Buffett buybacks: Could Berkshire tender stock?

[Dynamic]

I think the fall in the market from around Oct 10th to 26th was probably sufficient for them to really build their stakes quite aggressively at even better prices than those during Q3. Not sure whether it would be up to 10% of JPM, but I'd imagine they could have put a lot of capital to work in that period on stock purchases and Berkshire buybacks too.

[gfp]

I think the fall in the market from around Oct 10th to 26th was probably sufficient for them to really build their stakes quite aggressively at even better prices than those during Q3. Not sure whether it would be up to 10% of JPM, but I'd imagine they could have put a lot of capital to work in that period on stock purchases and Berkshire buybacks too.

 

Could be I guess.  We already know how many shares they repurchased up to October 25th.  Meaningful repurchase activity beyond that depends on if the "ceiling" price on the repurchase plan is adjusted with the increase in last reported book value, or if it stays the same at roughly $208 per B-share.  If it is based on a simple multiple of last reported book value, there is a possibility it could be as high as 218 currently - which would have allowed repurchases to continue.  Still unlikely that repurchases are material relative to Berkshire's size but every bit counts, and we are at least moving in the right direction.

 

I wonder if Warren still owns 1 million shares of JPM personally.  I would assume yes.

[Dynamic]

Given the relative trading volume of Berkshire versus a lot of the recent purchases within their portfolio, I'd imagine the portfolio purchases will put the cash pile to work considerably faster than repurchasing Berkshire stock, but over many years I think the effect of repurchases could be a modest but useful contributor to per share value growth with maybe the occasional negotiated repurchase from an estate.

 

Clearly we now know that Berkshire was quite busy with the portfolio during Q3, quite possibly the early part of the quarter when prices were lower. Perhaps mid to late October was another time they were busy after the markets fell back about 10%.

 

I guess the JPM stake (~ 1% of market cap) will have to increase 5x before a 13D or SC 13G filing would reveal any personal stakes (as the DVA filings do for R Ted Weschler).

[sleepydragon]

I think the fall in the market from around Oct 10th to 26th was probably sufficient for them to really build their stakes quite aggressively at even better prices than those during Q3. Not sure whether it would be up to 10% of JPM, but I'd imagine they could have put a lot of capital to work in that period on stock purchases and Berkshire buybacks too.

 

Could be I guess.  We already know how many shares they repurchased up to October 25th.  Meaningful repurchase activity beyond that depends on if the "ceiling" price on the repurchase plan is adjusted with the increase in last reported book value, or if it stays the same at roughly $208 per B-share.  If it is based on a simple multiple of last reported book value, there is a possibility it could be as high as 218 currently - which would have allowed repurchases to continue.  Still unlikely that repurchases are material relative to Berkshire's size but every bit counts, and we are at least moving in the right direction.

 

I wonder if Warren still owns 1 million shares of JPM personally.  I would assume yes.

 

I think there is no compliance/legal problems if his personal trades are the same directions as the BRK trades. So if Buffett is buying JPM he will not be selling in his personal accounts.

[AdjustedEarnings]

Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!

 

I think this is now more important and concrete. I think the way I asked the question last time must not have been clear because the responses, while good, did not address the issue directly (except for one response). I'm resurrecting this issue because I think it's probably of more interest to people now. The reason I had debated this issue earlier was the expectation that a particular situation might occur. This situation has presented itself: Apple is down from 225 at 9/30 to 171 today. On their 252 million shares, BRK now has a "loss" from last reporting date of $14 billion, less taxes in their BV. This is Apple alone. Then you've got BAC, WFC, etc. which are all down varying amounts from 9/30. Having set the stage, now the question is:

 

If WEB thinks buying back at 207 was a good idea in the quarter ended 9/30, is the buyback threshold  now:

 

1. Lower, because (a) securities per share amount is lower (the two-column people), (b) alternative uses of cash are more available or, at least, visible on the horizon

2. The same, because intrinsic value (and look through earnings) of those securities probably has not changed

3. Higher, because, (a) intrinsic value of BRK increases a little each quarter, (b) for companies in which they can't go over 10% they can still increase the per-BRK-share ownership of those companies in the hands of continuing shareholders by buying back stock from other shareholders, © rates are lower which serves to increase financial asset values including BRK intrinsic value?

