Buffett/Berkshire - general news

[dcollon]

Thanks gfp. 

[gfp]

You can cross reference his buying behavior at a given book value per share multiple with this interesting curve provided by Jim over on the fool board (an outstanding contributor to that board for decades).  Another post I found interesting if not surprising -

https://boards.fool.com/the-future-will-be-different-34770194.aspx

 

Someday price to bvps  multiple will not be as useful, but it has been a very easy tool in the past

[Libs]

You can cross reference his buying behavior at a given book value per share multiple with this interesting curve provided by Jim over on the fool board (an outstanding contributor to that board for decades).  Another post I found interesting if not surprising -

https://boards.fool.com/the-future-will-be-different-34770194.aspx

 

Someday price to bvps  multiple will not be as useful, but it has been a very easy tool in the past

 

When Buffett is gone, BRK might sell at a discount to book, like most conglomerates. I'd be surprised to see P/B expand from here.

[thepupil]

I'm biased, but that seems pretty ridiculous to me.

 

Berkshire has traded below 1x book briefly in November 2008, Summer 2011, and March 2020 (GFC, Europe Sovereign, Coronacrisis).

 

Progressive (Geico) has never traded at a discount to book and currently trades for 3x (at least since 2000)

 

UNP (BNSF) trades for 8.0x book, it hit 1.1x in 3/2009. Now you have to adjust for the goodwill that BNSF ahs versus UNP (Berkshire takeover premium, but not going to out of laziness)

 

The S&P 500 Utilities sector (Berkshire Energy) trades for 1.9x book, it hit 1.2x in the early 2000's and has not traded below book since 1990.

 

The stock portfolio is marked to market and is burdened by a 0% interest long duration deferred tax liability. this could be worth a discount to book in certain market environments (but it's tough for me to see)

 

hard to see Berkshire's non - GEICO insurance ops being worth < book

 

barring some calamity that impairs broad corporate earnings power, I see 1.6-2.0x book as more likely than 1.0x-1.3x over the long term. 

 

I've only been picking stocks for about a decade, but I've never really observed a Buffett premium, seems to me to have always been a Berkshire / Buffett discount that's varied in size.

 

If berkshire traded for a long time below book, with a similar ROE / capital structure to today, I think it would just eat itself until it didn't.

 

 

 

[gfp]

When Buffett is gone, BRK might sell at a discount to book, like most conglomerates. I'd be surprised to see P/B expand from here.

 

Yeah when I first read this my thought was:  I don't see it happening but what a gift that would be to his successors.

[cubsfan]

^ If Berkshire trades below book for any length of time - all the successor need to do is buy back stock or issue tenders until the cows come home.

Berk has never been the typical conglomerate and so many of the businesses are worth much more than book. Everyone knows Sees BV is something like $70M , but generates in excess of $100M annually just in earnings. Someone mention GEICO, we've seen figures BHE and BSNF.

 

Below book would be an amazing gift to LT shareholders.

[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.

[Ice77]

Yep. He’s donating 7-8K odd A shares (via conversions to B) but his voting stake will still go up by nearly 4-5pp due to the massive buyback of A shares (80998). So even as he donates this byte size annually, if the buybacks continue at more than 20K annual pace (via A shares), his voting stake will keep rising.

[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.

[Ice77]

Think the real activist game may only begin 6-7 years after WEB's demise. He has willed that his shares be given away within 12 years of this death so his voting control will start to weaken midway through that I reckon.

[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.

[Ice77]

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?

 

Gates foundation gets B shares. The A to B conversion is a one way street. So whether they choose to sell in the open market or back to BRK, it wouldn’t make as much difference as B shares are vote light

[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).