Buffett buybacks: Could Berkshire tender stock?

[gfp]

Privately negotiated trades for large blocks eventually get reported to the NYSE and included in the reported volume:

 

"The NYSE has a general reporting rule specifying that transactions must be reported promptly. In particular, NYSE Rule 131 specifies that trades must be reported within an hour after the close of business on the day the trade was made."

 

 

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.

[SwedishValue]

So the discount for the B-shares compared with the A-shares has been  closed. Two months ago the discount was 4%. Isn’t this an argument for there being heavy, committed buying in the B-share?

[John Hjorth]

So the discount for the B-shares compared with the A-shares has been  closed. Two months ago the discount was 4%. Isn’t this an argument for there being heavy, committed buying in the B-share?

 

Personally, I'm not sure of what we can deduct from this fact, SwedishValue,

 

Berkshire has run up quite a bit recently, that's evident though. Somehow it all boils down to who's buying, and why - and personally I don't know the answer to that question.

[Guest longinvestor]

So the discount for the B-shares compared with the A-shares has been  closed. Two months ago the discount was 4%. Isn’t this an argument for there being heavy, committed buying in the B-share?

 

Personally, I'm not sure of what we can deduct from this fact, SwedishValue,

 

Berkshire has run up quite a bit recently, that's evident though. Somehow it all boils down to who's buying, and why - and personally I don't know the answer to that question.

 

All we heard was that quip “Yeah we bought a little”. Apparently those  five words mean a lot. Don’t know of any other mortal with such market force speak.

[alwaysinvert]

So the discount for the B-shares compared with the A-shares has been  closed. Two months ago the discount was 4%. Isn’t this an argument for there being heavy, committed buying in the B-share?

 

Personally, I'm not sure of what we can deduct from this fact, SwedishValue,

 

Berkshire has run up quite a bit recently, that's evident though. Somehow it all boils down to who's buying, and why - and personally I don't know the answer to that question.

 

All we heard was that quip “Yeah we bought a little”. Apparently those  five words mean a lot. Don’t know of any other mortal with such market force speak.

 

Stock didn't budge all day when he said that.

[gfp]

Yeah, that was surprising on the day he said that.  It was basically Warren going on TV saying that the current price of Berkshire (at that time) was 'way below intrinsic value, conservatively determined by Warren Buffett & Charlie Munger.'  And he also mentioned, if it's close enough they have to talk about it on the phone, they probably shouldn't be buying it...  He was on 4 networks that day and the stock didn't budge

[nickenumbers]

And that fact that GlobalFinancialPartners is pointing out.. that the stock didn't move..  despite there being high probability of making money...  is a scary comment on group herd psychology...  And it is a beautiful thing for all those that listen to the words of Ben Graham-

 

Short term stock market is a voting machine.

Long term stock market is a weighing machine.

 

It confounds me how complicated and how simple stock market investing can be!

[gfp]

Some of this move the last few days has got to be option expiration related.  A lot of folks probably got caught out with covered calls against low basis stock they had no intention of selling.  Look at the opening tick of over 2 million shares traded on the B shares this morning, which is a major option expiry day.

[SwedishValue]

Is Buffett (through Berkshire), under US securities law and regulation, allowed to write put options on Berkshire? I would guess not, right?

[Kapitalust]

Yeah, that was surprising on the day he said that.  It was basically Warren going on TV saying that the current price of Berkshire (at that time) was 'way below intrinsic value, conservatively determined by Warren Buffett & Charlie Munger.'  And he also mentioned, if it's close enough they have to talk about it on the phone, they probably shouldn't be buying it...  He was on 4 networks that day and the stock didn't budge

 

After the removal of the buyback announcement and Buffett essentially saying the stock is cheap, I increased the entire portfolio's weighting to 60% Berkshire.

[gfp]

It was legal in the 90's as part of a repurchase plan.  I assume it is still legal.  I doubt Berkshire is doing it, but Warren has used short puts to purchase shares several times in the past, including with Coca Cola and BNSF.

 

'97 wsj article - https://www.wsj.com/articles/SB864243230195870000

 

Is Buffett (through Berkshire), under US securities law and regulation, allowed to write put options on Berkshire? I would guess not, right?

[SwedishValue]

It was legal in the 90's as part of a repurchase plan.  I assume it is still legal.  I doubt Berkshire is doing it, but Warren has used short puts to purchase shares several times in the past, including with Coca Cola and BNSF.

 

'97 wsj article - https://www.wsj.com/articles/SB864243230195870000

 

Is Buffett (through Berkshire), under US securities law and regulation, allowed to write put options on Berkshire? I would guess not, right?

 

Yea that was what brought it to my mind. He did it kind of massively for BNSF, and the way he structured it (issuing puts at prices much higher than the market value), made it likely he would actually get the shares delivered.

[nickenumbers]

Did you guys notice the trading volume on the BRK.B shares today.

 

Normal B share trading volume is 4M.

Today 13M shares changed hands.  That is $3B in one day...

 

I wonder who the buyers and sellers are.....  humm.....

 

Gates Foundation

BRK share repurchase

 

hummmm....

[gfp]

over 2 million was on the opening tick.  Today was options expiration.

 

(IB showing less than 5million but Bloomberg and NYSE showing over 13m)

 

 

Did you guys notice the trading volume on the BRK.B shares today.

 

Normal B share trading volume is 4M.

Today 13M shares changed hands.  That is $3B in one day...

 

I wonder who the buyers and sellers are.....  humm.....

 

Gates Foundation

BRK share repurchase

 

hummmm....

