SwedishValue

Some data. For July, Berkshire bought back 1 965 A-shares. During July a total of 7 652 A-shares were traded at the NYSE, so this would correspond to Berkshire Hathaway repurchasing 25,7% of the going volume of A-shares. For July, Berkshire bought back 10 521 719 B-shares. During July a total of 126 051 720 B-shares were traded at the NYSE, so this would correspond to Berkshire Hathaway repurchasing 8,3% of the going volume of B-shares. For August, Berkshire bought back 2 531 A-shares. During July a total of 8 064 A-shares were traded at the NYSE, so this would correspond to Berkshire Hathaway repurchasing 31,4% of the going volume of A-shares. For August, Berkshire bought back 10 846 595 B-shares. During July a total of 102 380 036 B-shares were traded at the NYSE, so this would correspond to Berkshire Hathaway repurchasing 10,6% of the going volume of B-shares. For September, Berkshire bought back 3 670 A-shares. During July a total of 9 396 A-shares were traded at the NYSE, so this would correspond to Berkshire Hathaway repurchasing 39,1% of the going volume of A-shares. For September, Berkshire bought back 11 387 889 B-shares. During July a total of 115 358 782 B-shares were traded at the NYSE, so this would correspond to Berkshire Hathaway repurchasing 9,9% of the going volume of B-shares. What conclusions can we draw from this? I guess they most likely have bought A-shares (maybe also a few B-shares) off-market. I believe there were some provision which made Berkshire unable to repurchase more than a set proportion of daily trading volume? Maybe someone better informed in American securities law can inform me!

According to Buffett, it isn't trading at a discount to intrinsic value. He didn't buy any in March when it was cheaper than what it is now. If Buffett showed signs of dementia at the 2020 annual meeting, then it would be easy to dismiss him, but he was as sharp as he has been the last 10 years. I think Buffett knows more about intrinsic value for Berkshire than anyone else. I don't mean for that to come across as a criticism of your post, just that the man that created Berkshire and knows more about the company than anyone on the planet disagrees with you. I think you make a very good point, but like Buffett said - Things change. Maybe Buffett considers the worst case scenarios to be far less likely today? I’d argue that Berkshire could be considered cheaper at year-end 2019 than it was around the lows in march, and that Berkshire today is cheaper than it was at year-end 2019 again. Covid aint going nowhere for now, but we have eliminated a lot of the worst case scenarios. If Buffett disagrees we’ll now soon enough.

Go back to the CNBC Buffett archive and listen to the AGMs between 1994 to 1996. There was a LOT of discussion regarding this.

Are you sure about this? I can't explain Berkshire buying back stock up until the 9th of october without the use of such 10b-18 Safe Harbor plan. Am I missing something?

I thought before this report there was a good chance of a liquidity event of some sort, most likely a tender in that case. With good chance I mean ~10% chance. The way things played out, and seeing Buffett's new hot line, I believe a tender is significantly less likely at least for a year. If Buffett can't increase his buyback volume with this new method and the stock does not move to become significantly more expensive, I think a tender or something similar will only have a negligable chance for the upcoming year. One aspect that might discourage Buffett from doing a tender, is that offering to tender at X might make the stock move to above or around X with tendered volume being significantly less than Buffett wants. For a tender to work, it has to be big enough to be done once but also creating enough value for Berkshire to make it worthwhile. Doing this hotline thing might actually be Buffett's best bet as of now. I've been wrong on so many things, but I appreciate the discussion and especially the thoughts from alwaysinvert. Disclosure: long Berkshire but not as significantly as I was this last friday.

Thank you! In that case I understand the confusion. I was confused myself for some time before reading in the report that the net investments under the three reported categories included the Occidental money.

Thanks for sharing! Very worthwhile watch and some new insights for me. When is it recorded? I found his comments on the 10BN net purchasing activity in q3 to be strange, he should know that the 13-f is out and he should also know that the net purchasing activity was the Occidental deal.

How big can Buffett go? I have my thoughts but would love some feedback.

I think it is interesting that he commented on the transaction when asked by CNBC. My interpretation is that he wants Berkshire shareholders and also fellow businessmen to know he is hunting actively.

