alwaysinvert
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Posts posted by alwaysinvert
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Yes, watching my portfolio plummet back from the all time high of $224 at yesterday's open, I was thinking Berkshire's broker could be getting busy with the buybacks today around $210, prices we haven't seen since the end of August.
compared to:
My understanding is that they are limited by rule 10b-18 to buying no more than 25% of the daily volume. They are also not supposed to trade in the final 10 minutes before the close.
I would be very surprised if Warren purchased anywhere close to 25% of the daily volume of the combined share classes. My impression is that he would feel that repurchase activity near the 25% level would influence the share price more than he desires. It is impossible to completely eliminate your influence on the share price (witness the generally rising stock, closure of A/B share premium/discount, etc).
If I had to guess, I would guess that Berkshire established a 10b5-1 plan specifying a maximum price and a percentage of the trailing ADV to purchase. I would guess that they specified somewhere around 10-15% of the Average Daily Volume, not to exceed 25% on any given day unless a large transaction was privately negotiated outside the plan (which would not be considered to be protected by the safe harbor of the plan).
They probably filed the 10b5-1 plan directly following their 10Q, allowing them to begin purchases under the plan immediately. Buffett would receive daily trade confirms but isn't supposed to have any other communication with the broker he chose to administer the plan. So he would know what was purchased each day and "we bought a little" is very difficult to quantify when you are talking about a half-trillion dollar market value enterprise...
We'll find out soon enough with the next 10Q and we can try to reverse engineer the % of daily volume they specified...
If this theory is correct then I gather there is no buyback pause during the blackout period? That would be a pretty major drawback to a more actively managed buyback program - 4 months a year where they can't make repurchases.
So, last week pretty strong resistance to general market price moves [outside the blackout period], ref. post #109 by sleepydragon, - this week [inside the blackout period] it moves around in the market price spectrum basically [give or take a bit] like any other stock.
Thoughts, gents?
It is a possibility that there are no repurchases now, like you seem to suggest. But even if the buyback program is ongoing it would probably not give as much "support" to the price under such selling pressure.
I don't know if we will know any time soon if they are buying during the blackout period. Possibly we can surmise it from the Q4 report if there has been very heavy repurchases.
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My understanding is that they are limited by rule 10b-18 to buying no more than 25% of the daily volume. They are also not supposed to trade in the final 10 minutes before the close.
I would be very surprised if Warren purchased anywhere close to 25% of the daily volume of the combined share classes. My impression is that he would feel that repurchase activity near the 25% level would influence the share price more than he desires. It is impossible to completely eliminate your influence on the share price (witness the generally rising stock, closure of A/B share premium/discount, etc).
If I had to guess, I would guess that Berkshire established a 10b5-1 plan specifying a maximum price and a percentage of the trailing ADV to purchase. I would guess that they specified somewhere around 10-15% of the Average Daily Volume, not to exceed 25% on any given day unless a large transaction was privately negotiated outside the plan (which would not be considered to be protected by the safe harbor of the plan).
They probably filed the 10b5-1 plan directly following their 10Q, allowing them to begin purchases under the plan immediately. Buffett would receive daily trade confirms but isn't supposed to have any other communication with the broker he chose to administer the plan. So he would know what was purchased each day and "we bought a little" is very difficult to quantify when you are talking about a half-trillion dollar market value enterprise...
We'll find out soon enough with the next 10Q and we can try to reverse engineer the % of daily volume they specified...
If this theory is correct then I gather there is no buyback pause during the blackout period? That would be a pretty major drawback to a more actively managed buyback program - 4 months a year where they can't make repurchases.
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Anyone looking at esports?
One company I think is interesting is MTG which is undergoing a spin-off transaction which will unlock its esports pure-play subsidiary.
https://www.mtg.com/wp-content/uploads/2018/06/MTG-company-presentation-June-2018.pdf
Has anyone looked at MTG in depth? I see a lot of wheeling and dealing through years, so it's tough to be comfortable and figure out what their real return is. Reminds me of Liberties. But I would not invest in Liberties without Malone. Anyone know MTG management in depth? It doesn't seem to be closely held https://www.mtg.com/leaders/
Kinnevik used to be the main shareholder, but during the summer they dividended out their shares in MTG due to antitrust issues connected to a merger in another holding. MTG was a very small part of KINV.
Cristina Stenbeck is the largest owner of KINV and will therefore be the largest owner of MTG too, even if diluted by now just controlling her own shares directly. KINV also converted their A-shares into B-shares before this spinoff, presumably to prevent takeover attempts as the market was flooded with MTG shares.
If Stenbeck is not intent on being a long-term owner of MTG and its future spinoff, I presume that both companies are on the auction block rather than her selling her shares. But that's just a hunch from me.
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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.
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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.
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I think Tilson is roughly right on the implications of Buffett's CNBC interview:
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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.
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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.
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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.
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"We've bought back a little stock" says Buffett on CNBC just now.
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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.
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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).
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Speculation: I would not be surprised to see only very modest buyback activity this quarter, and not to find out about the August and September buybacks (if there have been any) until early November when the 10-Q is released. I suspect Berkshire wants this mostly as an option for future capital deployment and may use it later to prevent the cash pile exceeding the float.
