SwedishValue

Thought I'd check back to offer some more color on the way I view things. First, I think your walk-through is interesting and informative AWS. If Buffett paused buybacks during early q1 due to price concerns (ergo, if he thought the mark-to-market losses were enough to decrease his desired price for repurchasing), then the validity of such a buyback pause is much smaller today considering the huge mark-to-market gains Buffett has had in his investment portfolio Q1. I was surprised and disappointed to have misunderstand Buffett's new policy for buybacks, as I thought bigger buybacks were in the cards. Mostly I was disappointed in myself because I've always made it a point to read and watch everything Buffett related (interviews, AGM's, books, letters, etc.), and up until recently I've always thought it "easy" to understand Berkshire policy. Recently, my misjudgments of Berkshire makes me feel like a really dumb kid. If Buffett has continued in the same fashion, preferring US treasuries to buying back Berkshire stock - even though he has said that the stock is undervalued (by buying back at these prices and prices higher than today), I would argue that he is actively deceiving shareholders in terms of the likelihood of him addressing the Berkshire cash issue. If he isn't buying back stock under March 2019 circumstances, when could we ever expect Buffett to deploy anything significant to buying back Berkshire shares in the future? In the case March 2019 is too bad to even buy back pitiful amounts of shares, mostly depression or scary recession scenarios would remain as possible opportunities for Buffett to deploy the cash. I think shareholders deserve to know if this is indeed the plan, or if buying back stock is as serious an alternative as Buffett and Munger have suggested in the past. Data so far suggests that buybacks are not a material share of the ongoing capital allocation even when they consider Berkshire stock to be significantly undervalued. It's not likely anyone will call Buffett out on this, but it is a big issue. If they had bought back 10 times as much stock as they did for the first 6 months of the new buyback program, it would still only barely offset the increase in cash from operating earnings and increase of float. If they had bought back 20 times as much stock as they did, then we would still be looking at approximately a 3 year period before cash were down to around 30 USD Billion. There are no indications from data - so far - that repurchases in any way will do anything material with excess Berkshire cash. I believe this is something that Buffett should be asked about and that shareholders deserve to know his stance on.

From the front page of the 10-k, we know Buffett didn’t repurchase any significant amount the first half of the first quarter. We’ll see eventually, I think repurchases makes sense from a price perspective.

I think the thread starter’s analysis is good and thought through. I disagree with putting such big discounts on BNSF etc., so in the end I come up with a higher value. However, I also mostly agree with adjustedvalue. At some point Buffett needs to adress what to do with the cash if interest rates stay low and no elephant appears. His reasoning and unwillingness to repurchase a meaningful amount of Berkshire shares suggests to me that the excess cash problem is likely to increase. Buffett and Munger have previously stated that material buybacks would be in the cards if no other options were found and Berkshire was trading at a significant discount. My impression was that ”material buybacks” would mean that the cash pile would be kept roughly the same as a result of the buybacks. I’ve come to revise this position considering the very limited use of the repurchase program so far. I think that over time, Berkshire will spend somewhere between 2% and 5% of their owner earnings on share buybacks (probably above 10% whenever Berkshire is significantly undervalued, but most of the time Berkshire stock will not trade at a discount big enough). Until we see another significant economic meltdown, cash is likely to increase in excess of 20 BN USD per year. If a meltdown comes five years from now, we can only hope that there are deals out there for the excess 200 BN USD in cash that Berkshire will have by then. If interest rates stay low and valuation levels stay where they are now (or higher), I think it is unlikely Berkshire will do anything with its cash rather than hoarding it. Although it is very strange to me. Up until recently I’ve been under the impression that it would be better to spend the money repurchasing your own undervalued stock rather than hoarding cash. At some point I just have to admit I’ve been wrong.

Given that Buffett said the transaction was very large, I think Southwest is out of the question. Anything below 30 BN can't be considered very large, in my opinion.

