]

Note that it was not mentioned if it was open market buybacks or negotiated buybacks. Given low volume, that would push chances at least somewhat towards the latter.

 

One thing that puzzles me, though, is that he could have easily evaded the question if he wanted to. I don't really get why he answered in the affirmative.

[Guest longinvestor]

Note that it was not mentioned if it was open market buybacks or negotiated buybacks. Given low volume, that would push chances at least somewhat towards the latter.

 

One thing that puzzles me, though, is that he could have easily evaded the question if he wanted to. I don't really get why he answered in the affirmative.

 

Isn't this consistent with him talking about his mistakes first? He implied that he let the BV multiple ride for too long and it was somewhat of a mistake. No?

 

The other thing that is totally new is that remaining shareholders are more important to Omaha than exiting ones. That I had not heard before. He came close to saying something like that a few years back; "I want exiting shareholders to be informed of what they are giving up.."

 

All good!

[gfp]

Good interviews on both CNBC and Bloomberg, although Bloomberg seemed to have lost their feed in the middle.  Current value of 255 million Apple shares, of which Berkshire apparently has even more than 255: over $58 Billion.

 

Seems the Gen Re New England shares are the Ted or Todd position, since he mentioned about 6 million shares was one of the other fellows in the office.  Didn't seem like he was about to bid for Campbells through KHC.  Apparently we were wrong about the need for a 13G filing on Apple, as he is clearly over 5% and has added more.  Perhaps the other disclosures are enough, since the number of shares is out there on different filings with the SEC.  He's certainly not selling any...

 

He seemed his same old self, not declining or more tired.  I thought that was encouraging after hearing of him ending the student visits and other responsibilities.  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick. 

[John Hjorth]

Isn't this consistent with him talking about his mistakes first? He implied that he let the BV multiple ride for too long and it was somewhat of a mistake. No? ...

 

... All good!

 

Yes & yes!

 

... He seemed his same old self, not declining or more tired.  I thought that was encouraging after hearing of him ending the student visits and other responsibilities.  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick.

 

I had exactly the same perception of Mr. Buffetts shape - actually the most important thing to experience today for me!

[boilermaker75]

  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick.

 

Our classes started Monday Aug 20, by Monday Aug 27 I was fighting a cold.

 

They brought back germs from all over the world!

[gfp]

I hear ya Mike.  I used to never get sick.  Now I have a high school student who wants to hug all the time.  I think I feel my glands swelling up just talking about it!

 

  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick.

 

Our classes started Monday Aug 20, by Monday Aug 27 I was fighting a cold.

 

They brought back germs from all over the world!

[John Hjorth]

I'm not 100% sure of the reporting regulations, but I found this on Investopedia about Rule 10b-18 and it's worth following that link and reading the whole article as I provide just an excerpt below, and the article explains that Rule 10b-18 is not mandatory and merely provides conditions that would limit the potential liability against securities fraud rules, so there may be other ways to repurchase than the following and still keep the SEC happy:

 

The Four Conditions

• Manner of purchase: The issuer or affiliate must purchase all shares from a single broker or deal during a single day.
  
• Timing: An issuer with an average trading volume less than $1 million per day or a public float value below $150 million cannot trade within the last 30 minutes of trading. Companies with higher average trading volume or public float value can trade until the last 10 minutes.
  
• Price: The issuer must repurchase at a price that does not exceed the highest independent bid or the last transaction price quoted.
  
• Volume: The issuer cannot purchase over 25 percent of the average daily volume.
  

The SEC also specified more detailed disclosure requirements for repurchases. In each quarterly report on Form 10-Q and in the annual report on Form 10-K, the company must provide a table showing, on a month-by-month basis: the total number of shares purchased, the average price paid per share, the total number of shares purchased under publicly announced repurchase programs and the maximum number of shares it can repurchase under these programs or the maximum dollar amount.

...

... Last but not least, the combined daily average trading volume of A and B shares amounts to almost $900 million per Yahoo finance. That is, for Berskhire to deploy $100 billion at current prices they would have to be the sole buyer of shares for 111 straight trading days. Of course, that is a literal impossibility, but you clearly see how far the timeline is drawn out by using any reasonable but still aggressive assumption such as 20% of the average volume. The simple fact is that it is nigh impossible for Berkshire to put a really big dent in their cash pile with running buybacks. Additionally, in the pursuit of shares at a fast enough clip, the share price is extremely likely to enjoy a good ride. ...

Is there anything we should expect in terms of volume patterns if Buffett is buying back significant amounts of stock? I've never thought about these things before, and I'm not sure whether to expect increased trading due to having an active buyer in the market or gradually decreased trading as Buffett would soak up free float?

