Dynamic Posted August 17, 2021 Share Posted August 17, 2021 On 8/15/2021 at 12:34 AM, flesh said: Remind me of the math here. I remember learning it when first studying autozone long ago. If 5% of share are repurchased what exactly happens to p/b/bvalue? Can't remember the denominator. The upshot is, if you retire a certain fraction R of shares outstanding, such as 0.05 (i.e. 5%) at a share price of P the formula is: BVPSafter = (BVPSbefore - (P * R)) (1 - R) So setting R = 0.05, P = $277.92 closing price on 30th June and BVPSbefore = $207.517 that comes to $203.812 To see the full working and a worked example, click to reveal the 'spoiler' below: Spoiler Let's lay out a few terms in capital letters and work in BRK Class B share equivalents, each Class A share being 1500 * class B R = buyback ratio, e.g. 0.05 is 5% buyback. BV = Book Value = Berkshire shareholder's equity P = BRK.B share price (BRK.A share price can be assumed to be about 1500 * P) SC = Share count (number of shares outstanding, measured in BRK.B share equivalent) = Number of B shares + (1500 * Number of A shares) MC = Market Cap BVPS = Book Value Per Share = BV / SC P/BVPS = Price to Book Value ratio Subscript before denotes before the buyback, and after denotes after the buyback. BVPSbefore = BVbefore / SCbefore BVafter = BVbefore - (P * R * SCbefore) SCafter = SCbefore * (1 - Z) BVPSafter =( BVPSbefore - (P * R)) / (1 - R) after simplifying from BVafter / SCafter Example: So let's take 30th June 2021 figures (known only after the 10Q release for 2021 Q2) and assume a 5% buyback completed at the closing price that day, so: R = 0.05 and (1 - R) = 0.95 BVbefore = $470,409,000,000 MCbefore = $630,001,000,000 (to 6 significant figures) based on P = $277.92 BRK.B closing price 30th June 2021 SCbefore = 2,266,843,737 equivalent B shares outstanding BVPSbefore = $207.517 per BRK.B share P/BVPSbefore was 1.33926 on 30th June 2021 Trying out the formula for BVPSafter, we get: BVPSafter = ( $ 207.517 - ( $277.92 * 0.05) ) / 0.95 = ($207.517 - $13.896) / 0.95 = $193.621 / 0.95 BVPSafter = $203.812 Now let's try it long-hand to confirm this: Let's assume for simplicity buying back 5%, all at the closing price on 30th June 2021. $31,500 million Cost to buy back 5% of o/s shares at closing price on 30th June 2021. The cash balance of the business and the BV are reduced by this cost. $438,909 million BV after purchase and retirement of 5% of shares o/s Share count after retirement of 5% of shares = 2,153,501,550 B share equivalent. Book Value Per B Share Equivalent after repurchase of 5% of shares o/s = $438,909,000,000 / 2,153,501,550 = $203.812 This matches the simplified formula above. Price/BV after repurchase, still at $277.92 closing price, 30th June 2021 = $277.92 / $203.812 = 1.3636, which is a 1.8181% increase in P/BV. BVPS reduction ratio = $203.812 / $207.517 = 0.982144 Reduction in BVPS = 1.78558% If you came up with a figure for estimated Intrinsic Value IVbefore for Berkshire you could take a similarly methodical approach to estimating the reduction in total Intrinsic Value then divide IVafter by SCafter to come up with the increased figure for IVPSafter Link to comment Share on other sites More sharing options...
cubsfan Posted August 17, 2021 Share Posted August 17, 2021 ^ Excellent - thank you Dynamic! Link to comment Share on other sites More sharing options...
ValueMaven Posted August 17, 2021 Author Share Posted August 17, 2021 (edited) This guy is a great AAPL analyst ... it is now 50% of Berkshires equity portfolio. Warren even said trimming AAPL by that $10B amount was a mistake. This is now a massive homerun for Berkshire... Edited August 17, 2021 by ValueMaven Link to comment Share on other sites More sharing options...
Xerxes Posted August 17, 2021 Share Posted August 17, 2021 On 8/16/2021 at 1:41 PM, John Hjorth said: Xerxes, YDRC, thank you. Cheers I had to google YDRC Link to comment Share on other sites More sharing options...
UK Posted August 21, 2021 Share Posted August 21, 2021 Link to comment Share on other sites More sharing options...
ValueMaven Posted August 21, 2021 Author Share Posted August 21, 2021 Who made this?? This is awesome - I'm going to frame it!! Link to comment Share on other sites More sharing options...
UK Posted August 22, 2021 Share Posted August 22, 2021 10 hours ago, ValueMaven said: Who made this?? This is awesome - I'm going to frame it!! It was shamelessly copied (and tweaked a litttle bit) from: https://www.drwealth.com/invest-in-these-3-companies-and-you-pretty-much-own-the-world/ Link to comment Share on other sites More sharing options...
ValueMaven Posted August 22, 2021 Author Share Posted August 22, 2021 Home Services is missing from BHE!! What gives!! Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now