I -really- feel that someone asking Mr. Buffett about the possibility of a tender offer would be justified. It is a matter in which his personal view on the matter can have huge implications for an outsider trying to value Berkshire. It is possible that he believes a tender offer would be unjustifiably "coercive", potentially luring retail investors into tendering stock at a price that looks like a good deal but really is a much better deal for continuing shareholders. It is also possible Buffett would approve of a tender, but find the likelihood of it happening to be tiny for different reasons. It is also possible that Buffett actively considers it an option, among others, for deploying excess capital. Am I alone in thinking this question deserves more attention than the usual questions regarding GE/KHC/KO/AAPL/Bitcoin? To me, depending on the answer given by Buffett to the above question, I would alter my personal valuation of Berkshire by several % (ergo, if he believes a tender offer immoral, I would increase the likelihood of Berkshire ending up with 200+ BN in cash to be much higher than if he communicated that he believed a tender offer both is possible and reasonable to happen at some point). How can we get this question across to Mr. Buffett?

I'd love for him to discuss the repurchase mandate and his using it. He's written about repurchases to considerable lengths before, but I'm pretty sure I'm not the only one surprised with his limited use of the mandate at a time he finds Berkshire's price attractive enough to warrant repurchases at all. The use of the buyback mandate has, to borrow Mr. Buffett's own words, not "moved the needle".

If he doesn't find a very significant acquisition, doesn't add significantly to new or existing holdings, and only buys back stock sporadically, Berkshire Hathaway will have another 100 Billion in cash in less than 3 years. I just don't see how that can be reasonable, given that he has had the opportunity to buyback stock at a price he likes. So far, Buffett really hasn't done anything to convince me as of which way the cash pile will be going away, but given his comments I find it likely he has a plan. Hopefully we know more next saturday.

One would have to assume that Apple is worth more now than when Buffett initially bought his stock. It's not like they've been breaking even. For what it's worth, I'm surprised that Berkshire has underperformed Apple AND DAL since they had their profit warnings. I guess the market has its ways.

Seems to be big volume today. Is there anything special going on in terms of options settlements or something? Anyway, I added to my position after it was filed that Ajit Jain bought stock over the market. Interesting times.

All right, so I admit to have been quite wrong on my most meaningful conclusion: that Buffett had been buying back stock close to the theoretical limit and also for prices above 210 USD. I re-read some of the stuff Buffett wrote on buybacks and again came across a segment from the 1999 letter to shareholders (p. 16-17): http://www.berkshirehathaway.com/letters/final1999pdf.pdf Here, Buffett writes the following: "There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the company has available funds — cash plus sensible borrowing capacity — beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively-calculated. To this we add a caveat: Shareholders should have been supplied all the information they need for estimating that value. Otherwise, insiders could take advantage of their uninformed partners and buy out their interests at a fraction of true worth. We have, on rare occasions, seen that happen. Usually, of course, chicanery is employed to drive stock prices up, not down." (my emphasis) Is there an argument for Buffett now being able to repurchase more than the ca 8-9% of daily volume that he purchased during the days which he repurchased stock? My personal view of that is NO (since he wouldn't have repurchased to start with if he didn't feel like shareholders had been supplied with all the information they would need to estimate intrinsic value). However, I'd like to hear your opinions on the matter.

It's out. http://www.berkshirehathaway.com/qtrly/3rdqtr18.pdf Buybacks have been less significant than I thought. If I read things correctly, 2 805 A-share equivalents have been bought back in August and September (around 840 Million USD). For October until the 25th, there has been an equivalent of 588.4 A-shares bought back. The neat total so far is that Berkshire bought back stock for approximately one billion USD.

Thanks. I'm just very confused. This is not the way it works in Sweden and I just somehow assumed they would not have to file anything that would give away what they have been doing in the 4th quarter. Thanks for helping me out.

”It will certainly be interesting to see the number of shares outstanding at 30 Sep 2018 and those around Fri 26 Oct (printed at the foot of the front page of the 10-Q)” The second part of this statement was news to me. Are you saying we will also get to know part of October’s buyback activity? Great news in that case!

