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2Q 2021


ValueMaven

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Just starting to go through this - high level - very solid quarter ... not amazing, but extremely solid across the board.  

Buyback has averaged $6B in Q and is at a FY run-rate at $25B+ ... we are looking at $50B over the trailing 24M if this occurs ... remarkable.  The stability of the underlying businesses remains ... resilient but also some cyclical exposure as well.  Insurance still continues to post profits but reinsurance had a loss (??)

Bought back the largest amount in 2Q at over 8.5M B-shares at basically $280 --- just were the stock is now ($2.5B) - which is a positive sign.  Maybe the goal is to return all excess capital that the business generates to shareholders this way??  Keep the large $140B of cash - but use operating income less CAPEX and return it to shareholders.  I'm all for that.

 

This is always my favorite 10Q to go through - I always learn a lot!

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I remember he stated in an interview that he would like to buy back 4-5% of the shares outstanding per year. It seems that is what he is doing now.

 

I expect the repurchases will continue unless the shares appreciate quite a bit from these levels in a short time. Buffett was unusually open with his views that the Berkshire share is cheap during the annual meeting this year. 

 

He is probably biding his time with the cash balance, keeping it at around 140 BUSD and waiting for a large acquisition, or something large to do in the equity markets. 

Edited by Swedish_Compounder
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Buyback has averaged $6B in Q and is at a FY run-rate at $25B+

 

The Old Man bought a further ~$1.8b in July.   On a rolling 12 month basis (end of July '20 - end of July '21) it looks like he retired 5.34% of the common equity opening balance.

 

I think we have to start treating this as more or less a permanent return of capital and need to start adjusting higher our expectations of total return (6% organic growth + 5% repurchases).  I don't think the current share prices of the A's and B's fully reflect this as yet.

 

wabuffo

 

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Its official, the Old Man has evolved again. He's not gonna outsmart himself with "shares are a buy at 250 but not at 275" type stuff. He's shrinking the count 5% a year or more; the businesses are fool proof and run by people smarter than anyone doing the outside analysis on them.....just put this bad boy away and let it be an easy, no hassle/no worry investment. 

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We just have to hope the share price doesn't fly too high so the buybacks always feel like good value. Luckily they'll be plenty of "new" shares hitting the market for many years to come, meaning all the shares Buffett donates and shares from estates of similarly long-term shareholders. Something like half the outstanding shares probably haven't changed hands at all in the last 50 years. That should keep the price at least a bit in check.

Edited by aws
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I agree on the gist of both of your comments (greg & wabuffo) but I wouldn't count on 5% being the number.  The current run-rate is closer to 3.7% despite the trailing twelve month numbers looking like 5%.  We haven't seen him repeat a $9 Billion repurchase quarter since Q3 and Q4 of 2020.  I suppose he will increase the buying if the price declines and we don't really know what price he might decrease the repurchase rate.  

Edited by gfp
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On the comments about share repurchase at these high absolute dollar levels comments, perhaps what the Omaha team has in mind, is not so much cost dollar value in any given month or quarter, but rather the aggregate average dollar cost of all the repurchases in the past say 20 months or so.

 

So, yes they are buying at $270 ish, but what is the average cost of all the buys since the start of 2020 (maybe that is at $240 per share), I do not think you will see that moving average creeps up to $270, which means slowing share re-purchases going forward to not let the moving average cost creep up.

 

Said differently, in my view, he is more concerned about the volume of stock that he is retiring with a given average cost as a target, than just shoving money quarter after quarter as 100% payout ratio.  

Edited by Xerxes
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I wonder how Buffett thinks about the value of this $142 Billion balance sheet liability that is growing at a 4-8% annual clip...  Surely he doesn't value it at negative $142B.

 

 

 

940660187_ScreenShot2021-08-07at11_23_38AM.thumb.png.a8f7e832411ac971d6abd4f0ec440972.png

Edited by gfp
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A few thoughts : Anyone noticed that Berkshire insurance underwriting combined ratio seems nothing to rave about. Premiums are rising in what seems to be a hard market, but they barely make any underwriting profit (~$376M). It doesn’t look that great when many other insurers are putting up great numbers.

 

They bought back shares for ~$28B reducing share count by ~5%. ~$28B was the profit This quarter. It is not bad a bad buyback rate, but not exactly Teledyne league either. Anyways, decent quarter for a no brainer sleep well Investment.

Edited by Spekulatius
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13 minutes ago, Spekulatius said:

A few through : Anyone noticed that Berkshire insurance underwriting combined ratio seems nothing to rave about. Premiums are rising in what seems to be a hard market, but they barely make any underwriting profit (~$376M). It doesn’t look that great when many other insurers are putting up great numbers.

 

They bought back shares for ~$28B reducing share count by ~5%. ~$28B was the profit This quarter. It is not bad a bad buyback rate, but not exactly Teledyne league 

either. Anyways, decent quarter for a no brainer sleep well Investment.

