Doing the math on stock repurchases below book value

[Guest dealraker]

OK board members....

 

We all know that Fairfax has gained immensely by its decisions on when to buyback stock and when to issue it or use it to buy something.

 

And I heard James Tisch say something like, "Half the 16 percent return we've gotten in the last 50 years (or whatever time frame he said --- I'm just being silly) is from stock buybacks."

 

And Henry Singleton's storey at Teledyne is much the same, so...

 

Why do most in the businesses such as Loews (I just removed FFH from this because I must have been on Mars when I wrote that) or whatever think they must hype the stock and not just buy it back at well below book/of which "book" may be somewhat close to intrinsic value?

[Myth465]

Managers are paid by market cap it seems. They tend to pile up cash and want to buy other companies. Its what I would do if I didnt own much stock. Everyone wants head count. Everyone wants to Manager more. Think about how good it feels to say you manager a $20 billion company vs a $5 billion dollar one that has a high ROI / ROIC.

 

FFH, L, are owner Managers. They want a return because they own the company.

[StubbleJumper]

Why do most in the businesses such as FFH or Loews or whatever think they must hype the stock and not just buy it back at well below book/of which "book" may be somewhat close to intrinsic value?

 

 

FFH hypes its stock?  That's the first time I've heard that one!  Usually the word that gets used in reference to Prem Watsa is "reclusive."

 

 

SJ

[Guest longinvestor]

Many companies use buybacks as a show of support to suffering holders due to price declines in the market. I used to work for one where the CEO's eyes were focused almost entirely on the stock market to decide when to buy back, when to provide additional guidance, when to split the stock etc. In a sense you are chasing the emotional component of the market. What a poor way to spend your energy. Buffett clearly is against all of these gimmicks and instead focuses on one thing, increasing intrinsic value.

 

 

[Guest dealraker]

I don't know if I was sick or something when I wrote that FFH hypes its stock.  Didn't mean to write that.  I do think that Loews attempts to somewhat hype their stock--- or maybe I should say whine a little about it.  Bad writing from me but occasionally what I write does not rhyme with what I'm thinking.

[Guest Bronco]

Whining may be appropriate, but Tisch tends to tell it like it is.  If a business sucks, he will probably say it sucks.

 

That said, I agree with him.  And if Loews goes under $34/$33 - you will see my buying more shares.

[Guest dealraker]

My point on the issue is this:

 

Why does Tisch whine when he can take advantage of the low price-to-book price and even says, "Half our 16% return is because of the buybacks at a big discount to book?"

[Guest Bronco]

I write too quickly sometimes, but I meant to say I agree with you he may have been whining.

 

But on the flip, they are buying back a ton of shares - so its not like they aren't taking advantage (if one believes that is taking advantage).

 

 

[Myth465]

My point on the issue is this:

 

Why does Tisch whine when he can take advantage of the low price-to-book price and even says, "Half our 16% return is because of the buybacks at a big discount to book?"

 

He clarified this on a recent interview. Half of him is happy due to buyback option, half wants FMV. It makes sense to me.