Buffett buybacks: Could Berkshire tender stock?

[StubbleJumper]

SJ, 10 billion dollars here, 10 billion dollars there, 20 billion dollars there.... Pretty soon we're talking big money. The buyback is what it is. It's been discussed here a lot. It's been suggested it's simple. My feeling, given WB's views of the issue, is that he has designed a smarter buyback system that has been suggested. It's simply not in the man's genes to just do what everyone else does.

 

 

If only it were $10b here and $20b there....  So far, it's been more like $1b here $500m there. I guess we'll soon see whether he has stepped on the gas pedal.

 

 

SJ

[gfp]

It's just a function of how many trading days the stock is below the cap.  He isn't making a 'step on the gas pedal' type decision - the market is either offering up Berkshire for a low enough price on more trading days or it isn't.  $5 Billion a quarter is doable if the market offers Berkshire below his cap price.  But the plan can only purchase so much each day - so it really matters how many days the market allows them to be active purchasers.

 

SJ, 10 billion dollars here, 10 billion dollars there, 20 billion dollars there.... Pretty soon we're talking big money. The buyback is what it is. It's been discussed here a lot. It's been suggested it's simple. My feeling, given WB's views of the issue, is that he has designed a smarter buyback system that has been suggested. It's simply not in the man's genes to just do what everyone else does.

 

 

If only it were $10b here and $20b there....  So far, it's been more like $1b here $500m there. I guess we'll soon see whether he has stepped on the gas pedal.

 

 

SJ

[John Hjorth]

Exactly - what globalfinancepartners just said. So from here: High hopes for continued scrambling around below 200 for the B, combined with high daily volumes!

[Rod]

Does anyone have an up to date estimate of book value? I'm thinking if I could get in at 1.3x or less, I would do it.

[gfp]

I don't have a current estimate of BV, but others here probably have a spreadsheet that gets you pretty close.  Book value is lower than Q3 mark, which was 152.47 per share on the B shares.  I would say low 180's per share will get you your 1.3x number.  You don't have to be exactly right about it.  Say 182...

 

Does anyone have an up to date estimate of book value? I'm thinking if I could get in at 1.3x or less, I would do it.

[Libs]

Getting back to the Apple discussion - I concur with Stubble. Putting such a huge % of BRK's market cap into Apple bothered me from the start. I hope he's done adding. I rarely question Buffett's purchases but the bear case here is worrisome.

 

I've been trying to find BRK's ( most recent) cost basis in Apple. Does anyone have it?

[gfp]

Just a quick update that I did the math on Berkshire's approximate Apple cost basis as of end of Q3 2018.  I know you did the same, John, but I couldn't really see an exact number in your spread sheet.  Maybe I am reading it wrong.

 

Anyway, here is the last know Apple position at Berkshire and it's cost basis:

 

255.16 million shares, total cost basis of $36.209 Billion, for an average cost basis of 141.91 / share.

 

This excludes pension fund holdings.

 

The first 166.713 million shares were disclosed in the AR as having a 125.73 / share average cost.

 

Getting back to the Apple discussion - I concur with Stubble. Putting such a huge % of BRK's market cap into Apple bothered me from the start. I hope he's done adding. I rarely question Buffett's purchases but the bear case here is worrisome.

 

I've been trying to find BRK's ( most recent) cost basis in Apple. Does anyone have it?

 

 

The exact cost basis won’t be disclosed until the annual report. You can estimate it using last years AR and shares added each quarter since using average quarterly prices.

[John Hjorth]

Libs,

 

It's in my last attachment in this topic. [The last known one, that is, ref. globalfinancepartners.]

[aws]

The under performance for the week continues today with Berkshire lagging the S&P by more than 1%.  Berkshire down 3.54% for the week with the S&P up 1.39% as I write this, for an underperformance of 4.93%.  For perspective, that's the worst week of relative performance since 2009.  If this keeps up I'm guessing there will be plenty of opportunities for buybacks.

