alwaysinvert
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Posts posted by alwaysinvert
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So, the gist of the answers on the buyback questions thus far has been: the stock is/has been moderately undervalued, so we have bought some but we would buy way more if it was cheaper. Exactly how they would achieve those significantly more aggressive repurchases is still a big question mark, though.
Charlie seemed to express a more relaxed attitude towards repurchasing more at higher valuations, although that might be an overinterpretation from me.
I would hope that a tender question comes through, but we may have reached the fill on the buyback topic from the journos at this point, and I'm not putting my hopes on the audience for that.
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With the annual meeting and associated interviews coming up, it would be extremely disappointing if someone didn't ask the obvious question of how exactly substantial repurchases of stock could be achieved in a reasonable timeframe and by exactly what means. WB is of course unlikely to answer directly, but the fact that no one has questioned him on the logistics of it yet is underwhelming to say the least.
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The only way Buffett will countenance reducing the company’s massive pile of shareholder equity is to buy back shares when they are selling at a price he thinks is lower than their true value. This amounts, in his view, to buying out a partner at an attractive price. He says the time may come when the company buys back as much as $100bn of its shares (it bought back $1.3bn last year).
From FT today.
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This really feels like beating a dead horse at this point, but here goes anyway. The issue won't die not because it is a fuzzing over minutiae, but because it is an interesting puzzle with large repercussions to shareholders.
He has, as mentioned, said explicitly that buybacks will be significant over time and given the record, I also think one should err on the side of believing that. However, this is impossible to square with 1) actions taken thus far - even when allowing for a pause due to a possible acquisition 2) average daily volume in the stock. There is no easy satisfying answer to this conundrum, hence why this thread was started in the very first place and has had so many posts.
The uses of the excess cash over time is way more important than whatever short or intermediate term acquisition Buffett can find. Both because the time for him to personally find such acquisition targets is running out fast and because mere size makes them just a partial solution anyway.
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Price is below $200 again. I can almost imagine them buying...$300k of stock today... sarcastic obviously. But point being, I doubt we're going to have any large buy backs this quarter. What do you all think?
Well, we know that there weren't any up to February 14, so even if they are buying hand over fist after that, the total amount for the quarter is unlikely to be impressive.
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I'm so old that I remember all the gut reactions to BNSF too
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It is a mystery to me as to why investors spend so much time on the question of buybacks both at Berkshire and many other companies.
Should probably not be all that much of a mystery when you click on a thread named "Buffett buybacks: Could Berkshire tender stock?"
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Third, it is likely that – over time – Berkshire will be a significant repurchaser of its shares, transactions that will take place at
prices above book value but below our estimate of intrinsic value.
I guess the question is still exactly how that will be achieved but I interpret that sentence as being very close to a promise.
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There was some discussion about implications for capital allocation possiblities in light of the latest 13F. Some people drew the conclusion that this makes large market buybacks more likely. I disagree with that - it's hard to see why that would meaningfully move the size of market buybacks since funds are far from scarce anyway.
However, I would contend that the possibilities of a tender buyback have materially increased from the recent dearth of stock purchases and acquisitions. Soon enough there will be no other reasonable way of allocating the excess capital. Except the dreaded taxable event of a dividend, that is.
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It's just so hard to see that there is much of a tradeoff between buying more publicly traded stocks and doing buybacks as of right now.
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Well, I think I got my guessing roughly right with AAPL. I'm surprised to see that so little has been added to other positions - only really meaningful addition is to JPM, but certainly a lot less than I expected. And then this further addition to BAC, where Berkshire already is fairly close to the self-imposed maximum 10 percent? Perhaps JPM is just some kind of "substitute" for forced selling of WFC, and later, but soon, also BAC.
Perhaps Berkshire feels maxed out on total level with US financials? [We have to remember AXP here.]
Something that I don't understand is certainly going on with the JPM stake. I was expecting at least as large a buy as in Q3, but that turned out wrong. He really is very hard to predict. Maybe this bodes well for buyback volumes, but I wouldn't be too sure about that either. Really is peculiar.
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https://whalewisdom.com/filer/berkshire-hathaway-inc#tabholdings_tab_link
Net seller of AAPL (!). Continued bank share purchases, although no huge moves considering the big market drawdown.
Oracle is gone too.
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I haven't followed traded volume in BRK lately. Has someone here done continual updates? Q4 report is drawing closer.