 

GEICO is certainly under-earning but that should be temporary.  Life/Health Reinsurance is also putting up bad numbers.  Berkshire has primary insurance subs and property casualty reinsurance shooting the lights out (especially on premium growth out of BH Specialty and MedPro), but Berkshire's insurance mix is much different from other insurers.  You should expect to continue to see underwriting losses out of Retroactive and maybe also the periodic payment business.  The AIG transaction alone is responsible for a lot of the retro losses that get reported.  The long duration of that float is key.

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I found this line from 10-Q interesting: Berkshire will not repurchase its common stock if the repurchases reduce the total value of Berkshire's consolidated cash, cash equivalents and U.S. Treasury Bills holdings to less than $30 billion. 

 

The minimum cash balance now has gone up from $20 billion to $30 billion. 

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Cost Basis of "Commercial, industrial and other" went down by $1.984B. 

  • Wondering if he sold more of Chevron? 
  • Wondering if he added any to VZ?  Looks like maybe not?

 

Cost Basis of "Banks, insurance and finance" went up by $654M. 

  • Wondering if he bought more of MMC.  Looks pricey, but maybe BRK depends a lot on them and thinks they need them to compete with PGR? 
  • Doubt he added to any banks?

 

Cost Basis of "Consumer products" went up by $98M.

  • Maybe added to KR? 

 

 

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Strange headline from Bloomberg:

https://www.bloomberg.com/news/articles/2021-08-07/buffett-s-berkshire-slows-share-repurchases-to-6-billion?srnd=premium

 

https://finance.yahoo.com/news/buffett-berkshire-slows-share-repurchases-121054505.html (article can be accessed via Yahoo Finance w/o Bloomberg subscription)

Edited by Munger_Disciple
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5 minutes ago, Munger_Disciple said:

 

It doesn't seem like the most important item to put in the headline, but he did slow the rate of share repurchases.  $9 Billion -> $9 Billion -> $6.6 Billion -> $6 Billion 

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Regarding Chevron stake

  • Dec 31, 2020: 48,498,965 shares for a cost basis of $4.024B
  • March 31, 2021: 23,672,271 shares

Assuming all Chevron shares were acquired around same cost, remaining Chevron cost basis was then around (23,672,271/48,498,965)*4.024 = $1.964B.

 

Because cost basis of  "Commercial, industrial and other" went down by $1.984B, looks like he sold out Chevron completely. 

 

In addition, he trimmed something else by $20M in "Commercial, industrial and other," or my math above has an error, or he kept somewhat different cost Chevron shares in Q1 and sold those now, or something else?

 

 

Edited by LearningMachine
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2 minutes ago, gfp said:

 

It doesn't seem like the most important item to put in the headline, but he did slow the rate of share repurchases.  $9 Billion -> $9 Billion -> $6.6 Billion -> $6 Billion 

 

True, but Berkshire bought back $1.8 Billion in July. From April 22 until July 26th, they bought back roughly $6.6 billion. Anyhow, we expect the repurchases to be dependent on price of shares and not at a constant pace. 

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The current run-rate is closer to 3.7% despite the trailing twelve month numbers looking like 5%.  We haven't seen him repeat a $9 Billion repurchase quarter since Q3 and Q4 of 2020.  I suppose he will increase the buying if the price declines and we don't really know what price he might decrease the repurchase rate.  

 

Whether its 3.7% or 5% - my point is that a) the large capital base, b) Buffett's advanced age, mean that repurchases will be a constant every quarter.  Of course, valuation matters, but I think we are now at a major inflection point.   Its kind of the opposite of the past, when Buffett wouldn't buy back stock in 2000, 2008-09, 2011, 2015-16 even though valuation was compelling because.......reasons?

 

I think all of us have been trained reflexively by past experience with BRK to expect buybacks to dwindle because deep down we always knew Buffett's heart wasn't in it to give up paint from his studio as he still hadn't finished painting his canvas.   That's why as the market becomes convinced (and it may take some more quarters to do the convincing) that repurchases are here to stay, then the stock will gradually re-rate to include the buybacks in the return expectation on BRK stock.

 

We'll see I guess, but I think BRK may be coming out of its ho-hum phase that has lasted way too long while Buffett got sidetracked by PCP, KraftHeinz, IBM, the airlines, etc when he should've been using all that wasted capital in repurchasing BRK. 

 

wabuffo

Edited by wabuffo
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8 minutes ago, ValueMaven said:

Anyone else surprised by how strong MSR has been?  Hard to really know what is going on there...  Also BNSF reported its largest quarterly profit since Berkshire acquired it.


Outside of PCP, Berkshire’s MSR companies are mostly in the sweet spot in this economy. Trains are slammed, car dealerships, furniture, home building, building products - hell, even NetJets had to suspend new sales because they couldn’t keep up.  Obviously year over year comps make it look even better. 

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