[Guest longinvestor]

“Gas pedal to the floor” to Omaha will look like deploying some $200B to buyback over the next decade. The privatization in slow motion of sorts would be deja vu for Buffett; he never wanted this many partners anyway. Watch out Singleton!

[Dynamic]

Rod, my rough guess of Book Value from the last known portfolio I track for Look Through holdings and earnings (trying to account for pension holdings and New England Asset Management's 13-F as best as I can) is that BRK.B BV/share ended 2018 on a small stock market recovery since Christmas Eve at just under $144 of Book Value per class B share, depending on actual operating company earnings after tax during the quarter, which might actually provide a little boost, so that would imply around $187 is your 1.3x BV figure, near enough.

 

So it's not far below 2018Q2's BVPS. I remember BRK.B trading around $185-189 in late June 2018 before Q2 ended, and the previous quarter's BVPS was $140.79 (1.3x last reported BV was then $183.03), in a rising market, marking the low point for 2018. I added to my already high BRK.B exposure on 24th December 2018 when prices dipped as low as $187-189.

 

In reality, I would expect that Intrinsic Value per share has actually increased since 30th Sep 2018, despite the decline in Book Value from the market value declines, so 1.3x BV now is a bigger discount to IV than it was then, in keeping with the declines in most of the market.

 

And it's possible that Berkshire has been adding to positions on the way down, so they'll have lost a fraction more in Book Value than my estimate based on the 13-F as the market prices have fallen further, while nonetheless increasing IV by buying with a good margin of safety, assuming IV for each position hasn't taken a serious permanent hit and remains largely intact.

 

Also, I'm generally assuming that any decline in market value of positions is partly offset by about 21% reduction in deferred tax liability when calculating the change in Book Value caused by the portfolio market price change. That might not be quite true for new positions that have declines to below their cost basis (e.g. ORCL), but will hopefully be roughly true for long-established positions with a much lower cost basis, which is probably the majority of Berkshire's portfolio, so probably roughly right.

 

I could still imagine BRK.B going lower, the way markets have been behaving lately, and there probably won't be any rosy financials published in BV terms until the Annual Meeting weekend in May, but operating earnings might conversely have been exceptionally good this quarter, so I'm not predicting one way or another whether Mr Market will view the results positively or negatively.

[gfp]

Thanks Dynamic - I knew you would have an estimated BVPS figure.  Float should be up from the MLMIC acquisition plus whatever other float growth Ajit could manage.  Berkshire likely continued buying financials during the quarter, just not WFC, BAC or AXP.

[StubbleJumper]

“Gas pedal to the floor” to Omaha will look like deploying some $200B to buyback over the next decade. The privatization in slow motion of sorts would be deja vu for Buffett; he never wanted this many partners anyway. Watch out Singleton!

 

 

They'll almost certainly have the cashflow to buyback $200b of shares over a decade.  Heck, they have the cashflow to do that today!  Given the $1b that was bought back last quarter, they'll really need to step on the gas to make that happen.  Maybe a dividend is a better idea.

 

 

SJ

[John Hjorth]

... Maybe a dividend is a better idea. ...

 

StubbleJumper,

 

I know for a fact that won't happen as long as Mr. Buffett is alive - perhaps not even before his estate is finally settled. The reason is that it hoses some dividend taxes into the coffers of the US IRS, generates cash for Mr. Buffet that he does not want or need, and thereby also dilutes his gift promises. So you know it, too.

 

The wonders of having a controlling shareholder ... I think it's called so.

[Libs]

Libs,

 

It's in my last attachment in this topic. [The last known one, that is, ref. globalfinancepartners.]

 

Thanks Hjorth. I'd missed that. I'm getting the low 160's as the basis through Q3.

 

 

[John Hjorth]

Libs,

 

It's in my last attachment in this topic. [The last known one, that is, ref. globalfinancepartners.]