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Yes, the amendment to the plan (removing the 1.2x rule) went into effect after the 2nd quarter earnings were released. The first trade was actually on Tuesday, so they waited an additional day to start - for whatever reason. But that was a one time delay. They didn't want to look like they had material nonpublic information (which of course they always have, but they are trying their best to be "fair")
GFP, how do you know the days when they traded i.e. that the first trade was on Tuesday?
That info is in the 10-Q. Aug 7-Aug 24
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They don't have to set an absolute price. It can be a pretty involved formula or something as long as it is laid out ahead of time and not changed later. They can change their size up to a point. I just don't think they are so far. We'll see
Also - because it is a 10b5-1 plan, there is nothing but set a cap for Ted or Todd to do. The trading decisions have to be made by the broker without interference or they lose the safe harbor of the plan.
So for the 10b5-1 plan, they have to set an absolute price (what you call "cap") at or below which to buy and the size? And they cannot do anything fancy like relative price? And they cannot change the size either?
They could conceivably have a stop if the market falls x% in order to favor buys in the stock portfolio, but I strongly doubt that they would bother with any complicated stuff at current cash levels. More likely they have a ceiling for the total possible buybacks in each period either via a total dollar cap and/or via a cap as a percentage of daily traded volume.
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208 was the average price bought at so it couldn't logically have been the ceiling.
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With co-author Kevin Simler but that didn't fit in the title.
I saw that there is a thread on Caplan's book, so in the name of signalling theory, Hanson's book from this year deserves its own too.
Recommended for everyone but especially righteous people with pure motives.
https://www.amazon.com/Elephant-Brain-Hidden-Motives-Everyday/dp/0190495995
Interview about the book:
Hanson's blog: http://www.overcomingbias.com/
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Some of the cash problem has seemingly disappeared with the entry into JPM during Q3. Approximately $30b more could be deployed into that stock. Being a highly liquid stock ($1.5b worth of trading daily) this could be done relatively swiftly depending on price action. The stake bought in Q3 only corresponds to about 4% of the average daily volume - not all that aggressive. Presumably the purchases have continued into Q4 in light of recent prices compared to Q3.
I expect that this will top out at 10% just like the rest of the bank stocks, barring a sharp move up in price. It is a bit curious why they didn't keep this purchase secret for the time being, like they have done in the past when building large positions (IBM, XOM, some others lately?). Maybe that is a strike against my idea that they will build a maximum size position.
Anyhow, this could conceivably be counted as Buffett scoring an elephant, if in slightly different guise.
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dividends are way closer than previously suspected
It really does seem like Warren's been really clear in pointing out that cash dividends do not make sense with Berkshire trading above book value. A dollar of after-tax earnings is worth less than a dollar if sent out in a cash dividend, or more than a dollar if retained. Despite there bing a ceiling price on their repurchase plan, I do think repurchases are the way he will go. And, of course, cash hasn't piled up the way many would have expected. We're still here at $100 Billion. One of these days he's going to buy a decent sized company.
He has done two really significant acqusitions in the last 10 years (BNSF and PCP), whereas he would need one of those on average *every year* to motivate retaining all earnings in the future. Repurchases are an alternative possibility but the price (and size) he has done them at thus far doesn't give any indication that they will come even close to solving the "problem". It's very easy math and the numbers are just too big at this point. By my estimation, something has got to give decently soon, whether that's the buyback price level or dividends.
A dollar retained is not worth a dollar if you retain it just because the alternative of paying it out means making it 70 cents through taxes. How many cents on the dollar would you pay to get a return of ~2% before inflation and taxes and not having any control over when you can have disposal of it? Whatever your answer to that question is right now is what the marginal dollar at BRK is worth, because all the evidence available points towards it being impossible to deploy internally except in bonds.
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The exact level of buybacks might not be clear, but what is clear is that it amounts to bugger-all in the context of BRK's cash balances. The finished the quarter with, what, $95 billion in cash and short term investments? So dropping a bil on buybacks hardly constitutes an aggressive, high conviction move.
I say either get serious about deploying some of that cash on buybacks, or institute a considerable cash dividend. Buying Apple sharss soaked up some cash, but it really doesnt inspire confidence in management given previous observations about circle of competence.
SJ
If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.
StubbleJumper & alwaysinvert,
How do you feel and think about the whole thing today Monday?
- In a time context, your posts was just after the Berkshire 10-Q was released. Now we have had ongoing discussion during the weekend and analysis of the 10-Q, and it has come up that about ~USD 15B has been allocated to financials during 2018Q3 [- of the ~USD 15 B ~USD 6 B allocated to BAC -], on top of the share buyback of ~USD 1 B in the quarter.