They will be aware that investors will be able to see the average repurchase price each month if they do conduct any repurchases and follow Rule 10b-18, so this might even encourage them to hold off this quarter or wait for a large announced negotiated repurchase from a major holder.
For example, if they were to wait and then start repurchases in October, they might reveal a reduced share count towards the end of October (26th Oct, perhaps) on the front page of the 10-Q, but would not have to disclose the average purchase prices paid in October, November and December until the 10-K is released in February 2019. If they wait until after 26th October, say, they could avoid even hinting at the volume of repurchases until the 10-K is released in Feb 2019.
Good stuff. It might make sense for them to hold off a bit if they want to get the most juice for the squeeze from buybacks over the market. On the other hand, if they expect the share price to go up anyway (in light of a good Q3, for example) then this logic is moot.
Still, this will only mitigate but not solve the cash pile problem. If they want to avoid dividends for as long as possible, they are going to have to find some way of repurchasing bigger chunks than the stock market reasonably allows them to.
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Seems like the trading volume has been pretty tepid since the Q2. I guess that makes it unlikely that there are any significant buybacks going on right now. Has someone observed anything else?
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If I had a penny for every time I heard some version of "this distraction for the capital allocator is not really a distraction for the capital allocator".
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The AV disruption worry is super-silly with the multiples autos are trading at today. Not even the most wild bulls, who are still informed, think that mass-market AVs are imminent. It's emblematic of today's market environment that this is consistently front and center in people's minds even on a value forum.
The potential AV R&D sinkhole would worry me much, much more and would be more in line with how the auto manufacturers have historically burned profits. But blue-eyed tech optimism is the name of the game at the moment and people love to discuss sci-fi scenarios more than anything.
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I'm thinking in line with longinvestor. I think the logical step would be the chairman and the three vice chairmen on the stage next spring. Reduces workload on the two oldest of the four men during the whole day. Still no interviews with Mr. Buffet since July 17th ["Buyback policy change" announcement date]?
I don't think he wants PR right now if he's looking to retire stock on the cheap. No upside to it.
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https://www.businesswire.com/news/home/20180813005684/en/
Airlines and banks... no mention of Apple there
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If someone counters a trend or statistic or general statement with a personal anecdote "debunking" it they can not be reasoned with.
I hear where you're coming from, but sometimes this just isn't right. Maybe not "debunking" - but sometimes an anecdote tells the full story. Statistics and historical data can tell you some things, but a story can tell you a lot more and in a way you can understand the underlying reasons.
I'll give you an example: people on this website talk about brands and brand power and all that Coke Charlie Munger stuff. Take Disney. You can look at the financials, and say, "wow they've got a real strong business - strong brand". But you don't really know why. This is where an anecdote helps. You read something like this (
) and you suddenly know exactly WHY Disney has a brand and a great business.That's not an attempt at debunking, that's just further information or a hypothesis on an underlying mechanism. A "debunking" would be that Disney haven't got a good brand (despite survey data, despite park visits, etc) because your niece didn't like Mulan. Anecdotes do have some value as indicators, they just don't trump data.
Holding up an anecdote against data is like trying to lay claim to the pot with an Ace high when your opponent has a full house. Someone who thinks anecdotes trump data is not reasoning logically. Either due to some underlying emotional issue (cognitive disonnance, personal attachment, social taboo, etc) or just the clinical state of not being very smart. Either way, one should stay clear of the ensuing discussion.
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If someone counters a trend or statistic or general statement with a personal anecdote "debunking" it they can not be reasoned with.
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Ajc, my current strategy is pretty simple. I am now getting more cautious with my overall portfolio. I am holding larger cash positions (selling on strength like we have seen the past month or so). This will allow me to take advantage of sell offs when they happen.
For the past 5 years i have been pretty much fully invested most of the time. No more.
I expect at some point in the not too distant future (the next year or two) i will get quite cautious and likely move my portfolio mostly to cash. I am watching the economic data out of the US closely for when it starts to turn down. Looks good right now but storm clouds might be forming. I will be happy to earn a little less while i sit amd wait for the next big down draft in stocks :-)
For someone that's been fully invested for 5 years you seem to post often about holding lots of cash and being worried about the macro picture. Pretty much all throughout your forum career from what I can see, in fact.
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I wrote a blog post speculating about this. I'll paste it here but if you want to read it in a better format here's the link: http://vardeinvesteraren.nu/vardeinvestering/buffett-buybacks-could-berkshire-tender-stock/
Alwaysinvert. I wanted to complement you on an outstanding post. Well reasoned, original, and compelling. Exceptional!
Thanks, that's great to hear.
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But I suspect Berkshire will primarily just repurchase shares in the open market - they do have a half trillion dollar market cap and the B's are fairly liquid.
Did you read my basic calculations about an open market buyback? The B shares don't seem all that liquid for their purposes from what I can tell, but I could be wrong.
it would not allow them to buy well over $100 B worth which’s what they need to do over the next decade.
They'd need way, way more than that over the next decade, barring any mega-merger. It's not hard to see them earning north of $300b with already $100b+ in cash.
Buffett buybacks: Could Berkshire tender stock?
in Berkshire Hathaway
Posted
It could also of course be that they did'n't buy back anything after Buffett's comments.. I find that unlikely but let's not get ahead of ourselves.