I have a few conclusions for myself, feel free to disagree. First, Buffett has - on so many occassions - talked about the punchcard approach of investment. It is imperative that if one gets a good idea, you should make it a big one. Thus, I think it’s likely Buffett will use his buyback mandate in a very aggressive manner. Buffett buying back shares means he thinks Berkshire is significantly undervalued. My default position is to always agree with Buffett - especially on matters of valuation and matters of Berkshire. This should be his sweet spot, so Buffett being wrong about the intrinsic value of Berkshire now that he is buying back stock, is not realistic. Buffett buying back up to 25% of the daily trading volume should put some soft floor on the trading level of Berkshire. This also has the implication that the shareprice is likely to converge to intrinsic value faster than it would have without Buffett buying back. Keeping track of possible buyback volume and comparing to reported volume will give a good indication as of how aggressive Buffett has been. All the news articles I’ve read that mention buybacks argue for much lower volumes than I think is likely. All in all, I think it’s a good time to be long Berkshire - also for ”special short-term reasons”.

I've seen firsthand stocks blip up when Buffett mentioned he's bought them. Like with Apple. Instant market reaction. Buffett said his buyback remarks under opening hours, and the stock didn't even blip. It blew my mind back then and it still does today. I think the market has a materially different view to me regarding the meaning of the buyback announcement. I guess it's likely we know more saturday, or monday, or in the months to come. As has been pointed out in this thread many times before: Buffett can barely offset the cash that Berkshire brings in by the amount he can spend on buybacks in the public market. Also, an update for the volume traded in October: 111 558 790 B-shares were traded, which means that the maximum 25% threshold would give buybacks amounting to 5,7 Billion USD can have been made from B-shares. 8 600 A-shares were traded, which means that the maximum 25% threshold would give buybacks amounting to 2/3 Billion USD can have been made from A-shares. All in all, the theoretical max for October is around 6,4 Billion USD.

It’s one very important point that you bring up. In the light of float increase and look through earnings, one likely more closely looking at Berkshire the way Munger and Buffett are - and compared with just the reported GAAP earnings the difference is huge. Buffett spoke about the GAAP earnings compared with look through earnings on many occassions as well. Btw, do I know you? Is the Swedish investing universe really this big? :D

When things goes sour, everything turns out to be correlated. This should be a nice opportunity for long-term shareholders.

Buying today gives you a quite decent discount to the price that Buffett started the repurchases. With increased volume during this October turmoil, Buffett has been presented with the option of buying back significantly more stock compared with the previous months. Not that it protected the downside that much (I didn't expect Berkshire to drop more than the market during the so far worst parts of the turmoil). In this type of market environment, will Mr. Market approve or disapprove of a communicated and big Buffett buyback? A month ago, I was very confident that it would be the headline. Today? Not as sure.

”If Berkshire shares are selling below intrinsic business value, massive repurchases will almost certainly be the best choice.” Combine this with everything else that Buffett and Munger have said throughout the years about buybacks. I personally don’t believe it’s likely that Buffett would ”small-ball” a share buyback when he buys back. And i also don’t think Buffett would ever repurchase above intrinsic business value. I’m like the man with a hammer now, but I would be seriously surprised if somehow Buffett bought back stock for less than two billion dollars this quarter.

I just wanna have this on the record. 1. I believe Buffett has been repurchasing shares aggressively, in excess of 10% of daily trading volume. 2. I believe share buybacks will take place as long as prices are at least within 110% of the price when Buffett commented on the buybacks on CNBC (at least until 230 USD). 3. I think both the ”soft trading floor” and the fact that Buffett considers the stock to be significantly undervalued, to be strong reasons for a very significant long position in Berkshire. I am long, for the first time ever, since shortly after the buyback treshold change.

Globalfinancepartners, this is very helpful. Thanks for the very valuable contribution!

We’re good. I didn’t find it patronizing and I appreciate our discussions.

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.

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).

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.