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In December Berkshire repurchased shares at a P/B of 1.48 (using Dec 31 BV). That's an all time high. Since Buffett has stated that he would not repurchase shares at a "mere" (his word) 5% discount to IV, it leads me to infer that his conservative IV estimate is at least 1.56x BV.

"In December Berkshire repurchased shares at a P/B of 1.48"

Scratch that. It's incorrect. Buffett's repurchases in December were at a P/B of 1.42 (using Dec 31 BV). Sorry for the error.

"Buffett's repurchases in December were at a P/B of 1.42 (using Dec 31 BV)."

1.447 for the A-shares and 1.408 for the B-shares.

Pretty significant that Buffett was buying as recently as December at 312. I've been gun shy at 300...need to rethink that.

Something doesn't quite add up for me regarding share repurchases. Multiplying the repurchased shares times the average price paid per share shown on page K-32 of the Annual Report, I calculate $2.855B spent on share repurchases in the 4th quarter. I've done the same exercise for the other quarters in 2022 and calculate a total of $8.032B spent on share repurchases in 2022. However, today's news release says, "Approximately $2.6 billion was used to repurchase Berkshire shares during the fourth quarter bringing the total for the year to approximately $7.9 billion." Likewise, page K-57 of the Annual Report says, "Berkshire paid $7.9 billion during 2022 to repurchase shares of its Class A and Class B common stock."

Does anyone know why there's a discrepancy? Or has anyone else done the calculations and gotten different numbers than what I calculated? It's obviously not a huge discrepancy, but $100M here and $100M there starts to add up.

Does anyone know why there's a discrepancy? Or has anyone else done the calculations and gotten different numbers than what I calculated? It's obviously not a huge discrepancy, but $100M here and $100M there starts to add up.

I get same numbers as you. $8.032Bn / 2.855Bn

Like you, I get $2.855 billion in Q4 and $8.032 billion in 2022.

The Statement of Changes in Shareholders' Equity on page K-73 Conforms to your math. The difference between your calculation(and the figures on page K-73) and the calculation in the cash flow statements is probably for shares purchased near the end of the period that had not settled yet and are reflected somewhere as a payable.

About half the $100m discrepancy might relate to 170,800 shares of BRK.B owned by Alleghany Corp as of 30 Sep 2022.

Separately, why isn't Apple listed among the eight large S&P500 members of which Berkshire is the largest "non-fiduciary" holder??

"Separately, why isn't Apple listed among the eight large S&P500 members of which Berkshire is the largest "non-fiduciary" holder??"

I had exactly the same thought

It looks like the largest owner of Apple is Vanguard not Berkshire.

Isn't Vanguard an institution? I get the distinction that it is 'owned' by the investors but it is not the same as a Berkshire or another public ally traded owner

It looks like the largest owner of Apple is Vanguard not Berkshire.

Sure, but Vanguard is a fiduciary. ~7.7%
Second is Blackrock, also a fiduciary. ~6.5%
Third is Berkshire, I believe, at 5.74%, so I presume we are the largest non-fiduciary holder.

Jim

Third is Berkshire, I believe, at 5.74%, so I presume we are the largest non-fiduciary holder.

Berkshire's 915,560,382 Apple shares and Apple's most recent share count from their proxy statement of 15,836,213,000 has elevated us to 5.78%. With repurchases ongoing at around $20 Billion per quarter, 5.8% here we come!

To quote W.E.B., "That increase sounds like small potatoes. But consider that each 0.1% of Apple's 2021 earnings amounted to $100 million. We spent no Berkshire funds to gain our accretion. Apple's repurchases did the job."

To quote W.E.B., "That increase sounds like small potatoes. But consider that each 0.1% of Apple's 2021 earnings amounted to $100 million. We spent no Berkshire funds to gain our accretion. Apple's repurchases did the job."

Perhaps the quote from the AR that annoyed me the most.
It's not factually wrong, but it's so misleading that one wonders whether it was on purpose.

Berkshire's proportional share of the cash within Apple, for all *meaningful* purposes, already belonged to Berkshire.
So that cash being deployed on Apple shares doesn't get us something for nothing, any more than we'd have got something for nothing if Berkshire bought more Apple shares.

