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Here is a link to a recent article by Ravi Nagarajan on the subject of inferring Buffett's estimate of IV from Buffett's statements and from his stock repurchases.

https://rationalwalk.com/warren-buffett-on-berkshi...

Ravi starts by quoting Buffett's bullish comments about Berkshire in his 2014 annual letter, when the P/B was 1.51, and then goes on to look at stock repurchases since the Feb 2015 letter. Based on a table of repurchases, Ravi states, "From this table, we can see that Mr. Buffett has been price-sensitive in his repurchase activity, but has shown flexibility as well. He has been willing to pay as much as 1.6x trailing book value, but seems far more enthusiastic when he can purchase shares for 1.4x trailing book value or less."

After the price decline since Ravi's March article, when BRK.A was selling for 1.72x "trailing" BV, Berkshire stock is currently selling for 1.57x trailing BV. If BRK.A declines another 5% (It's dropped 10% since the annual meeting from a P/B of 1.78 to 1.57x BV.), I think that Buffett will be repurchasing stock again, if he's not already.

“If BRK.A declines another 5% (It's dropped 10% since the annual meeting from a P/B of 1.78 to 1.57x BV.), I think that Buffett will be repurchasing stock again, if he's not already.”

Agree & I do wonder if the $330+ billion in cash equivalents will make WEB more likely to repurchase shares at potentially a smaller discount to his I.V. range than he normally does. Willing sellers of significant A shares may be a bit harder to find. Honestly, I would be pleased, as long as repurchases are done at his I.V. “range”.

We know he has No interest to simply support BRK market price, but I imagine when buybacks are noted in the quarterly, interest & purchase may pick up elsewhere given his cheapskate reputation wrt repurchases. The next 6/12/18 months will truly be fascinating to observe.

“If BRK.A declines another 5% (It's dropped 10% since the annual meeting from a P/B of 1.78 to 1.57x BV.), I think that Buffett will be repurchasing stock again, if he's not already.”

Agree & I do wonder if the $330+ billion in cash equivalents will make WEB more likely to repurchase shares at potentially a smaller discount to his I.V. range than he normally does. Willing sellers of significant A shares may be a bit harder to find. Honestly, I would be pleased, as long as repurchases are done at his I.V. “range”.


I also believe this would be a good idea, if there's nothing appealing to buy with all that cash - better than the alternative, a dividend, and Berkshire shares, while more expensive than usual, still seem to be within what Buffett might characterize as 'a zone of reasonableness'.

Accumulating cash for a while makes sense, but as Buffett himself has said, at some point, you can't justify holding hundreds of billions of cash indefinitely. If memory serves, he even gave himself a deadline of a couple more years, 4-5 years ago, beyond which it would be unconsciounable to keep holding so much cash, although I can't find the quote. That deadline is long past, but as far as I am aware Buffett has never acknowledged that he has missed his own deadline.

More fundamentally, intrinsic value has been defined by Buffett as being the discounted sum of all future cash flows (including liquidation), and in this sense, if Berkshire expects to maintain its outperformance above market averages, it doesn't take long for future growth to justify paying a bit more than the average price for Berkshire shares.

Personally, I would like to see something like a Dutch auction, using a couple of hundred billion dollars to substantially reduce the share count, instead of doing it in dribs and drabs. A stretch goal would be to cut the size of the firm in half with buybacks, and eventually bringing it back to a size where there are more opportunities to spend future cash on profitable acquisitions. It's too bad he didn't do this 15 years ago (his first repurchases were in 2011, when the company had a market cap of under $200b, but it wouldn't be impossible to get back to that size.

“ It's too bad he didn't do this 15 years ago (his first repurchases were in 2011, when the company had a market cap of under $200b, but it wouldn't be impossible to get back to that size.” Now think back 20 years ago when a certain partner was pounding the table to authorize a buyback at material discounts to IV when Brka was trading near BV. Can you name one poster back then who supported my idea? Thank you.

"you can't justify holding hundreds of billions of cash indefinitely. If memory serves, he even gave himself a deadline of a couple more years, 4-5 years ago, beyond which it would be unconscionable to keep holding so much cash"


from memory he said it would be hard to justify holding $150 billion 3 years from now. I can't find the quote either.

The quote was from the afternoon session of the 2017 AGM:

JAY GELB: Berkshire’s cash and Treasury bill holdings are approaching $100 billion.

Warren, a year ago, you said Berkshire might increase its minimum valuation for share buybacks above 1.2 times book value if this occurred. What are your latest thoughts on raising the share repurchase threshold?

WARREN BUFFETT: Yeah, when the time comes--and it could come reasonably soon, even while I’m around--but [if] we really don’t think we can get the money out in a reasonable period of time into things we like, we have to reexamine then what we do with those funds that we don’t think can be deployed well.

And at that time, we’d make a decision. And it might include both, but it could be repurchases. It could be dividends.

There are different inferences that people draw from a dividend policy than from a repurchase policy that, in terms of expectations that you won’t cut a dividend and that sort of thing. So you have to factor that all in.

But if we really, if we felt that we had cash that was unlikely to be used--excess cash--in a reasonable period of time, and we thought repurchases at a price that was still attractive to continuing shareholders was feasible in a substantial sum, that could make a lot of sense.

At the moment, we’re still optimistic enough about deploying the capital that we wouldn’t be inclined to move to a price much closer where there’s only a narrow spread between an intrinsic value and the repurchase price. But at a point, the burden of proof is definitely on us.

I mean, the last thing we like to do is own something at a hundred times earnings where the earnings can’t grow.