 

That's great questions, SwedishValue,

 

We need to keep an eye on the development in the daily volume for the next three months, where we'll find out by facts presented to us in the 2018Q3 Q-10, if Berkshire has actually been buying back during the quarter.

 

I've made some calculations today based on NYSE realized price & volume data for BRK.A & BRK.B, grabbed today on the NYSE website for the period since the announcement of the new, adjusted buyback policy on July 17^th 2018 till and with August 29^th 2018 [yesterday]. [Attached.]

 

The calculations actually surprised me, taking basis in 20 percent of volume, as suggested by alwaysinvert [max. 25 percent of average daily volume, ref. post by Dynamic]:

 

Calculated yearly buyback volume, based on 20 percent of volume, based on realized volumes the period August 1^st - August 29^th 2018:

 

BRK.A : USD 3.8 B

BRK.B : USD 41.3 B

Total BRK : USD 45.1 B

 

- - - o 0 o - - -

 

That's materially more than yearly Berkshire cash flow from operations, and will by that actually be able to make a sensible dent in cash and T-Bills positions going forward,

• If given sufficent time to work, &
  
• If there is will, decisiveness & conviction at Mr. Buffett & Mr. Munger to actually do it [, based on intrisic value considerations].
  

Berkshire_Hathaway_-_Some_buyback_calculations_-_20180830.xlsx

[alwaysinvert]

Well, I think it would not be very reasonable to assume an unmoved valuation of the stock if Berkshire took 20% of daily volume (a number I just took out of my behind) for an extended period of time.

 

Hence, my assumption would be that they could not sustain buybacks at that intensity for enough time to meaningfully pare down their cash. I'm speculating that maybe, maybe they could prevent the cash from growing for some time via only buybacks, but even that will prove to be hard, as time goes on and the weaker hands let go of their stock.

[rolling]

Well, I think it would not be very reasonable to assume an unmoved valuation of the stock if Berkshire took 20% of daily volume (a number I just took out of my behind) for an extended period of time.

 

Hence, my assumption would be that they could not sustain buybacks at that intensity for enough time to meaningfully pare down their cash. I'm speculating that maybe, maybe they could prevent the cash from growing for some time via only buybacks, but even that will prove to be hard, as time goes on and the weaker hands let go of their stock.

i remember buffett has stated (about other stocks at the time) that he thought they could buy 10% of daily volume without moving the price meaningfully, is some cases up to 20% (if I'm not mistaken. As such it would be wiser to admit a 10% number. However, using August volumes might not be accurate: not sure about the US but over here volumes crater in August due to the holidays)

[Guest longinvestor]

Question? Now that we know stock was bought back, at what discount to IV do you think they think the buyback price level represents? I like to believe that they are not the type to drive a 199 ton load across a 200 ton rated bridge.

 

We’ve had this discussion ad nauseum but that was before actual buybacks.

[sleepydragon]

Good interviews on both CNBC and Bloomberg, although Bloomberg seemed to have lost their feed in the middle.  Current value of 255 million Apple shares, of which Berkshire apparently has even more than 255: over $58 Billion.

 

Seems the Gen Re New England shares are the Ted or Todd position, since he mentioned about 6 million shares was one of the other fellows in the office.  Didn't seem like he was about to bid for Campbells through KHC.  Apparently we were wrong about the need for a 13G filing on Apple, as he is clearly over 5% and has added more.  Perhaps the other disclosures are enough, since the number of shares is out there on different filings with the SEC.  He's certainly not selling any...

 

He seemed his same old self, not declining or more tired.  I thought that was encouraging after hearing of him ending the student visits and other responsibilities.  I'm just glad all those students with whatever Flu and Cold symptoms they have aren't flocking in to get the old man sick.

 

People was commenting after 2018 Annual meeting that WEB talked so slow nowadays due to his old age. I have always felt it's more likely he intentionally slowed down to help the real-time live Mandarin translations.

In today's CNBC interview, it will be much better if Mr. Buffett could act up a bit, i.e. talk very slow, forgot a few questions, or even faint, so he can do more buyback! :p

 

 

[alwaysinvert]

Question? Now that we know stock was bought back, at what discount to IV do you think they think the buyback price level represents? I like to believe that they are not the type to drive a 199 ton load across a 200 ton rated bridge.

 

We’ve had this discussion ad nauseum but that was before actual buybacks.

 

Maybe I'm committing heresy at this point by using the p/b multiple, but I have been thinking that WB put intrinsic value at 1.6-1.8 for some time now. I don't think he would repurchase shares at below ~20% discount to intrinsic value. There are no advanced calculations behind this - just the usual moves of triangulating value: deducting float from liabilities, valuing cash, stocks and bonds at 100% and giving the operating businesses a market multiple.