 

There could be other reasons for choosing either of 1, 2, or 3. Please feel free to suggest them.

 

PS: If the fall in the market continues, it's possible that BRK BV growth is negative for the quarter. If that happens, it'll help display in the coming Qs how much, if any, of WEB's IV calculation is based on BVs. On the one hand he says BVs are now not appropriate (and I tend to agree with this). On the other hand, he's not one to change his mind/methods too quickly.

[rb]

I think they're in there buying shares. See that spike from 204 to 205 about an hour ago on good volume.

[Jurgis]

I think they're in there buying shares. See that spike from 204 to 205 about an hour ago on good volume.

 

That was me.

 

 

JK

 

 

I think.

[rb]

You've can be such an asshole. You've spiked my limit orders are 204.10.  >:(

[StubbleJumper]

You've can be such an asshole. You've spiked my limit orders are 204.10.  >:(

 

 

You're at $204.10?  Good, now I can penny you!  :P

 

 

SJ

[rb]

By selling shares to me at 2014.10  :P

[IceCreamMan]

Last night, as I was drifting off to sleep, a question occurred to me... does WEB count the market value of the securities portfolio or intrinsic value when calculating the IV of BRK? Theoretically, intrinsic value would make more sense because those securities are (presumably) owned because they're at a discount to IV. In practice, if this difference was large enough, they'd simply buy more of those stocks. On the other hand, they own others like KO, where I'm pretty sure WEB wouldn't buy more stock today. Also in practice, float is often an issue (10%+) as are taxes.  It's not a huge deal, just something fun to think about. So I figured I'd ask the group's thoughts. Thanks!

 

I think this is now more important and concrete. I think the way I asked the question last time must not have been clear because the responses, while good, did not address the issue directly (except for one response). I'm resurrecting this issue because I think it's probably of more interest to people now. The reason I had debated this issue earlier was the expectation that a particular situation might occur. This situation has presented itself: Apple is down from 225 at 9/30 to 171 today. On their 252 million shares, BRK now has a "loss" from last reporting date of $14 billion, less taxes in their BV. This is Apple alone. Then you've got BAC, WFC, etc. which are all down varying amounts from 9/30. Having set the stage, now the question is:

 

If WEB thinks buying back at 207 was a good idea in the quarter ended 9/30, is the buyback threshold  now:

 

1. Lower, because (a) securities per share amount is lower (the two-column people), (b) alternative uses of cash are more available or, at least, visible on the horizon

2. The same, because intrinsic value (and look through earnings) of those securities probably has not changed

3. Higher, because, (a) intrinsic value of BRK increases a little each quarter, (b) for companies in which they can't go over 10% they can still increase the per-BRK-share ownership of those companies in the hands of continuing shareholders by buying back stock from other shareholders, © rates are lower which serves to increase financial asset values including BRK intrinsic value?

 

There could be other reasons for choosing either of 1, 2, or 3. Please feel free to suggest them.

 

PS: If the fall in the market continues, it's possible that BRK BV growth is negative for the quarter. If that happens, it'll help display in the coming Qs how much, if any, of WEB's IV calculation is based on BVs. On the one hand he says BVs are now not appropriate (and I tend to agree with this). On the other hand, he's not one to change his mind/methods too quickly.