[SwedishValue]

I added up the number of traded shares for each day from the 6th of august until the 28th of september. These numbers probably do not reflect transactions off-market, as I've seen people in here report significantly higher numbers for specific days compared with the numbers my broker gives me.

 

109 127 485 B-shares have been traded.

9 080 A-shares have been traded.

 

If Buffett bought back 25% of this amount, he would have bough back approximately USD 5.7 Billion of B-shares and USD 0.7 Billion of A-shares. Do I understand it correctly that Buffett is not allowed to purchase more than 25% of average trading volume per day?

 

If anyone can provide the correct numbers of shares traded including off-market transactions I would be delighted.

[John Hjorth]

SwedishValue,

 

Personally, I think our primary source should be the NYSE numbers, as a direct source, i.e. for the B share you find the daily turnover here. How do those numbers compare to yours?

[SwedishValue]

Thanks for providing the link. My new figures are that

 

154 990 202 B-shares have been traded.

10 531 A-shares have been traded.

 

If 25% of daily volume has been bought back, this means USD 8,14 BN of B-shares have been bought back, and USD 0.83 BN of A-shares have been bought back. Combined, just below USD 9 BN could have been bought back if 25% of daily volume was targeted.

 

John Hjorth, can you confirm or refute whether 25% of daily volume is a hard cap for buybacks that applies to Berkshire? I read it somewhere, forgot where.

[John Hjorth]

SwedishValue,

 

According to Dynamic's study of the rules, ref. Dynamic's post here, it's max. 25 percent of the average daily volume. There are some valuable posts by globalfinancepartners about this matter and the details of it on here, too.

[Dynamic]

I knew nothing before finding that investopedia article.

 

I'd be quite surprised if Berkshire has repurchased anything close to 25% this quarter, so any subtleties in interpretation of the rules are probably moot, and an approximate upper bound on open market repurchases is all we're likely to establish so these figures look about right.

 

If the excess cash is just below float until the next major opportunity to invest it at a good price, I'll be happy enough.

 

[nickenumbers]

I can't wait to see how much they have repurchased.  If they repurchased something more than a pittance, do you guys think it serves as a catalyst to increase the share price to higher levels?

 

Does anyone want to guesstimate what price the stock increases to under that scenario?

 

Are there any significant detractors from the share price in the near term?

 

[PS- I get the Ben Graham Stock Market voting machine-shorter them  weighing machine-long term.

[SwedishValue]

A significant buybacks represents a few things.

 

First of all, it represents that Buffett considers the present market valuation of Berkshire to be significantly below intrinsic value. This has a few implications in turn.

 

1. If Buffett is right, which is my default option, then buying Berkshire at these rates provides an attractive investment opportunity both for Berkshire and for the private investor.

2. Share buybacks are likely to be sustained unless the share price appreciates significantly.

3. 1 & 2 combined gives that additional, continuous value creation from buybacks will accrue to remaining shareholders.

 

Secondly, we have a liquidity aspect of the buybacks. Intrinsic value chugs along and grows at a nice albeit slow rate. It is unlikely that intrinsic value will significantly deviate either up or down over short periods of time. In this scenario, having Buffett buy back a significant percentage of the daily trading volume, is likely to decrease the short-term downside of the Berkshire stock price compared with the upside.

 

I think a significant buyback is very material for the implications stated above. I would consider it a 10% event on the stock price for me personally, but I think a likely market reaction more is along the lines of 3-4% (which would present an additional buying opportunity for the savy investor, in my opinion).

[John Hjorth]

All we heard was that quip “Yeah we bought a little”. ...

 

This is still the only fact we have. So, yes, trying by now to triangulate with some kind of precision maximum buyback volume actually appear a bit "academic" [<- [: - ) ]], ref. what Dynamic is implying, when that maximum volume is actually meaningful.

 

[Academic can in this context be defined as a well thought out & in-depth analysis of something without relevance to anything. [ : - ) ]]

[SwedishValue]

I don't agree. He had this interview the 19th trading day after the Q2-report was issued. At that time, around USD 4 Billion would have been the maximum possible open market buyback that Buffett could have orchestrated, less than 0.8% of shares outstanding. I don't think "we bought a little" means that we can exclude him having bought back around the maximum threshold.

 

I think it's more likely that Buffett bought back closer to the max amount of shares (25% of average trading volume) than having him buy back 10% or less. Simply for the fact that Buffett likes to behave opportunistically. If he finds it to make sense at 10% of average trading volume, then why not make it 25%?

 

But there's no way we will know before early November. I just wanna lay out my arguments here so that they possibly can get shot down and make me change my mind about this being a very special situation.

[Guest longinvestor]

The narrative surrounding the buyback is far more significant here. And it changed from the prior narrative.

 

As recently as in May this year, Buffett explicitly stated that they would buy only slightly above the 1.2x BV. Like 1.25 or 1.27x. During the CNBC interview, besides the “yeah we bought a little “, his admission of sorts that they should have been using “intrinsic business value all along” is what we should be discussing. He basically threw the BV yardstick out of the window. Although he’s been telegraphing it for several years through the annual letter, it’s huge that it happened. I wasn’t expecting it in 2018, more like in the next decade.

 

So.what changed? I like to believe that he and Charlie ran their own “Owner Earnings from here to judgment day discounted to present value” given the monumental jump in earnings this year. The facts have changed and they change with that.

[alwaysinvert]

Here's my prediction: the headline number for buybacks won't be obviously enormous at first glance, partly due to him not buying back stock for the whole quarter. But as investors start calculating the actual number of trading days that Buffett will have been able to buy the stock, they will start to realize that he considered it a significant bargain at around current levels ($214). Will the market react heavily to this realization? I don't know the answer to that.