[Guest longinvestor]

Question? Now that we know stock was bought back, at what discount to IV do you think they think the buyback price level represents? I like to believe that they are not the type to drive a 199 ton load across a 200 ton rated bridge.

 

We’ve had this discussion ad nauseum but that was before actual buybacks.

 

Maybe I'm committing heresy at this point by using the p/b multiple, but I have been thinking that WB put intrinsic value at 1.6-1.8 for some time now. I don't think he would repurchase shares at below ~20% discount to intrinsic value. There are no advanced calculations behind this - just the usual moves of triangulating value: deducting float from liabilities, valuing cash, stocks and bonds at 100% and giving the operating businesses a market multiple.

 

I also think he’s had it pegged far higher than the 1.2x. But it’s my sense that it’s higher than 2.0x. The oblique reference to 2.0x was made in the 50th year letter. He was warning that even BRK was not immune to disappointing shareholders if bought at higher price levels. Folks read that to mean that 2.0x was overvalued. Buffett is acutely sensitive to what kind of return his shareholders are accustomed to. At 2.0x an investment in BRK would earn what IV growth would. Say 10%. That’s quite satisfactory but Buffett’s sights are set higher.

 

And that was in 2015. There’s been an earnings explosion since.

[alwaysinvert]

I think Tilson is roughly right on the implications of Buffett's CNBC interview:

[nkp007]

Interesting to hear that Tilson is managing money again (via separately managed accounts) for friends and family. Knew he couldn't stay away for too long.

 

Berkshire seems like a low downside uncertain upside (Tilson says 10% upside) special situation. With the buyback bazooka as a put option around current prices, definitely makes it a protected way to get exposure to US equity markets / companies.

 

I took a position after they announced the buyback. Huge technical support barring a crash.

[nickenumbers]

I can see a 1M share trade at the closing bell for $208.72.  The Volume all day long was not even close to that.  The other trades were all 3-6K lot sizes during the day.

 

I know that a disproportionate volume happens at the open and close of the market bells, but this is 25% of the volume at the end of the day in 1 minute.  It might have been even 1 single trade.  If it was all BRK purchasing back stock that would be about $208MM.

 

 

[gfp]

I don't think I see a 1 million share trade on BRK B but I do see just under 284k shares traded at the close.  There is a large order match at the close that you can participate in by entering MOC - "Market on Close" orders.  Index funds and other institutional traders are big users of the closing bell order cross, which is why they publish order imbalances for the closing cross in the last hour and a couple minutes or so before the close.

 

(I should add, it's never going to be all Berkshire unless its a block trade that you see printed out of nowhere - it is safe to assume Berkshire is only purchasing 10%-20% of the daily volume and I would bet it is closer to 10%.  They would probably be purchasing both classes of shares)

 

I can see a 1M share trade at the closing bell for $208.72.  The Volume all day long was not even close to that.  The other trades were all 3-6K lot sizes during the day.

 

I know that a disproportionate volume happens at the open and close of the market bells, but this is 25% of the volume at the end of the day in 1 minute.  It might have been even 1 single trade.  If it was all BRK purchasing back stock that would be about $208MM.

[Cigarbutt]

Interesting to hear that Tilson is managing money again (via separately managed accounts) for friends and family. Knew he couldn't stay away for too long.

 

Berkshire seems like a low downside uncertain upside (Tilson says 10% upside) special situation. With the buyback bazooka as a put option around current prices, definitely makes it a protected way to get exposure to US equity markets / companies.

 

I took a position after they announced the buyback. Huge technical support barring a crash.

Same here.

 

What I find interesting is the tension that exists between the necessity to do a large buyback at a significant discount to make a meaningful impact on intrinsic value per share and to manage the uncomfortable cash pile while, at the same time, keeping the magic opportunistic formula loaded in order to maintain the capacity to outperform. Despite the soft-spoken aphorisms, I still picture Mr. Buffett as a warrior with a knife between his teeth.

 

His thinking has always been long term and I would say that this may be even more important at a time when he is defining his legacy. The Oracle has to balance the weighted opportunity cost of holding excess cash now and for the next few years. Simple but not easy.

[SwedishValue]

I know very little of dark pools etc., but just had this thought and wanted to ask whether it would be possible to determine whether there is any non-public trading of Berkshire in any way. Does anyone know? No matter what it will be interesting to know the total amount of trading in Berkshire for the next couple of months, combining this number with the proportion that Buffett bought back will give some valuable indications of times to come during similar circumstances.