gfp

Yes, I guess my math was different than your formula. I'll stick with figuring it out the easy way - count whats left and divide by the new share count. IV is such an abstract and subjective concept that close enough is close enough in my book.

Seems like in your example the new company IV would be 18. Shares outstanding would then be 4, and IV/share would be 4.5 for a 12.5% increase in IV/share - which is consistent with the math in your Buffett example. Seems like just yesterday that we were all doing this math with AIG...

Hey Boilermaker - I put it up on the old chuck's angels board -- "Berkshire already making inroads in Lloyd's E&S business ------------------------------------------------- Berkshire Hathaway's bold new drive into the US specialty markets is already being felt on Lime Street, Tom Bolt warned yesterday (16 July). The Lloyd's performance director, himself a former Berkshire Hathaway executive, was speaking in the wake of the recent launch of Berkshire Hathaway Specialty Insurance (BHSI), the firm's nascent excess and surplus (E&S) lines business. BHSI is staffed primarily by former American International Group (AIG) employees, led by ex-US P&C chief Peter Eastwood. "My first supposition might have been they would go after the AIG business they were most familiar with," he told the Association of Lloyd's Members conference. "But I've already seen evidence talking with managing agents in Lloyd's in the property excess area in the States and they seem to be targeting that business too, where we have a much bigger share of that than AIG does," he added. He said there would be a "real sea-change", adding that the recent development was a reminder that underwriters could no longer sit at their boxes and let brokers come to them. Bolt's comments also came just months after the Warren Buffett-led leviathan agreed to write a controversial 7.5 percent line across Aon's subscription market portfolio. But Bolt said that he assumed the Aon-Berkshire quota share deal - which is estimated to affect around $2.5bn of business with a Lloyd's component - would eventually "go the way of all flesh", adding that there was no history of any underwriter doing well out of a "blind broker" quota share in the long run. "What doesn't go the way of all flesh is smart guys who used to work at AIG, who now have a great credit rating and a fair bit of capital behind their efforts - and marching orders to go build a proper business," he told Lloyd's Names and other investors in the market gathered at the London conference. However, he did predict that BHSI would not be too aggressive on pricing as it makes inroads into the E&S markets. "Intermediaries tend to travel through fear," he noted, and Berkshire would tell underwriters not to change price or terms of a policy, even though it had "no intention of writing those terms of the business - that's the way they market". He said that one thing people forget about Berkshire Hathaway is its long history in writing quota shares. "If you go back to 1989 I believe he did a four-year quota share of a Firemans' Fund for 7 percent of everything they wrote. "If you look at Swiss Re, when they were having a bit of trouble, he wrote a pretty decent size quota share of them - and a few other quota shares," he said. Berkshire was essentially writing quota shares of the business where its reinsurance head Ajit Jain felt that he had a bit of expense to manage, he concluded. Lloyd's and AIG are the two largest writers of US E&S business."

I second the John Malone entities. They usually check the spin-off and cannibal boxes. DirecTV is a prime example that is ongoing and well publicized. Gap Inc had a doosy of the buy-in a couple years ago that worked very well for them. I sold the stock so I don't know it it is still active. Prices changed on that one. BP has repurchased over 1.5 Billion dollars worth of their shares since the end of the last quarter and is Klarman's largest equity holding, fwiw... L also prominently features it's share retirement over time in its annual reports. IBM is a well known share repurchaser as well, as highlighted in Berkshire's annual report. Serial capital returners like RLI can be pretty enjoyable to own and forget about as well...

IMC also purchased TungAloy for around a billion dollars since BRK's first acquisition. If this situation is anything like Marmon Holdings, BRK will need to take a write down on this! Amazing GAAP.

More like *used to be* close to a toll bridge. There has been huge disruption and competition in the last decade. Horizon / Kinetics has been obsessed with exchanges for years with middling results.

large amount of outstanding bonds

http://www.sec.gov/Archives/edgar/data/1067983/000118143112066401/xslF345X03/rrd364227.xml Ron Olsen is in for another $1.575 million worth following Warren's announcement.

Although, you seem to mix two separate issues. 1) is it appropriate to include non-controlling interest in the shareholder BV calculation? and 2) how should one adjust the reported Q3 equity to approach a current BV estimate? My $89.40 BRK.b buyback price reflects a no on #1 and does no adjustment to the reported Q3 numbers. It may be appropriate to make adjustments as you noted to get to a more accurate "current" BV. But, I haven't done that. straight from the Q3 10Q: shareholder equity = $184,602 million shares outstanding = 1.652 million (A equivalents) BV/A Share = $111,745 Buyback = 1.2 x BV = $134,093 1,500 B shares per A share ==> $89.40 Right - it is correct not to include non-controlling interests and use only Berkshire Hathaway shareholders equity. It is also correct to use the new lower share count (not 1.652m) since he just repurchased 1.2 B. worth of shares. It is also correct to deduct the 1.2 Billion cash he used to do it.

I use the BRK shareholder equity of 184.602B that omits the non-controlling interest line and wind up with a buy-back price of $89.40. 89.40 is much closer to correct than the 91.5x numbers. Remember that large equity holdings are down since the favorable Q3 mark and that he did spend 1.2 billion dollars of that shareholders equity to reduce the share count. Retained earnings are somewhat predictable and GEICO and Re losses for Sandy should be over a Billion dollars.

