Subject: Re: New post from Brooklyn investor
Calculating a rough IV can be mechanical, see Buffett’s 5-groves. He could write it down on a single sheet of paper, though if Greg can’t figure it out for himself we have bigger problems.

Buyback would never be without regard to IV.


Yes, I totally agree. A very low bar for buybacks would have served Berkshire very well for the last 20 years. Buffett reluctantly began repurchases in 2011 with a very high bar - shares had to be below 1.1x book value - and then he raised that to 1.2x. Now there is no number, but we have seen repurchases stop when prices get close to 1.5x book. Of course it is easy to criticize looking backwards, but I think Buffett has been pretty clear for at least a decade that the prospects for big acquisitions are going to be few and far between, and that only the top 50 or so companies by market cap would move the needle (#50, IBM, is currently worth $245b). So what is the point of all this cash?

Without completely disregarding IV, it would be possible to say that repurchases right up to IV are still not destroying value, and solve the problem of all this cash generating low returns and with little prospect of ever using it. Buffett has expressed admiration for Henry Singleton who repurchased about 90% of the shares on Teledyne, and if Buffett had really taken this example to heart, Berkshire shareholders would have been much richer now. Although now that I think about it, making Berkshire shareholders as rich as possible has perhaps not been Buffett's primary concern for a long time.

Buffett talked about the 5 groves in 2019, but I have never seen enough detail about this idea to make it operational. The groves were:

Insurance: Operating with massive float.
Railroad: BNSF Railway.
Utilities and Energy: Berkshire Hathaway Energy.
Manufacturing, Service, and Retailing: A diverse group of companies.
Stocks/Cash: Passive investments and liquidity.

But how do you assess the value of the float? Do you include underwriting? If so, do you take the average underwriting earnings as a percentage of net premiums written, say over 20 years, and apply it to current NPW? How do you ascribe a value to the railroad and energy companies? Do you take average earnings of the MSR companies? Do you take stocks and fixed income investments at market value? What do you do with the future tax on unrealized capital gains? Buffett's five groves is a way of thinking about categories of value at Berkshire, but it never took us very far towards actually coming up with a number.

Of course he could do this internally, and set up a plan for systematically repurchasing below that number (say, with an annual Dutch auction for 5% of shares). An announcement that such a plan was in place would be a fantastic way for Abel to start his term.

Regards, DTB