BRK (again)

[james22]

Based on rough analysis, we believe that Berkshire trades on a price to book basis today that is in line with how it traded in early March 2009 if you adjusted for market prices. This would represents its lowest valuation in a decade and a level only seen during the absolute bottom of the financial crisis. In other words, downside risk from a value standpoint is very low.


http://seekingalpha.com/article/1045031-berkshire-hathaway-attractive-entry-point-for-long-term-investors


Currently Berkshire's B (BRK.B) shares have a book value of roughly $74.48 per share. ... 110% of book value is around $82 per share, so Berkshire's stock price is just above Buffett's buyback criteria.


http://seekingalpha.com/article/1047751-berkshire-hathaway-is-loaded-for-long-term-appreciation


Nords?

 

[Nords]

Currently Berkshire's B (BRK.B) shares have a book value of roughly $74.48 per share. ... 110% of book value is around $82 per share, so Berkshire's stock price is just above Buffett's buyback criteria.
Nords?

Shhhhhh!!!! If people think Buffett will keep the price above $82, then nobody will pay anything for puts with an $82.50 strike...

I sold some naked puts earlier this year (strikes of $70 & $72.50/share) that are expiring in Dec & Jan. I'll probably sell more upon expiry. I'm keeping an eye on the June $82.50.

With all this wild-eyed SeekingAlpha talk floating around, maybe it's time to start selling calls again. But so far they're cheap.

Otherwise we're holding on to our shares. Our cost basis is $43 and we've held most of them for longer than a decade.

 

[james22]

Thanks, Nords.

Limped in today.

I'll add to if drops closer to $82.

 

[Dawg52]

Thanks, Nords.

Limped in today.

I'll add to if drops closer to $82.

Up $2.22 today. Going to take a pretty good correction to get to $82.

 

[james22]

Yeah, funny timing:

Berkshire Hathaway spends $1.2B on share buyback

http://www.cbsnews.com/8301-505123_162-57558749/berkshire-hathaway-spends-$1.2b-on-share-buyback/

Limped in at $88, bought again at $89.59.

 

[Nords]

Up $2.22 today. Going to take a pretty good correction to get to $82.

Yeah, funny timing:
Berkshire Hathaway spends $1.2B on share buyback
http://www.cbsnews.com/8301-505123_162-57558749/berkshire-hathaway-spends-$1.2b-on-share-buyback/
Limped in at $88, bought again at $89.59.

I didn't get around to checking options prices on Wednesday and, in retrospect, I'm glad I didn't do anything!

You'll have to let us know if you get a call from the SEC...

Warren Buffett's Berkshire Buys Back $1.2B In Stock Ahead Of Fiscal Cliff - Forbes
Berkshire buyback seen clashing with estate tax push | Reuters

I enjoy reading the controversy about what will happen to the share price when Buffett steps down. One group is convinced that the share price will soar at least 25%, another group is equally vehement that the price will plummet 25%. If I do this right then I'll have options in the money for either eventuality.

 

[jayc]

Yeah, funny timing:

Berkshire Hathaway spends $1.2B on share buyback

http://www.cbsnews.com/8301-505123_162-57558749/berkshire-hathaway-spends-$1.2b-on-share-buyback/

Limped in at $88, bought again at $89.59.

Nothing funny about the timing. Personal buy back of 1 persons shares because of increased inheritance tax after the first of the year. The funny part is if Buffet wants everyone to pay more taxes then why didn't he wait to after the new year.

I think we all know the answer. Buffet creditability = -1.

 

[Nords]

Nothing funny about the timing. Personal buy back of 1 persons shares because of increased inheritance tax after the first of the year. The funny part is if Buffet wants everyone to pay more taxes then why didn't he wait to after the new year.

I think we all know the answer. Buffet creditability = -1.

You might want to rethink that perspective, and then assess your own credibility.
Buffett to 'Hypocrisy' Critics: Stock Purchase Not Timed to Avoid Taxes
Albert Ueltschi, Billionaire CEO for Buffett, Dies at 95 - Bloomberg
http://www.inelegantinvestor.com/tag/ueltschi/

 

[jayc]

You might want to rethink that perspective, and then assess your own credibility.
Buffett to 'Hypocrisy' Critics: Stock Purchase Not Timed to Avoid Taxes
Albert Ueltschi, Billionaire CEO for Buffett, Dies at 95 - Bloomberg
Ueltschi • Inelegant Investor

Why did his rich buddy just not sell via the market like the rest of us. Special treatment for what reason. This article was a bunch of accounting double talk. Actions speak much louder than any biased articles written by either pro or con.

When you see me speaking in public about taxes other people should pay then you can call me out. Until then I understand how you can be shaken when you pull the curtain back and see how the wizard works. At least Dorothy got the drift, you did not.

 

[Htown Harry]

Jay, there were two parties to the transaction. One was CEO Buffett, obligated to act in the best interest of BRK shareholders. The other was the executor of an estate, obligated to act in the best interest of the heirs.

Warren the CEO got the chance to buy shares at approximately market price in a big block, presumably saving BRK transaction costs and avoiding a price disruption if a single transaction representing several days' volume of BRK.A went through an exchange. (Or the hassle to both parties of selling in smaller lots over time.) Who knows, with his keen eye for making money on "float", maybe he even negotiated a gradual payout.