I agree with you. That's exactly his stance. That doesn't make it right. Again, this is my personal opinion viewing his actions on this matter, and TO ME (emphasis is me), it doesn't seem right to be taking a position on a rule, and then watching/assisting someone take advantage of that rule because it hasn't changed. If I was against backdating stock options, but the rules had not changed, should I take advantage of that and backdate options while I can? Or in terms of something that happened to me in the past...I was against naked short selling, so I would not lend out my shares to short-sellers in Fairfax or Overstock when they were being heavily shorted. I could have made a fat buck, but ethically it didn't seem right based on the position I took on the matter, so I chose not to. In those terms of ethics, his action did not seem correct to me here. Not unethical per se, but the optics were fuzzy. Cheers! The estate needed cash to pay estate taxes. Estates in the United States receive a stepped up cost basis when someone dies. This shareholder died. Warren did not 'help' anybody lower their tax bill right before a rule change. Not that it would matter if he had. But he did not.

I'd bet you are right Boilermaker. He and his family took all "A" shares in '96, as you know. If it's not his estate, it's probably an early Omaha investor.

He couldn't have bought the shares in the market without publicly changing his rules, which would push the market price above his self imposed cap almost immediately. It took about 10 minutes to get above the "Buffett put" price today, presumably while people used their calculators... - also, the 'long-time shareholder' / presumed friend could have easily liquidated their shares in the market at the same tax rate (even if it required converting to B's to get the necessary liquidity to do it in time)

What makes you think he doesn't want to buy back a lot of stock at these levels? He just changed his recently-made rules in order to do so. Most likely! And a nice public advertisement to any other large blocks of stock who now know they can lock in a 15% rate on a lifetime's worth of appreciation at 13x,000/share with a call to Omaha. I hope there are more in the next few weeks. this is a one off imo. in fact the media is going to roast buffett for doing this to help a friend avoid paying higher taxes. he doesn't want to buy back a lot of stock at these levels. this is a token amount.

Most likely! And a nice public advertisement to any other large blocks of stock who now know they can lock in a 15% rate on a lifetime's worth of appreciation at 13x,000/share with a call to Omaha. I hope there are more in the next few weeks.

It is only .5% - but the much bigger news is the 120% of book buyback threshold going forward indefinitely. This puts the new de-facto floor on the stock at around today's price. From ~82 to ~89.28 on the "floor".

Could be Sandy but it's just speculation at this point. Sandy is still alive, right? I guess he could still have an 'estate' though. Buffett has alluded many times to folks he knows who should be on the Forbes 400 list from BRK stock holdings but are unknown to Forbes and like to keep it that way! There are probably quite a few secret billionaires in his club..

New Buyback number conservatively calculated is 89.285 on the B's. Likely close to 90 real-time, depending on your estimate of BRK Sandy losses and their effect on BV. GEICO will get hit pretty hard with the #1 market share in those states (15.9% vs Allstate at 14.9%) - but most cat reinsurers are coming out pretty unscathed by Sandy.

trading halt code T2: "Halt - News Released The news has begun the dissemination process through a Regulation FD compliant method(s)."

gio - I understand your points. I was primarily commenting on his writing, which I think comes off much worse to people who speak English as their first language. Despite his definition of entrepreneur, it looks like the only business he started was an ISP that had absolutely nothing to do with Biglari Holdings. I don't count investment partnerships as entrepreneurship, but some may disagree. I don't think he is a bad investor. I was happy when he filed on PMIC some time back.

please god let this man into a writing class, a dale carnegie course, humility training, something... Even Buffett uses Carol Loomis and he's an excellent writer naturally. If this guy is going to write letters for a living he has got to learn that he sounds like an idiot.

So can you quote language from that section that says the warrant strike price adjusts with ordinary dividends? I don't see it. Do you?

Speaking of Berkshire's BAC warrants - Many on this board and elsewhere have claimed that they contain similar strike price adjustments following a BAC dividend raise. I have not been able to find language in the purchase agreement that backs this up. My belief is that they do not adjust except for major dilution or for any share issuance much below 7.14. Just standard dilution adjustments. If anyone can prove they adjust from quarterly dividends like the TARP variety, I would love to know.

The warrants are valued based on Black-Scholes and reflected in "Other Investments," along with the preferred shares. When the original deals were made, the warrants were valued under Black-Scholes and the remainder of the deal value was applied as the cost basis on the preferred. You can see this treatment when GS paid their preferred back. BRK's cost basis on the Pref. was not $5 Billion - it was quite a bit lower because "free" warrants don't exist in accounting. They have value and the total cost basis has to be divided between the two securities. xo 1 - Even when a warrant is out of the money, it can still have significant value. Out of the money doesn't equal zero value.

This article explains it a bit more - it is apparently similar to an embedded value risk transfer, similar to a securitization of a life portfolio http://www.artemis.bm/blog/2012/11/30/buffetts-berkshire-hathaway-bets-on-future-values-of-life-insurance/ which is this: "Embedded value securitizations, in which insurers transfer all the risk from a block of business to investors, are returning after a hiatus during the financial crisis. The main benefit of these transactions is that "you're effectively releasing equity capital" http://www.insurancenetworking.com/news/securitization-standard-poors-reserves-30529-1.html