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BRK buying back stock @ 110% of BV!!


bmichaud
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Haha yes! This is great news.

 

Although many thought it wouldn't happen, it sure was one of my catalysts for the stock price. Let's hope they can pick some up for some time to come! The press release is great because they don't give an estimate of IV which will help to keep the stock price in check so that they can actually buy some back.  :)

 

 

Maybe I'll be able soon to switch my 85% position in BRK to some other cheap stuff.  8)

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realistically... who is going to sell though? I see one big natural seller... The Bill and Melinda Gates Foundation...

 

Berkshire may repurchase shares in open market purchases or through privately negotiated transactions, at management's discretion.

 

Current price is probably 1,05-1,07x BV so it seems to me that the Market is selling. They won't be able to repurchase 10% of the stock of course unless markets fall substantially from here.

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Humm, why 110% and not 100% of book?

 

With a profitable underwriting business (cost of float has been negative over time), BRK's insurers are worth at least BRK's investments per share. These days, investments per share = book value per share (about $100,000 per A share). WB suggests there must be some value to the operating businesses. In today's news release, he states "considerably" more than the 10% of BV purchase limit. At 10% of book value, his purchase price for the operating businesses is around $10,000 per A share. The operating businesses are probably earning $6,500 per A share on a pre-tax basis, implying a multiple of only 1.5X pre-tax earnings for the rest of BRK.

 

Maybe the question should be: why 110% and not 160% of book?

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One thing is certain: Finding $20 billion ideas with the same risk/reward level is very hard if you agree that Berkshire is one of the safest and best businesses in the world currently trading at 60-70c on the dollar.

 

Given the recent deals and stock purchases I believe they see plenty of value in today's market.  Share buybacks were just inevitable at some point of undervaluation as Berkshire got bigger just as dividends will ultimately be paid out.

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Is there a dollar amount limit to what they will buy back.

Will they keep on buying till it reaches 1.1 BV and start buying back again if it drops less than 1.1 BV

 

It is indefinite and has no cap on dollar amount or shares retired.  It appears permanent and will continue under Ted and Todd and whoever is CEO at BRK.

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The real question is the following:

 

Are they doing this because:

 

(1) They don't see sufficient value in the markets right now

(2) They believe their earnings engine is going to explode over the next few years

(3) Both (1) and (2)

 

I believe #2.  Insurance premiums are hardening.  Rail traffic continues to increase and Buffett believes that housing will stabilize and turn up in the next couple of years...thus Berkshire's various subsidiaries related to housing are going to turn. 

 

Berkshire became one of our largest holdings a few days ago.  And that was simply because the operating subs should be trading at 1.5-2 times book value...the entire company was trading at about book.  So you have the best insurance businesses in the world, along with some of the best non-insurance businesses in the world, all trading at book value.  It was as ridiculously cheap as it was in February 2000.  Cheers!

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Is there a dollar amount limit to what they will buy back.

Will they keep on buying till it reaches 1.1 BV and start buying back again if it drops less than 1.1 BV

 

It is indefinite and has no cap on dollar amount or shares retired.  It appears permanent and will continue under Ted and Todd and whoever is CEO at BRK.

 

Yeah, it seems to be putting a floor on the stock.  They probably will never be able to buy a particularly significant amount (though I hope they can).  At the specified brain-dead value it's simply a brain-dead simple investment for them to increase value, which can be accomplished relatively mechanically with minimal effort over time.

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No doubt that the stock is cheap, but it has almost always been (not to the same degree of course). So IMO, you can't assume a very high price to book in your valuation. It is also tough to see a catalyst as it is with almost any of my stocks. However, if the economy improves, BRK business and share price should do quite well from here.

 

In terms of opportunities, I still think that Buffett should take a close look at AIG. I see a lot of value that could be created under the Berkshire umbrella with this really large insurance business. Float returns improvement, lower cost of funding and the ability to say no to poor underwriting would do wonders. This thing could be acquired for book, maybe less.

 

Cardboard

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Berkshire became one of our largest holdings a few days ago.  And that was simply because the operating subs should be trading at 1.5-2 times book value...the entire company was trading at about book.  So you have the best insurance businesses in the world, along with some of the best non-insurance businesses in the world, all trading at book value.  It was as ridiculously cheap as it was in February 2000.  Cheers!

 

Good timing! 

 

I was considering buying BRK.B a couple days ago as well, but decided to go with LUK instead.

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The biggest overhang on the stock is what happens when Buffett is gone (notwithstanding the current economic issues). I think this announcement provides some important clarity on how capital allocation decisions will be made post Buffett. Another brick in the wall...

 

In the near term with (BV = $66-67/share) we can expect buybacks to happen to the $72-74 range. I will be interesting to see how close of a trading range the stock trades in moving forward.

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In terms of opportunities, I still think that Buffett should take a close look at AIG. I see a lot of value that could be created under the Berkshire umbrella with this really large insurance business. Float returns improvement, lower cost of funding and the ability to say no to poor underwriting would do wonders. This thing could be acquired for book, maybe less.

 

Cardboard

 

If BRK bought all of AIG, my understanding is that all of the tax assets would be lost - which represents a big chunk of value in the current AIG.  Is that correct?

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I've been buying BRK since it hit 73$ a few months ago. When Charlie Mungers tells us that he never expected BRK to sell that cheap (around 76$) and you can get a 20-30% discount from munger's "deep cheap" you know you have a winner.

 

It's about 20% of my portfolio and I'm very happy about it.

 

BeerBaron

 

 

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Lol wait a second. I remember something from this weekend. Stupid coincidence but still...

 

 

15. AlbertaSunwapta says on Sep 23, 2011 at 3:47 PM:

 

Only twice in 14 or 15 yrs with my current brokerage have I ever been put on a long hold. So it's a funny coincidence here: On a Friday in March of 1999 at the very height of the internet bubble when people were dumping quality companies to buy crap, I went to buy BRK.B shares and for the first time was put on hold - a long hold. It was those pesky speculators taking up time. I gave up waiting and decided to call back on the next Monday. That weekend Buffett announced that he'd consider buying back shares. I missed by a day, getting BRK at that great low point.

 

Well, today, I again went to buy BRK.B shares and for the first time in since 1999, I was again put on hold. :-) I hope Buffett is on vacation. I have a limit order in for Monday.

 

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http://www.gurufocus.com/news/146183/berkshire-hathaway-is-now-traded-at-the-lowest-valuation-in-decades#146504

 

Lol, what are the odds, poor guy.  :D

 

(It was 2000 btw and not 1999 but oke.)

 

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