 

Thanks Hjorth. I'd missed that. I'm getting the low 160's as the basis through Q3.

 

You're welcome Libs,

 

Today I've been  thinking more about how to proceed with this reverse engineering of the AAPL position. I've come an interim conclusion so far, that I'm on a wild goose chase here, contemplating to do Sisyphus work.

 

This is about what's been going on with Berkshire's AAPL position i 2018Q3 [not so much for the two quarters prior in 2018]. The point here is, that Mr. Buffett may have trimmed the AAPL position on it's way up in the run-up to the top near EOP 2018Q3, and may have have trimmed it further down on the slide on the other side of the top, perhaps even without buying near yearend and its recent lows as of now. There is no legal way to find out, until we see the next Berkshire portfolio report on EDGAR mid February. There is nothing to triangulate on, nor even to intercept on - because we have only two dots hanging up in the sky [on EDGAR] - Berkshire's EOP 2018Q2 & EOP 2018Q3 AAPL positions.

 

So please stay open minded towards that Berkshire's AAPL position at YE2018 [with regard to number of shares] may be lower than at EOP 2018Q3.

[aws]

I would be shocked if the share count of Apple decreased.  He's not one to try to flip shares for a quick profit even if they start to look overvalued, and the best he could have done is record something like a 30% gain on his recent purchases.  I'd bet there is a higher chance he nearly doubled it than reduced it.  We know he added tens of millions of shares at prices around 25% above where we are right now so he must have thought it was a big bargain then, and I can't see anyway he could think it has been impaired so much by a little blip like a 9% revenue miss in a single quarter.

 

It's a huge position, but the percentages are tiny compared to what he worked with before.  Don't forget he put 1/3rd of Berkshire's net worth into Coke, and for most of the 90s its value was something like half of Berkshire's book value and he never sold a share.  I believe the latter he views as a mistake, but that was when he was sitting on a 10-bagger in ten years, not less than a double like he had with Apple.  Apple was never more than around 6% of Berkshire's net worth at cost or more than 10% at market value.  The numbers are bigger now, but I don't think that would scare him if he still has conviction in Apple. 

 

I could see him going to the 9% range - probably not up to 10 because then he'd be immediately selling along with the repurchases - which would be around 430 million shares total or 177.5 million in new purchases.

 

 

 

[SHDL]

I would be shocked if the share count of Apple decreased.  He's not one to try to flip shares for a quick profit even if they start to look overvalued, and the best he could have done is record something like a 30% gain on his recent purchases.  I'd bet there is a higher chance he nearly doubled it than reduced it.  We know he added tens of millions of shares at prices around 25% above where we are right now so he must have thought it was a big bargain then, and I can't see anyway he could think it has been impaired so much by a little blip like a 9% revenue miss in a single quarter.

 

It's a huge position, but the percentages are tiny compared to what he worked with before.  Don't forget he put 1/3rd of Berkshire's net worth into Coke, and for most of the 90s its value was something like half of Berkshire's book value and he never sold a share.  I believe the latter he views as a mistake, but that was when he was sitting on a 10-bagger in ten years, not less than a double like he had with Apple.  Apple was never more than around 6% of Berkshire's net worth at cost or more than 10% at market value.  The numbers are bigger now, but I don't think that would scare him if he still has conviction in Apple. 

 

I could see him going to the 9% range - probably not up to 10 because then he'd be immediately selling along with the repurchases - which would be around 430 million shares total or 177.5 million in new purchases.

 

I must not be the only one who's secretly hoping he sold it all in early October and bought twice as much back during the last two weeks.  8)

[John Hjorth]

aws,

 

Yes, very provoking statement from me in my last post, I'll give you that. But - at least to me - that's just a part of being a Berkshire investor - a positive one, may I add. [Mr. Buffett operating in the fat [read: [almost] unthinkable] tails. He is [historically proven] extremely good at this.

