Buffett/Berkshire - general news

[CorpRaider]

I really think that has to factor into his option value of the cash balances he holds weighed against other options.

[ValueMaven]

really interesting article on the notable increase in the A share trading flow recently ...

 

https://www.barrons.com/articles/warren-buffetts-berkshire-hathaway-has-seen-trading-activity-rise-in-its-class-a-stock-51615219961?mod=hp_LEADSUPP_2

[IceCreamMan]

Would it make sense for this volume to be accounted for by Berkshire repurchases? It seems like repurchasing the A shares would strengthen the voting power of non-selling shareholders like Buffett.

[ValueMaven]

very interesting theory...thanks!

[bizaro86]

That is interesting. Focusing the buyback on the A keeps his control up during his lifetime, but also makes the firm more vulnerable to an activist/breakup after his death.

 

Berkshire has devoted shareholders and a big market cap, so it would probably take a period of underpeformance and a group of activists. But lowering the number of A shares through buybacks and the eventual conversion of WEBs shares lowers the dollar threshold for someone else to exert influence.

[DooDiligence]

People here are pretty used to me throwing up crazy ideas, so here goes.

 

Why shouldn't loyal shareholders be explosively rewarded, post Buffett? What would be wrong with a scenario where activists take control & start spinning divisions for significantly higher multiples? So what, if we're all burdened with the resulting capital gains tax bills and have to find new places to deploy the cash? Personally, I don't see these as problems.

 

I think it'd be hilarious if the Oracle himself saw this coming & produced a set of congratulatory videos, to be shown in the event that the beloved hostages were finally released.

 

Greg, Ajit, Ted and Todd would be framed as "fighting the good fight" against the activists, and could offer loyalists the option of rolling into a new vehicle which would operate with the same philosophies that brought us the beauty that we now own, but with new millennium ideas and investments.

 

This is all, of course, just speculative heresy.

[kab60]

I really don't see the attraction in a quick re-rating due to a breakup and realization of a SOTP compared to compounding at a decent level for a long time without paying taxes. But it makes sense for activists to try, as downside would be limited, while large amounts of capital could be deployed. The more I've studied Berkshire, the more I've come to appreciate what he has built. The combination of float and a railroad and an energy company with large reinvestment opportunities is quiet clever.

[StubbleJumper]

People here are pretty used to me throwing up crazy ideas, so here goes.

 

Why shouldn't loyal shareholders be explosively rewarded, post Buffett? What would be wrong with a scenario where activists take control & start spinning divisions for significantly higher multiples? So what, if we're all burdened with the resulting capital gains tax bills and have to find new places to deploy the cash? Personally, I don't see these as problems.

 

I think it'd be hilarious if the Oracle himself saw this coming & produced a set of congratulatory videos, to be shown in the event that the beloved hostages were finally released.

 

Greg, Ajit, Ted and Todd would be framed as "fighting the good fight" against the activists, and could offer loyalists the option of rolling into a new vehicle which would operate with the same philosophies that brought us the beauty that we now own, but with new millennium ideas and investments.

 

This is all, of course, just speculative heresy.

 

 

Sadly, your scenario of activists gaining control strikes me as implausible due to BRK's market cap and the post-WEB dispersed shareholder base.  In particular, BRK currently has a $600 billion market cap.  Buffett still owns a healthy chunk, but we know that this will soon be donated to the Bill and Melinda Gates Foundation and will be systematically liquidated over a few years.  Similarly, there are some old-time shareholders who own a decent chunk, but they are mostly as old as Warren and Charlie, so those holdings will soon be cleaved up among their estate beneficiaries.  So, there will be very few holders who will have a meaningful chunk of the voting shares.  While it's quite plausible for Bill Ackman or somebody like that to scrape together, say, $10B to initiate an activist campaign, that's only 1.5% of the votes.  You'd need 10 Bill Ackman's to work together just to accumulate 15% and get a few board seats.

 

In a post-Buffett world, BRK runs the risk of having no large shareholders available to discipline a future incompetent or self-interested management group.  A process of spinning off the divisions might be economically beneficial to shareholders, but why would a lazy, thieving, loser CEO be motivated to do it?  It would be much better for that CEO to gradually stack the board with management friendly directors, slowly crank up his own salary and benefits to a ridiculous level, and just enjoy the job.