Dynamic, thanks for your informative post. It is very well written, and also well researched. I feel like the grinch coming off with my negative comments, but here goes my thoughts: Had you made the post one year ago, I would have thought that such a scenario that you are describing would be at least somewhat likely. However, seeing that Buffett has had ample dry powder and at the same time the opportunity to purchase shares in JPM, he chose to do so on a very minescule scale. Today, prices are considerably higher. Therefore, I think we are very unlikely to see any form of active capital allocation into banks at current prices. If we see prices drop more than 30% that might change, but such price movements are rare.

I think it's wishful thinking to liken the situation Buffett experienced from 1985 to 1988 to the situation of today. A few considerations: Back in 1988, the one good idea (Coca Cola) made Buffett able to deploy 1/3 of Berkshire capital within a year in a listed company from simply buying a large part of daily volume. For something similar to happen today, Buffett would need to deploy well in excess over 100 BN USD in months. I don't think this could be done in -any- listed stock on the planet. Back in 1988, Buffett could get very material impact from a good 1 BN USD deal. A 10 BN USD deal today would barely move the needle at Berkshire. Back in 1988, the larger investment universe available to Buffett made waiting make more sense. If you're fine with waiting, good for you. Today, after prices have gone up on securities he recently liked, I'm also fine with waiting. I just don't understand the priority in doing minescule buybacks and preferring to invest more in US Treasuries when BRK and JPM were available at prices where he liked the stocks. At his portfolio size, I think it's better to make use of intellient investment opportunities when available, rather than waiting for the once in a decade type of dip.

For me, the astounding thing is not that Buffett is being patient with deployment of capital. Rather, it is that he has had opportunities to deploy capital in securities he liked where volume was readily available (BRK, JPM and airlines comes to mind where he bought for pennies) - but he preferred to instead allocate capital to US treasuries. At some point above 100 BN in excess cash, one should prefer to increase more rapidly the ownership of securities that are trading below intrinsic value, rather than allocating it to treasuries. Buffett, quite obviously, disagrees with me. With the recent small run-up in BRK and bigger in JPM, I’d expect the likelyhood of any investment other than capex and US Treasuries to materially have decreased.

I’m not suggesting Buffett should swing for things he doesn’t understand or swing for things without margin-of-safety. I’m suggesting he should swings for the things he believes presents a margin of safety. In addition to this, I’m posing the question if fellow shareholders are fine with ANY amount of wait. I am fine with it, as long as he swings when he gets the opportunity. However I feel like I, as a shareholder, deserve to know why he preferred waiting and allocating to cash, rather than buying more JPM and BRK stock when he believed both were undervalued and he had 20% of the market cap available in excess cash yielding historically low rates.

That transcript is part of the reason for my frustration. He thought JPM and BRK itself was cheap, so he bought some. But he only bought to offset something like 20% of the operating cash flow, although shares of both securities was trading at very attractive levels for a long time. I think that there is a very high probability (over 90%) that Buffett will have more than 150 billion in cash within the next year. What does he even mean when he says the burden of proof shifts on them, big-time? Is there real meaning to these words?

I figure most people responding here have some sort of position in Berkshire and also huge respect for Warren Buffett. I certainly fit this category. Buffett has commented that prices are sky-high for his type of deal. The 20% draw-down at the end of last year was not sufficient for Buffett to become a net purchaser of stocks. Although we know Buffett was in the talks for a deal, we don’t know how close or big the deal was. What if interest rates stay low and corporate America continues to advance at a moderate pace, with no significant downward movement in the stock market. Are Berkshire shareholders better off for having Buffett pile on hundreds of billions of cash, waiting for the extreme opportunity that would make him able to deploy it all at once? Is a crash so inevitable and significant in nature that all waiting will be worth it? Mr. Munger has commented that Berkshire has been run rationally up until now, and that it would make no sense to start acting irrationally at the end of the their tenure. Is the inaction of Berkshire a plan in itself, to show an apparent commitment to mismanagement of shareholder capital, so that Buffett will have the option of significant buybacks at extremely distressed prices? Would -anything- you see change your mind about the godly capital allocation skills of Mr Buffett? Seeing the inaction in securities he liked at lower prices, where volume has been readily available (JPM, BRK), I have a hard time considering the recent 5 years as a period where Buffett has shown good stewardship of shareholder capital. Thankful for your thoughts, especially those backed by data.