Furthermore considerations/speculations [ time will tell ] that more capital has been allocated to perhaps BK, USB & GS, perhaps even new positions in financials.
Personally, I was a bit disappointed just after the release of the 10-Q, too. After a couple of nights sleep on it, I have a good feeling about this here Monday morning. The upward trend in liquidity surplus has been turned, and Berkshire is still the Rock of Gibraltar. All in all, not that bad, because it's actually able to generate good earnings and cash flow as it is.
Nothing has changed. The further allocation towards BAC is a one time thing. The 10% limit is probably pretty much reached so that position now can't soak up further capital. Neither GS nor USB have potential to soak up that much capital either. From what Google tells me, the GS stake was $3b and USB was $5b in Q2 - by eyeglancing their market caps the maximum further allocation towards them is something like $8-9b combined. BK maybe makes for an additional $1.5b.
If there is no new bank/insurance stock position that explains the Q3 transactions and is pretty much it. We are back to square one in a quarter or two with regards to the cash.
He would need a non-financial stock with preferably a market cap in the several hundreds of billions to really make a difference (even more AAPL has not seemed enticing enough at recent prices). Or an acquisition in the +30b class, the last of which he made in 2015.
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If he doesn't make a sudden surprise tender like I originally speculated (and that's a low probability), it's hard to draw any other conclusions from this than that dividends are way closer than previously suspected. Barring an -08 type drawdown the idle cash will keep growing at a rapid clip. A luxurious problem to have, but these puny buybacks don't even offer a partial solution.
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Thank you to both the responses. You have given this particular issue more thought than I have. My question mainly arose because so many times we see something along the lines of... "the portfolio is down 2% since quarter end... so tax-effect and subtract that from the prior BV... add in earnings from operations, etc. etc."
We know that BV has been disowned by WEB... but, on further thought, I also have doubts about whether they use the MV of the securities. Not that they'd use IV either. But it definitely seems frequent adjustments would not be made based on weekly or even monthly moves in stocks. That would require moving the purchase threshold given to their broker (I think it's Citigroup) on a daily or weekly basis. I don't think this is happening (definitely not in a restricted period if they're operating under a 10b-5). So, to me, some of the very-fine tuning... ("Where has IV gone since quarter end") seems like work that would provide little additional information on which to base decisions. What do you guys think?
Estimations of look-through owner earnings is the probable answer. My guess is that Buffett has some very simple, rough heuristic in mind, like owner earnings and if the whole company trades below say 20x of that he will be repurchasing stock.
I think that the multiple will be relatively high seeing as the additional cash flowing in from operations has basically no option value at all at this point. The bigger the cash pile grows, the closer the investment hurdle rate gets to that of the treasury yields. Now, he likely would never buy back stock at 40x just because treasuries were at an implied 50x multiple, but I think it is a useful way of conceptualizing the issue anyway.
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Here is a contrary take:
He mentions the unwillingness to pay dividends, but seems not to properly appreciate the levels of excess liquidity that we are talking about and what those to facts together imply. I also think he's wrong on the p/b levels at which buybacks can occur, especially since WB has already stated that he bought back stock when it traded above 1.3x. Adjusted for accruing cash flows, the stock is cheaper now than it was at that point.
Buffett buybacks: Could Berkshire tender stock?
in Berkshire Hathaway
Posted
I absolutely fail to see how a tender offer would take more advantage of shareholders than open market buybacks. If anything, the terms and proceedings are way more upfront. I think the issue, if any, is precisely the opposite - it would be hard to get people to sell at a price that makes sense when they positively know that Buffett is on the other side of the trade. But there could be ways of framing it that would up the acceptance rate and still be honest, for example saying that we will not make another offer for x years and we will not pay a dividend so this is your only chance of a payout, etc.
My impression was that Buffett wanted to be somewhat vague on his plans for buybacks whereas Munger, to Buffett's chagrin, blurted out the honest truth - they will have to pay up more as time goes by. I'm not sure that he actually meant that BRK *didn't* trade at 60-70% of intrinsic value - that was more theoretical reasoning, i.e. saying that obviously we want to buy more if it's cheaper. If he actually has in mind that he will buy lots of stock only when it trades at levels for 170-180 or something of the sort, well, that will probably never happen except in cases where all other stocks fall way more and thus are more attractive. Or, possibly, when he dies.