 

 

SJ

[bizaro86]

Except after WEB converts his A to B, the voting control of the remaining A  becomes even more pronounced. At that point with current share prices, a 10% voting stake would only be ~$22 billion.

 

That isn't spare change, but I bet Ackman could raise that, and might want to. Especially if he/the market thought BRK was being mismanaged/undervalued.

[StubbleJumper]

Except after WEB converts his A to B, the voting control of the remaining A  becomes even more pronounced. At that point with current share prices, a 10% voting stake would only be ~$22 billion.

 

That isn't spare change, but I bet Ackman could raise that, and might want to. Especially if he/the market thought BRK was being mismanaged/undervalued.

 

 

True.  With a typical trading volume of, say, 300 A shares per day, you'd need to be on the buyer of every single A-trade for a whole year to get that 10% voting stake by buying only the A's.  Not impossible, but...

 

 

SJ

[DooDiligence]

Don't get me wrong, my shares are earmarked for a hold into 2039, and I'm fine with things staying just as they are.

 

Why this couldn't or shouldn't happen has been explained to me before (multiple times) and I get it.

 

I'm just spitballing & every time I do it, the discussion is illuminating (to me at least).

[longterminvestor]

Barron's article is interesting - fact is volume is up to 2000 shares a day since Mid Feb.  Whether Mr. Buffett is the buyer is not where my mind goes (obviously I hope its BRK buying).  My question is more who is selling into that kind of volume on the A?  Longtime A owners or flippers, I guess we wait and see. 

 

I have long thought about the 12 years post Mr. Buffett.  Why would Gates Foundation sell back into open market - wouldn't it be so easy for Gates Foundation to sell out to BRK.A.  Is there regulatory issue perhaps.  Some gifting law I don't know.  I have not been so much concerned with price as much as I have been concerned with lack of liquidity (2020 was not slouch at $24B). 

 

Anyone else thought of this? 

[bizaro86]

Barron's article is interesting - fact is volume is up to 2000 shares a day since Mid Feb.  Whether Mr. Buffett is the buyer is not where my mind goes (obviously I hope its BRK buying).  My question is more who is selling into that kind of volume on the A?  Longtime A owners or flippers, I guess we wait and see. 

 

I have long thought about the 12 years post Mr. Buffett.  Why would Gates Foundation sell back into open market - wouldn't it be so easy for Gates Foundation to sell out to BRK.A.  Is there regulatory issue perhaps.  Some gifting law I don't know.  I have not been so much concerned with price as much as I have been concerned with lack of liquidity (2020 was not slouch at $24B). 

 

Anyone else thought of this?

 

Yeah, the amount of A shares that seem to be available at even a slight premium to the Bs is pretty significant. The $22 billion I mentioned above would only be ~250 shares per day for a year.

[sleepydragon]

Bank of New York has unusual amount of A shares on their 13F filing. I wonder why?

It could be some client’s?

 

[gfp]

Bank of New York has unusual amount of A shares on their 13F filing. I wonder why?

It could be some client’s?

 

BNY is the largest custodial bank in the world.  They have something like $40 TRILLION in other people's assets in their custody.  The assets themselves would belong to the customers of brokerage houses, funds, institutions, endowments, companies like First Manhattan, etc..

 

On the A-share volume, I would assume that record high share prices and still-low long term capital gains tax rates have convinced more long term holders (who would primarily hold the original stock) to call the phone number listed in the Annual Report.  Berkshire's request was to call either before or after the market was open and we have seen large blocks of A shares cross the 'tape' at the open each day.  Consistent with negotiated trades that were worked out before or after market hours.  Then that activity draws in more activity as prices rise I suppose

[gfp]

There are definitely a few very large trades going through.  On the B-shares there was a 701,100 share single trade at 261.03 at 8:36:54 (CDT).

[StubbleJumper]

Yes, the volume of A trades over recent weeks has 5 or 6 times what it usually is.  I had assumed that somebody who bought them in 1980s must have died and the estate was finally settled. If you get a situation where a long-term holder dies and the estate is split up amongst 4 or 5 children, there is almost always a considerable portion of the estate that ends up getting converted to cash because the children have immediate plans for their windfall.