 

Again, please look at the data, that I've provided in my last attachment in this topic. Berkshire AAPL position EOP 2018Q3 [ex. NEAM] : 252,478,779. Average daily volume according to Yahoo Finance : 42,876,784.

 

So, why shouldn't Mr. Buffett trade it, if he felt inclined to? -He is not constrained by liquidity in the stock here and can do the trade without any kind of flagging.

 

My above statement was not some sort of prediction.

[John Hjorth]

... I'd bet there is a higher chance he nearly doubled it than reduced it. ...

 

Thank you for a mutual mind provoking statement. Time will tell.

[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.

 

Bumping this up by quoting, with attachment!

 

- - - o 0 o - - -

 

Anybody of my fellow board members willing to take firm, unconditional & binding  WAG [<- learned that expression from longinvestor! [ : - D ]] stab at:

 

• Berkshire portfolio material [quantified by name] additions [net] in 2018Q4,
  
• Berkshire buybacks in 2018Q4, measured in USD B, &
  
• Berkshire liquidity EOP 2018Q4 [Total cash plus US T-Bills]
  

? [ : - ) ]

BRK_-_Estimated_selfimposed_acquisition_capacity_in_USD_M_in_AAPL_and_relevant_US_banks_EOP_2018Q3_-_20181218.xlsx

[gfp]

Just a quick update that I did the math on Berkshire's approximate Apple cost basis as of end of Q3 2018.  I know you did the same, John, but I couldn't really see an exact number in your spread sheet.  Maybe I am reading it wrong.

 

Anyway, here is the last know Apple position at Berkshire and it's cost basis:

 

255.16 million shares, total cost basis of $36.209 Billion, for an average cost basis of 141.91 / share.

 

This excludes pension fund holdings.

 

The first 166.713 million shares were disclosed in the AR as having a 125.73 / share average cost.

 

*** edit: this is kind of funny since the low from 1/3/2019 was $142/share. ***

 

Getting back to the Apple discussion - I concur with Stubble. Putting such a huge % of BRK's market cap into Apple bothered me from the start. I hope he's done adding. I rarely question Buffett's purchases but the bear case here is worrisome.

 

I've been trying to find BRK's ( most recent) cost basis in Apple. Does anyone have it?

[SwedishValue]

One would have to assume that Apple is worth more now than when Buffett initially bought his stock. It's not like they've been breaking even.

 

For what it's worth, I'm surprised that Berkshire has underperformed Apple AND DAL since they had their profit warnings. I guess the market has its ways.

[John Hjorth]

I'm sorry for an unclear post above of mine, globalfinancepartners,

 

It's about my try to reverse engineer Berkshire's Apple position. To do it I had to make additional assumptions to try to triangulate it. The difference to the reverse engineering of Berkshire buybacks is we have an "extra" fixpoint based in the information in the 10-Qs about buybacks and a reasonable assumption [you did it, and what you proposed made perfect sense to me] how the buy order to the broker is bolted together.

 

That fixpoint we don't have for the Apple position [quarterly]. So it would be pure guesswork based on my own speculations, and what may come out of the Excel crushing the numbers would most likely be a self-fulfilling prophecy. In short, I would just be fooling myself. So I didn't try to proceed with the calculations. Also, I hope my fellow board members got a good laugh of this brainfart of mine! [ : - ) ]

 

Also - and especially - the fact that aws has expressed a variant expectation to mine, which is as good as mine, gave me confirmation that doing the calculations was a no-go. Better to wait to mid February to see the size of the Apple position EOP 2018Q4 and the cost of it at a later moment in the Berkshire 2018 10-K.

 

That said, rough estimates of the cost of the additions to the Apple position for the first 3 quarters of 2018 can still be done now, yes.

[alwaysinvert]

I haven't followed traded volume in BRK lately. Has someone here done continual updates? Q4 report is drawing closer.