Remember that's it cash that could have been sent as a dividend to us, and now can't be, because it's gone.
I'm not suggesting that's what should have happened, just demonstrating that it was "ours" before it was spent on repurchases.

The value gain as a result of the buybacks, as always, is not the value of the shares retired, nor the proportional increase in ownership we get because of it.
It's the amount by which the true value of the shares was less than their intrinsic value.
In this case, presumably in the range from tiny to negative, depending on your opinion of the value of Apple shares last year.

Jim

Perhaps the quote from the AR that annoyed me the most.
It's not factually wrong, but it's so misleading that one wonders whether it was on purpose.

Jim,

Wondering whether (1) the latest AR has negatively influenced your
assessment of the advisability of holding BRK long term CHOHW.

In addition, wondering whether (2) you are also concerned about WEB's
ongoing stated conviction about the inevitable survival/recovery/world
leadership of the U.S. economy. Such sentiments are inconsistent with
what I have been able to gather. Personally, can't help avoiding the
conclusion that the U.S. seems to be hell-bent on committing hari-kari
in too many ways to enumerate in a reasonably short post.

vez

Wondering whether (1) the latest AR has negatively influenced your assessment of the advisability of holding BRK long term...

Nope.
Sometimes they have a slow couple of years, sometimes they have a fast couple of years.
But the money keeps stacking up, and they don't take any big risks. I don't see either of those changing.
Slowing, yes, but not going away.

I generally count on them managing inflation + 7%. If I ever have a reason to abandon that view, I'll reassess my long term commitment.
My conservative expectation is inflation plus 7-8%.
I hope for more than 8%, but whenever we get it I view is as yet another one-time bonus.

As mentioned, the slope of the trend line has been inflation + 8.58% in the last decade or so.
It has been a good stretch, particularly 2016-2021 at an implausible inflation + 10.9%. A little slower lately, it seems.
An optimist's view:
Maybe there is just a lag for inflation and fuel costs to feed through to their revenues, particularly the regulated divisions.

Jim

Perhaps the quote from the AR that annoyed me the most.


Yes! And a close second would be this:

At Berkshire, we directly increased your interest in our unique collection of businesses by repurchasing 1.2% of the company's outstanding shares. At Apple and Amex, repurchases increased Berkshire's ownership a bit without any cost to us.

The math isn't complicated: When the share count goes down, your interest in our many businesses goes up. Every small bit helps if repurchases are made at value-accretive prices. Just as surely, when a company overpays for repurchases, the continuing shareholders lose. At such times, gains flow only to the selling shareholders and to the friendly, but expensive, investment banker who recommended the foolish purchases.


Ok, I don't expect Buffett to publicly chastise Apple management for foolishly repurchasing shares without any regard for price, including last year when they were very expensive. This is not because of expensive investment bankers, it is because Apple's longstanding repurchase arrangement, devised by Luca Maestri and approved by Apple's board, does not even consider share price to be a relevant consideration. It is the polar opposite of what Buffett himself espouses and practises.

And at the least Buffett should not say that this use of Apple's retained earnings is 'at no cost to us', a notion that is antithetical to the view that we are owners of 5% of that business, not just holders of a lottery ticket whose value goes up and down from day to day.

dtb

"Ok, I don't expect Buffett to publicly chastise Apple management for foolishly repurchasing shares without any regard for price, including last year when they were very expensive. This is not because of expensive investment bankers, it is because Apple's longstanding repurchase arrangement, devised by Luca Maestri and approved by Apple's board, does not even consider share price to be a relevant consideration."

Is it possible that Mr. Buffett hasn't criticized Apple's repurchases because he doesn't believe the repurchases have been done at an overly expensive price? It's been several quarters since I've listened to an Apple earnings call, but there was a time when Luca Maestri specifically said that Apple management thought shares were undervalued. I think Maestri and Cook understand the implications of repurchasing shares at prices above intrinsic value.

