An Appeal to Bill Gates

[twacowfca]

Dear Bill,

 

We are blessed to have you as BRK's soon to be largest shareholder, and we are aware of the requirement that foundations distribute 5% or more of their assets yearly. We also know that it is Warren's wish that you  

should sell the BRK shares he generously has and will contribute in an orderly manner in the years going forward and use the funds received for worthwhile purposes.

 

There is an intelligent way to do this and a know nothing way.  The know nothing way is to continue selling a fixed percentage of shares based on the average daily volume regardless of the price of the shares.  The intelligent way is to briefly suspend sales whenever BRK trades substantially below a conservative calculation of it's intrinsic value and resume sales when BRK rises and sells at a price that is higher than what a "cigar butt" would bring.

 

BRK is currently trading within a whisker or two of what its year end book value

likely will be while the less desirable average company in the S&P 500

sells at nearly double BV.  The know nothing approach makes no sense.

It also devalues the many long term Berkshire shareholders, some of whom

must sell a certain percentage of their shares each year at far less than their intrinsic

value or much less than what shares of lower quality companies would bring.

 

On behalf of the many loyal long term shareholders, we appeal to you to rationalize your sales plan for Berkshire shares.

 

[beerbaron]

I don't see how there would be an intelligent manner to dispose of the shares. Any delays to dispose of them will require further selling in the future. This would create more volatility not more returns for the shareholders.

 

BeerBaron

[Zorrofan]

Personally, I think the best solution is for BRK to declare a dividend, I believe it would need to be around 5%, and for Gates not to sell any shares but use the dividends instead. Having Gate's charitable foundation holding WEB shares could help ensure that BRK maintains its "culture" well into the future.

 

Cheers

Zorro

[oldye]

Personally, I think the best solution is for BRK to declare a dividend, I believe it would need to be around 5%, and for Gates not to sell any shares but use the dividends instead. Having Gate's charitable foundation holding WEB shares could help ensure that BRK maintains its "culture" well into the future.

 

Cheers

Zorro

 

That would be very stupid all things considered.  Warren Buffett is the best capital allocator in the world, if you want a dividend sell 5 % of your shares.  Enjoy Berkshire trading at a discount, it won't last forever and it has nothing to do with Gates selling shares. 

[Zorrofan]

You are looking at the short-term! WEB is not going to be around forever. I am more worried about preserving what WEB has built than short-term fluctuations in the share price. Even with WEB at the helm there are times when BRK trades at a discount. Do you want some hedge fund coming along and tearing BRK apart , selling off the pieces for short-term gains? If you do, you don't understand in the least what BRK is about.

 

 

Personally, I think the best solution is for BRK to declare a dividend, I believe it would need to be around 5%, and for Gates not to sell any shares but use the dividends instead. Having Gate's charitable foundation holding WEB shares could help ensure that BRK maintains its "culture" well into the future.

 

Cheers

Zorro

 

That would be very stupid all things considered.  Warren Buffett is the best capital allocator in the world, if you want a dividend sell 5 % of your shares.  Enjoy Berkshire trading at a discount, it won't last forever and it has nothing to do with Gates selling shares. 

[oldye]

People don't give Warren enough credit, picking the right successor is the most important decision of his career, he's not going to let the company go to someone that won't preserve the culture.  I can't remember the exact quote but I think Warren has instructed Gates to sell all the shares within a predetermined period after Warren's death (10 years?).  By then Berkshire will likely be a 600+ billion dollar behemoth, I believe Warren talked about this 2-3 years ago at one of the annual meetings...he even said that he has a good idea when (not if) Berkshire will become a trillion dollar company. The odds of any fund being large enough to do damage to the culture are remote.  

 

Cheers!

[goldfinger]

When Warren allocates capital or takes operational decisions these days, he does it with a very long term perspective in mind. He can't do otherwise because:

- he is getting very old.

- he has enormous amounts of capital to invest.

He can do it better than anyone else because:

- he knows more than anyone else about business and investing (in his huge circle of competence).

- he has access to information no one else has (thanks to his operational businesses in part).

- he is wiser than almost anyone I can think of (he has Charlie to help him here).

So when I try to appreciate IV, I think about that and look at the  business without Warren... It is definitely undervalued by at least 30%. I think people will be surprised (even among value investors) by Berkshire free cash flow generation abilities when the economy recovers. We are deep in Carnegie territory with BRK's operational side.

[shalab]

My guess is that BRK book value is somewhere between 90K to 95K/A share at the end of last quarter. No way to say for sure but most likely in that range without large hurricanes.

 

Interestingly enough, I think BRK book value kept pace with SP500 this year within a couple of points although the stock didn't. SP500 increased ~8% in Q4 which should impact BRK book value too. I am looking at 20%+ gain this year for BRK.

 

I think the stock is cheap now, even cheaper than the Katrina time.

 

Happy new year!

Shalab

 

[bargainman]

The know nothing approach makes no sense.

It also devalues the many long term Berkshire shareholders, some of whom

must sell a certain percentage of their shares each year at far less than their intrinsic

value or much less than what shares of lower quality companies would bring.

 

On behalf of the many loyal long term shareholders, we appeal to you to rationalize your sales plan for Berkshire shares.

 

 

Doesn't Klarman always say that he looks at forced selling situations?  As someone who may want to be acquiring BRK this is actually an opportunity!  Buffet also always says that as long as your retirement is about 10 years+ away you actually want shares to go down in price so you can get them cheaper.  Thank you Mr. Gates for creating artificial downward pressure on the shares!  Now regarding retired folks who are living off of the BRK shares.. they should probably be living off bonds or something else.  In the short term any equity's price can be irrational.  That's not to say I'm not sympathetic, but this type of forced selling is exactly what we should be looking for and going after as value investors no?

[twacowfca]

Excellent point, Bargainman.

[shalab]

> 90K to 95K/A share

 

I included non controlling interests in this calculation, it would be about 4K less without including non controlling interests, still looking at 20%+ gain in book value with 2%+ gain in share value.