 

 

SJ

[thepupil]

yea, this is pretty big, daily average value traded is $100mm over the past 5 years, $350mm in 2021, $520mm since February 1, and $910mm since March 1st, with what seems like a record $1.25 billion yesterday.

[MarioP]

Yes, the volume of A trades over recent weeks has 5 or 6 times what it usually is.  I had assumed that somebody who bought them in 1980s must have died and the estate was finally settled. If you get a situation where a long-term holder dies and the estate is split up amongst 4 or 5 children, there is almost always a considerable portion of the estate that ends up getting converted to cash because the children have immediate plans for their windfall.

 

 

SJ

 

What is the tax law on estate in USA? In Canada if the shares are for the children they have to pay the tax that would be calculated on a sale so you have to sell around 25% just to pay the tax for the kind of gain a long term holder have on BRKA.

 

It is interesting that the record volume happen with upticks. High probability that Berkshire is buying a lots

[sleepydragon]

Bank of New York has unusual amount of A shares on their 13F filing. I wonder why?

It could be some client’s?

 

BNY is the largest custodial bank in the world.  They have something like $40 TRILLION in other people's assets in their custody.  The assets themselves would belong to the customers of brokerage houses, funds, institutions, endowments, companies like First Manhattan, etc..

 

On the A-share volume, I would assume that record high share prices and still-low long term capital gains tax rates have convinced more long term holders (who would primarily hold the original stock) to call the phone number listed in the Annual Report.  Berkshire's request was to call either before or after the market was open and we have seen large blocks of A shares cross the 'tape' at the open each day.  Consistent with negotiated trades that were worked out before or after market hours.  Then that activity draws in more activity as prices rise I suppose

 

Sorry, I mean First Manhattan bank. 25% of their 13F is Brka ($5b)

[cubsfan]

^First Manhattan - home of Sandy Gottesman, First Manhattan founder and  longtime Buffett friend and BRK board of director.

Sandy owns $3-4B by himself!

 

No surprise there.

[gfp]

Right, which is why I used them as an example.  First Manhattan uses Pershing for custody, which is a subsidiary of BNY.  An example of a big block of A-shares and why it would show up at BNY.  Fidelity has its own custodian as far as I know, so BNY wouldn't show the contrafund A shares, but that is another big chunk.

 

Interesting also that with A shares at $400k currently, B shares are at 263.76 instead of $266, which would correspond to $400k on the A's.  The spread seems to have widened this year.

 

By the way, Sandy's 10,000 A-shares (which have been distributed to trusts for his heirs and foundations by now) would be worth $4 Billion today

[bookie71]

Don't forget that the Gates Foundation (as a private foundation) is required to spend 5% of it's assets every year.

[StubbleJumper]

Yes, the volume of A trades over recent weeks has 5 or 6 times what it usually is.  I had assumed that somebody who bought them in 1980s must have died and the estate was finally settled. If you get a situation where a long-term holder dies and the estate is split up amongst 4 or 5 children, there is almost always a considerable portion of the estate that ends up getting converted to cash because the children have immediate plans for their windfall.

 

 

SJ

 

What is the tax law on estate in USA? In Canada if the shares are for the children they have to pay the tax that would be calculated on a sale so you have to sell around 25% just to pay the tax for the kind of gain a long term holder have on BRKA.

 

It is interesting that the record volume happen with upticks. High probability that Berkshire is buying a lots

 

 

I have no idea what kind of tax arrangement that a large US domiciled holder would face.  My thinking was simply reflecting my bias that often one generation accumulates a large pile of wealth and then their good-for-nothing children anxiously await the death of their parents so they can either "manage the wealth properly instead of letting it languish in BRK" or "use the wealth (spend) for the benefit of the family rather than living miserly."  Both of those behaviours result in the sale of assets when the estate is settled.  Not every kid is a loser, but if you have 4 or 5 of them, it's likely that at least a couple of them will be spendthrifts or married to a spendthrift.

 

 

SJ

[SouthernYankee]

"Both of those behaviours result in the sale of assets when the estate is settled.  Not every kid is a loser, but if you have 4 or 5 of them, it's likely that at least a couple of them will be spendthrifts or married to a spendthrift."

 

-For those of us who are not millionaires or billionaires, and who own businesses that provide a service to those who can afford that service, the more spendthrifts the merrier!