The seller's motivation for selling is immaterial to the buyer's decision to buy, in my view. It's the price and terms of the sell offer made to BRK that matter in judging the transaction.

Warren the citizen's public policy position on the tax code is a separate matter altogether.

 

[MichaelB]

+1 to what Harry wrote.

The financial journalism around this story is below its usual shoddy standards. Its a good thing people here know different.

 

[Nords]

Why did his rich buddy just not sell via the market like the rest of us. Special treatment for what reason. This article was a bunch of accounting double talk. Actions speak much louder than any biased articles written by either pro or con.

Wow-- "accounting double talk". Is that redundant or oxymoronic?

First off, his "rich buddy" worked his assets off for six decades building the company, and he kept on improving it even after selling it to Buffett. So it's possible that Buffett looked kindly upon a lifelong friend and all-star CEO.

Second, if the executor (not the rich buddy, who by this time was dead) had attempted to "sell via the market", those very large shares in a very small illiquid daily volume would have dropped the price by at least 20%. The deceased's heirs would have actually lost money on their (inherited) cost basis. Buffett could have let that happen, and could have started scooping up the shares at a discount, but then the media would have excoriated him as a vulture taking advantage of an innocent shareholder. Why subject the shares to a huge volatility (and trading costs) to someone else's profit when you can buy them back and retire them?

Third, Buffett also showed a lot of respect for the rest of us shareholders by reducing the number of shares on the market-- and thereby making our own remaining shares more valuable. He not only reduced volatility but raised the share price. He also got a great price for the shares he bought.

Finally, Buffett made good use of a small percentage of the corporation's $47B float. Companies with "too much" cash can either go on a spending spree (acquisitions), or pay a dividend, or buy back shares. Buffett thinks that he knows how to use the money better than his shareholders, so he made the "acquisition" of buying back shares.

As to your final point, there were no significant tax savings in this transaction. The share price has hardly budged since the owner died, and the heirs would have paid taxes on the difference between the stepped-up basis and the small move in the price. They might have even lost money if they'd waited until 2013 when the fiscal cliff crashes the stock market... hopefully this aspect doesn't seem like accounting double talk too.

 

[james22]

Hey, half the reason I like BRK is the bet on cronyism. I was hoping Obama'd sell him AIG at a discount...

 

[Nords]

I was hoping Obama'd sell him AIG at a discount...

According to the books I've read, Buffett wouldn't even touch AIG with the Fed's 10-foot pole... and he let both the Fed and the Treasury know that he wasn't interested.

During 2008-09 he did about 20x as much research on his bottom-fishing as he did on the actual buying. I bet he discarded a lot of ideas out of hand just based on his existing knowledge of their management and leverage. His biggest advantage over everyone else is that he would give a quick take-it-or-leave-it answer.

I'm sure he scooped up the parts of AIG that were worth scooping. Or bought other assets that had even more potential.

During early 2009, while I was curled in a fetal ball in a corner sucking my thumb and trying to decide whether or not to buy more shares of DVY even at a 5.8% yield, I took great comfort in knowing that Buffett was snorkeling through all sorts of bargains that would pay off in the long run. I'm sure that he was far more greedy than I was fearful, and I was happy to leave the tough billion-dollar decisions to him.

 

[james22]

I liked to think:

AIG offers the ability to invest a sizeable chunk of capital at a huge discount to both intrinsic and book value.

Berkshire Hathaway Is Loaded For Long-Term Appreciation - Seeking Alpha

But I don't doubt Buffett's ability to walk away from any deal he's uncomfortable with, no matter how itchy his trigger finger.

And yeah, the other half reason for liking BRK (beyond hedging my pessimism) is his ability to profit from a downturn.

 

[james22]

Interested in any of the BRK-like organizations, Nords?

1. Alleghany Corporation (Y)
2. Brookfield Asset Management (BAM)
3. Fairfax Financial Holdings Ltd (FFH)
4. Leucadia National Corp. (LUK)
5. Loews Corporation (L)
6. Markel Corporation (MKL)
7. White Mountains Insurance Group Ltd. (WTM)

 

[Nords]

Interested in any of the BRK-like organizations, Nords?
1. Alleghany Corporation (Y)
2. Brookfield Asset Management (BAM)
3. Fairfax Financial Holdings Ltd (FFH)
4. Leucadia National Corp. (LUK)
5. Loews Corporation (L)
6. Markel Corporation (MKL)
7. White Mountains Insurance Group Ltd. (WTM)

No.

They're possibly good companies, but I'm no longer willing to put in the effort to screen, analyze, & track individual stocks. If I was then I'd start with Leucadia & Markel, although only because I've seen their names associated with BRK projects before.

After a decade I feel like I have a pretty good handle on BRK and I'll probably be a shareholder for life, but beyond that it'd be easier to allocate assets to a value index ETF.

Another issue with these companies is that (unless they're paying dividends) I'd have to trust in the CEO's ability to allocate capital. I think Buffett & Munger been around long enough to distinguish between luck & skill, and I'd want to see at least 20 years for these CEOs too. And if they're paying dividends then they must have their own credibility issues with their capital-allocation skills.

If I was going to buy individual stocks again then I'd follow the techniques of the Dividend Growth Investor. (Dividend Growth Investor) But that's more work than I'm willing to exert, too.