''Along the same lines, short-seller Jim Chanos on pro-forma accounting:

'At year end 2022, 60% of our portfolio by capital showed some sort of questionable accounting or outright fraud. The biggest fraud is hiding in plain sight which is the misuse of pro forma accounting, in particular in Silicon Valley where companies are adding back all kinds of expenses ' especially equity-based compensation ' to the P&L statement. Uber's CEO was recently crowing about their adjusted profitability, but Uber is actually losing money. Or take GE. They put out a press release on their earnings two weeks ago that had 16 pages of adjustments. So what is the real earnings number? Pro forma accounting is really misleading, particularly when it comes to share-based compensation because of its dilutive nature.'

In December Berkshire repurchased shares at a P/B of 1.48 (using Dec 31 BV). That's an all time high. Since Buffett has stated that he would not repurchase shares at a "mere" (his word) 5% discount to IV, it leads me to infer that his conservative IV estimate is at least 1.56x BV.

When the repurchase price was 1.2x book value, someone did a similar backward-looking analysis and asked Buffett why he didn't buy when the share price was below 1.2X book. He answered that he didn't think the price *did* dip below 1.2 times book, he said he'd been watching it very closely. It didn't dip below 1.2 the book value for the last published quarter, so Buffett was right, but the stock traded below 1.2x BV for the following report.
I'm sure Buffett has his finger on Berkshire's pulse and knows if anything catastrophic is happening, but I doubt he's asking all 56 subsidiaries to prepare the accounting and report the information required to figure out Book Value on a schedule more frequently than the quarterly numbers that need to be reported. It's simply too much work for too little gain. That means that the BV he had to go by for repurchases in December would have been BV reported at Q3 2022 - supplemented with information that nothing terrible happened since then.

Is it possible that Mr. Buffett hasn't criticized Apple's repurchases because he doesn't believe the repurchases have been done at an overly expensive price? It's been several quarters since I've listened to an Apple earnings call, but there was a time when Luca Maestri specifically said that Apple management thought shares were undervalued. I think Maestri and Cook understand the implications of repurchasing shares at prices above intrinsic value.


Certainly the shares were undervalued when the repurchase program was initiated, and the majority of repurchases have been arguably below intrinsic value, so I'm not criticizing the immense value added by this program. But last year, I would say that there were strong arguments for believing that AAPL shares had gotten ahead of intrinsic value, and that last year's repurchases removed value. That is why I object to Buffett's praise of Apple's repurchase program in 2022, especially the notion that this use of retained earnings 'cost us nothing'.

If Apple thinks shares are still trading below intrinsic value, then fine, but I (and, I would think, Buffett) believe that there are prices where this will no longer be the case, and the repurchase program should make some provision for this, rather than just specifying a fixed dollar amount of repurchases, as the program stands. Buffett does this with Berkshire shares, with his condition that shares will only be repurchased when they trade at least x% below his assessment of their intrinsic value, even though he has not explicitly said what that value might be. Likewise, Apple need not say up to exactly what price they would go, but I would like for them to at least admit the principle that there might be a price that high enough to suspend the repurchases, and a mechanism for doing so.

dtb

But last year, I would say that there were strong arguments for believing that AAPL shares had gotten ahead of intrinsic value, and that last year's repurchases removed value.

I agree, the IV10/price ratio was pretty poor for Apple last year, and still isn't great today. Although when deciding what to do, it is always sensible to think in terms of looking at the options and deciding which option is best. The alternative besides share buybacks, for Apple's excess cash beyond operation needs, is pass the cash directly to Berkshire via a larger dividend. That would generate an immediate cash hit from the income, so there is least that small advantage of buybacks over the dividend given that Berkshire is likely to hold Apple for decades rather than years. (I make the later distinction because: If you are holding a company only for several years, and not decades, the dividend hit is partly neutralised by the lower future capital gains tax, but this doesn't apply for Berkshire given that Apple will probably never be sold, so the enormously delayed tax almost has an effect of eliminating for reasons that are clumsy to explain).

- Manlobbi

Based on my calc's

Warren bought back 4.9B in A's this year at an avg cost of 444,380 and 3.1B in B's at an average of 313.29

Still can buy cheaper than Warren on the B's

Seems like Berkshire is on sale more than not.

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