According to my math, Buffett has continued to repurchase shares in October corresponding to 1686 A-share equivalents. That would be around 500 Million USD up until the 24th of October. This is in addition to the 213 A shares and 3 168 863 B shares he bought back in q3 for around 700 Million USD (didn't bother with the exact number here, it's thumb-sucking levels anyway).

To me it seems pretty likely that one out of two things I number below will likely happen. I give these two a combined probability of more than 80%: 1. Market drops more than 30%, and stays below the -30% treshold for at least six months. 2. Buffett will have more than 150 BN USD cash at hand at the 2021 AGM. Personally, I’d rather take the over than the under for 150 BN USD in cash for the AGM 2021. Buybacks will happen every quarter until then, but their combined volume for the next two years will most likely be below 10BN. An interesting aspect of this is that it should make Berkshire more likely to be targeted by corporate raiders and broken up and dissolved once Buffett is gone. Having 20%+ of the market cap available as distributable cash helps any corporate raider. And without Buffett, there will not be a big controlling shareholder.

At least $20 BN of cash is needed as a capital buffer, probably more like $25-30 BN. Then you have deferred tax liabilities from the marketable securities (imo make up your own mind about the size of these, since some stocks are likely never gonna be sold). Then you have the insurance float. Depending on how you view the insurance float you could either consider this to be a small or big liability, or you could (as I do) value this float to not be a liability at all since it’s likely to grow and also produce underwriting profits. There is an argument to be made that since Berkshire is incorporated in an inefficient tax structure, it deserves to trade at some type of discount. All things considered, I’ve reached the conclusion that Berkshire is very significantly undervalued. Buffett and Munger don’t seem to agree considering the very limited repurchase activity. I honestly don’t know what I’m missing but there are plenty of fish in the sea.

What we haven’t seen much of during the first 50 years however, is Buffett having a security available at a price he likes, and pulling out the peashooter instead of his elephant gun - like the way he’s done with share repurchases so far.

If we are at the year 2030 with Berkshire having bought back 100bn in stock, that would likely be less than 1/3 of the cash flow Berkshire has achieved up to that point - and that is assuming no acquisitions. Having bought back 100bn worth of stock and letting the cash pile grow to 400bn during the same time is not my idea of great stewardship of capital. If repurchases make sense it makes sense doing them on a massive scale.

Some of the early questions around buybacks were decent but Buffett was dancing around them. My impression is that he would be much more aggressive if the stock was trading at a 25%-30% discount to intrinsic value. From this we can infer that Buffett most likely doesn’t believe that the intrinsic value of Berkshire is above 250 USD per B-share. This is somewhat surprising to me, as my intrinsic value estimate would have been above 250 USD prior to Buffett’s comments. Another thing that surprised me was Buffett saying that their aggressiveness in repurchasing shares will not change whether they have. 50, 100 or 200 BN in cash - but only change as a function of Berkshire’s price relative to intrinsic value. Before today I would have thought aggressiveness should pick up if Berkshire somehow ended up having hundreds of billion in cash, now I am not so sure. What frustrates me a bit, is that Buffett suggested that if Berkshire were to buyback 100 BN, he would do so at prices that would redeem more that 1/5th of outstanding shares. I understand full well that his desire is to not pay up - however, I do not understand in which way Buffett could buyback such huge sums in the open market or through private block purchases. And those were the two only options discussed by Buffett. Somebody ought to ask the question, and specifically ask about possibility of a tender, but it seems like people care too much about other important aspects such as KHC, Buffett’s political endorsements or about management at WFC. Maybe one day someone will actually ask the question.

One reason this question is so important is that I really don’t understand how Buffett could deploy cash through repurchases fast enough to offset Berkshire operating earnings - UNLESS there is a possibility of a tender offer or something similar.

I’ve mailed pretty much this exakt question to the journalists asking questions. I did this months ago. I’ve tweeted Becky Quick with this exact question. I think the question deserves to be asked.

Question for clarification: was there a silent period in which Buffett could not file the specific form to permit repurchases during the month leading up to the the release of the 10-k? Think I know the answer but I’d rather have some American hero help me out.

Yea, I’ve talked with my closest investor friend and I reacted too harshly. It still baffles me that Buffett didn’t repurchase during first half of q1, but like has been suggested by both Buffett and others: there are valid reasons for postponing buybacks at times. It does make it harder to interpret and judge the level we can expect for buybacks over time however, and this is a big black box for valuation for an outsider like me.