 

Is it possible that he mentally marks his securities at intrinsic value but with an option to exit at the current market price? This would imply that when one of his securities declines in price, he maintains his original mark, but if/as it rises above his intrinsic value estimate, he marks it closer to market as he considers selling. I guess this would also mean that the effect on Buffett's estimate of Berkshire's intrinsic value depends on the relationship between AAPL's current price and his AAPL intrinsic value estimate (not just the change in AAPL's price alone). For example, if Buffett's intrinsic value estimate for AAPL is $250, then the recent price movement doesn't change his estimate of Berkshire's intrinsic value, but if his estimate is $150, it might. Also, maybe a counteracting force is that when his securities decline with the broader market, he sees more opportunities, so he's less likely to repurchase BRK at the same ratio of price/IV.

 

One weakness of this theory is that Buffett rarely sells major investments, so it seems like maybe he wouldn't be able to justify marking up securities to market price on the assumption that he might exit soon. He held KO through thick and thin of valuations...

 

 

[IceCreamMan]

Another weakness of this theory is that marking securities to the higher of price and intrinsic value might not be considered "conservative," as in "below Berkshire's intrinsic value, conservatively determined." On the other hand, marking securities to the lower of price and intrinsic value might qualify as conservative. This would mean that Buffett uses price when he thinks a holding is cheap, but marks expensive things down to his intrinsic value estimates.

[Guest longinvestor]

Given the number of opportunity days to buy, any guesses on how much was actually bought back?

[karthikpm]

time to buy more even if there is no buyback

[John Hjorth]

longinvestor,

 

We have some time ago [-totally unspoken, & unanimously!]""appointed" SwedishValue the curator of such data". [Goes like this : Don't post anything of particular interest here on CoBF! - Your destiny will be cumbersome to keep it updated! [ ; - D ]]

 

- - - o 0 o - - -

 

-Any update, SwedishValue? [ : - ) ] [<- SwedishValue, please don't take it too seriously ...]

[nickenumbers]

longinvestor,

 

We have some time ago [-totally unspoken, & unanimously!]""appointed" SwedishValue the curator of such data". [Goes like this : Don't post anything of particular interest here on CoBF! - Your destiny will be cumbersome to keep it updated! [ ; - D ]]

 

- - - o 0 o - - -

 

-Any update, SwedishValue? [ : - ) ] [<- SwedishValue, please don't take it too seriously ...]

 

So True John Hjorth!!!  Well said.  I will wait patiently and watch.....  :o

[Jurgis]

I wonder if Buffett is buying more AAPL / banks or if he's buying back stock. Or neither. Or both.

 

Stay tuned.  8)

[aws]

I calculate that as of today the top 7 holdings (aapl, bac, wfc, ko, axp, khc, and usb) have declined a total of $24.23B from the prior quarter as of today.  These 7 make up at current value 141B of the 191B market cap of their portfolio according to CNBC tracker.  I didn't bother to calculate the loss on the remaining $50B in securities, but let's just assume it washed with operating earnings QTD.  So the loss from those 7 big positions brings the book value down roughly $10/sh pretax or something like $7.50 after tax.

 

So it seems like after subtracting portfolio losses Berkshire is trading at around exactly where we know he was buying it back.  That was before marking up for excellent Q3 earnings, but before a plethora of additional opportunities to deploy capital in the markets opened up.  So if I had to guess I would think he's buying slowly just like in Q3.  Maybe a few billion total since there have been more days with a price that may be significantly below IV than there were in Aug-Sep.

[John Hjorth]

Today I have taken a stab against doing a calculation/estimate of maximum share buybacks in the past part of this quarter, based on available data on NYSE.com for the quarter, at alternative buyback thresholds, measured as share price for the B, and the equivalent price for A [ x1,500], but for the A based on the price pattern & movements for the A.

 

I had to make a decision to calculate daily price averages based on daily open/close or on daily high/low. I went on with daily open/close.

 

First figure : Buyback threshold, expressed as the price for the B share. [Equivivalent for the A: x1,500.]

Second figure : Estimated maximum capital allocation to share buybacks for the period October 1^th - December 14^th 2018. [uSD B]

Third figure : Average cost per share bought back, expressed as a B share equivalent price.