I mean, we’re--as you point out, we’ve got almost a hundred billion--it’s $90-plus billion invested in a business, we’ll call it a business, where we’re paying almost a hundred times earnings. And it’s kind of a lousy business.

CHARLIE MUNGER: It’s more after after-tax earnings.

WARREN BUFFETT: Yeah. So, you know, we don’t like that. And we shouldn’t use your money that way for a long period of time. And, then, the question is, you know, are we going to be able to deploy it?

And I would say that history is on our side, but it’d be more fun if the phone would ring instead of just relying on history books.

And, you know, I am sure that sometime in the next 10 years--and it could be next week or it could be nine years from now--there will be markets in which we can do intelligent things on a big scale.

But it would be no fun if that happens to be nine years off. And I don’t think it will be, but just based on how humans behave and how governments behave and how the world behaves.

But like I say, at a point, the burden of proof really shifts to us, big-time. And there’s no way I can come back here three years from now and tell you that we hold 150 billion or so in cash or more, and we think we’re doing something brilliant by doing it.

Charlie?

CHARLIE MUNGER: Well, I agree with you. The answer is maybe. (Laughter)

WARREN BUFFETT: He does have a tendency to elaborate. (Laughter)

Great, thanks! I looked back as far as 2019 and gave up, but it was 2017.

And we shouldn’t use your money that way for a long period of time. And, then, the question is, you know, are we going to be able to deploy it?

And I would say that history is on our side, but it’d be more fun if the phone would ring instead of just relying on history books.

And, you know, I am sure that sometime in the next 10 years--and it could be next week or it could be nine years from now--there will be markets in which we can do intelligent things on a big scale.

But it would be no fun if that happens to be nine years off. And I don’t think it will be, but just based on how humans behave and how governments behave and how the world behaves.

But like I say, at a point, the burden of proof really shifts to us, big-time. And there’s no way I can come back here three years from now and tell you that we hold 150 billion or so in cash or more, and we think we’re doing something brilliant by doing it.


To be fair, the original question was whether the 1.2x BV buyback criterion shouldn't be softened, and they did. And Buffett could legitimately say he didn't promise to do anything with the cash, just that he couldn't say that holding the cash was 'something brilliant'. But with 4x as much cash on the books now, 9 years later, and essentially no buybacks in the last couple of years, they really should find something more useful to do than collect less than 1% after inflation on all that cash. I suppose Buffett having announced the passing of the baton in 6 months means that this is his successor's problem, but it is a quandary.

dtb

The older I get, the more I understand where Ben Graham was coming from.
"The chief virtue of a periodic investment program is that it gives the investor something to do."
(From memory, I may have paraphrased.)

Sitting on your butts waiting for a fat pitch is the hardest.

'Sitting on your butts waiting for a fat pitch is the hardest'

Yup...

I sold a 27% tranche back in March at $528. First shares sold ever and it was excruciatingly painful. But, with BRK at a 55% slice of the portfolio at my age and a unusually high valuation, it seemed prudent.

Today I started 'project reclaim BRK' and bought back 25% of those sold shares at $478.

Hoping fatter pitches coming our way over the next year or so. Maybe they will or maybe they wont. But my first reclaimed tranche was secured at a 9.5% discount from the original share price sold. In a retirement account as well.

Time will tell.

Cheers everyone and good hunting.

m

Yeah. This is why I like an 80:20 equity:cash split. If the market moves a lot you sell a few equities or buy a few, depending on if the price has gone up or down. Feels nice to sell a few when the market's frothy or to buy a few if it's fallen. And it leaves open the option of getting "all in" if the market/share drops a lot.

SA

In a retirement account as well.

This could only be done in a retirement account.

If someone sold at $528, with a basis of $30 or so, that would be a $498 long-term capital gain. And they would have to pay 23.8% in capital gains taxes, which comes to $118.50. Buying back at $478 means that with the money remaining after taxes, they could only buy back around 80% of the shares they had sold. And that means that as the stock rises over the next few decades, they only benefit with about 80% of the gains that they would have had had they not sold any of the shares (at $528).

But since I do like to "play" sometimes, I use options periodically. I sell puts on a regular basis at strike prices where I would surely buy if I had the chance. Unfortunately (or fortunately as the case may be), all my sold puts have expired worthless except for the 305 strike price puts that I sold a couple of years ago, those were exercised and assigned to me, so I do have some shares with just under a $300 basis.

Personally, I would like to see something like a Dutch auction, using a couple of hundred billion dollars to substantially reduce the share count, instead of doing it in dribs and drabs. A stretch goal would be to cut the size of the firm in half with buybacks, and eventually bringing it back to a size where there are more opportunities to spend future cash on profitable acquisitions. It's too bad he didn't do this 15 years ago (his first repurchases were in 2011, when the company had a market cap of under $200b, but it wouldn't be impossible to get back to that size.

I don't understand what you mean by this paragraph. I especially don't understand that last sentence. If Berkshire owns "stuff" (like See's, like Geico, like Gen Re, like Coca Cola shares, like Apple shares, BNSF, American Express shares, etc) that is worth $600B or $800B, then how could the market cap of the company as a whole ever get back to under $200B?

I don't understand what you mean by this paragraph. I especially don't understand that last sentence. If Berkshire owns "stuff" (like See's, like Geico, like Gen Re, like Coca Cola shares, like Apple shares, BNSF, American Express shares, etc) that is worth $600B or $800B, then how could the market cap of the company as a whole ever get back to under $200B?

By having a lot of liabilities, such that the equity base is worth substantially less than the total assets?

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