 

Results:

 

195 : 00.000 - N/A

196 : 00.000 - N/A

197 : 00.000 - N/A

198 : 00.000 - N/A

199 : 00.382 - 198.77

200 : 00.382 - 198.77

201 : 00.973 - 199.86

202 : 01.831 - 200.59

203 : 02.096 - 200.80

204 : 02.921 - 201.60

205 : 03.169 - 201.80

206 : 03.720 - 202.33

207 : 04.277 - 202.86

208 : 05.454 - 203.82

209 : 06.435 - 204.50

210 : 09.943 - 204.84

211 : 07.154 - 204.99

212 : 07.537 - 205.30

213 : 07.567 - 205.33

214 : 07.976 - 205.71

215 : 08.646 - 207.19

216 : 09.551 - 207.95

217 : 10.441 - 209.18

218 : 12.020 - 209.65

219 : 12.705 - 209.65

220 : 12.943 - 209.83

221 : 13.823 - 210.48

222 : 14.267 - 210.89

223 : 14.660 - 211.11

224 : 14.660 - 211.11

225 : 14.660 - 211.11

226 : 14.660 - 211.11

227 : 14.660 - 211.11

228 : 14.660 - 211.11

229 : 14.660 - 211.11

230 : 14.660 - 211.11

 

- - - o 0 o - - -

 

Tool attached.

 

- - - o 0 o - - -

 

I'm actually surprised by these figures [larger than I expected] - I wonder if I have screwed up somewhere? - Please feel free to tear it apart!

 

[Disclaimer : My Excel is setup to Danish - so I actually don't know if formulas and digit separators converts correctly for you.]

BRK_-_Calculation_of_maximum_share_buybacks_period_20181001_-_20181214__-_20181215.xlsx

[nickenumbers]

Who thinks BRK is repurchasing it's own stock today?

 

 

 

 

 

[Jurgis]

Who thinks BRK is repurchasing it's own stock today?

 

I think that BRK is buying. But I would say that they are buying more other stocks than its own. In other words, I am willing to bet that repurchases are less than 50% of money spent on all purchases this quarter.

[compounding]

Who thinks BRK is repurchasing it's own stock today?

 

I think that BRK is buying. But I would say that they are buying more other stocks than its own. In other words, I am willing to bet that repurchases are less than 50% of money spent on all purchases this quarter.

 

I would put the over/under at 10-15%.

 

[John Hjorth]

More data! [and a bit less talk ...]:

 

Estimated Berkshire selfimposed acquisition capacity EOP 2018Q3 per company for AAPL and the US banks [ranked]:

 

AAPL : USD 50,053 M

JPM  : USD 33,438 M

GS    : USD  4,129 M

BAC  : USD  2,329 M

USB  : USD  1,293 M

BK    : USD      891 M

 

- - - o 0 o - -

 

BRK maximum volume based buybacks at price ceiling 208 [<- known for 2018Q3] for period October 1^st - December 14^th 2018 - a material part of 2018Q4 : USD 5,454 M.

 

- - - o 0 o - - -

 

Calculation attached.

BRK_-_Estimated_selfimposed_acquisition_capacity_in_USD_M_in_AAPL_and_relevant_US_banks_EOP_2018Q3_-_20181218.xlsx

[alwaysinvert]

208 was the average price bought at so it couldn't logically have been the ceiling.

[John Hjorth]

alwaysinvert,

 

That's somehow nitpicking. Please feel free to make your own assumption about the buyback ceiling for 2018Q4, and just substitute in my last post with the figure that fits you, from this post.

 

The point is, this is a loose estimation - you could also nitpick that the outstanding shares for each company is not by a clear cut date and so on ... - the point is, that this gives an overall picture, with some slack in the calculations, also an overestimation [in USD M] because of the market price development in 2018Q4.