Comments on: Berkshire’s weird buyback

By: MrRFox

MrRFox — Thu, 13 Dec 2012 15:03:22 +0000

@BernardoCM – you’re not missing anything; it’s all the others who are looking for ghosts and have convinced themselves that they see them, particularly this fellow -

“… it still seems like an insider got early access over common shareholders.”

Early access to what – to sell low before the stock popped? The only guy who might have gotten screwed on this deal was the dead guy whose estate may have sold cheap – he’s past caring about that now though. (If Buffett hadn’t done the buy, odds are the estate would have gotten even less.)

Buffett made $3k a share on the 9k shares yesterday – like he has something to apologize to anyone for?

By: billyjoerob

billyjoerob — Thu, 13 Dec 2012 12:28:07 +0000

This is all a sham because BRK doesn’t have to go into the market to buy shares. It already owns a ton of BRK shares via the insurance sub, I forget the name, I think it’s National Indemnity. The insurance sub got the shares via the BNSF transaction (it received BRK shares in exchange for BNSF shares), so all BRK need do is go to the insurance sub, buy and retire the shares, and voila, buyback accomplished. Buffett has done this throughout his career, from the very beginning of owning Berkshire. It’s his secret sauce. This is all laid out, albeit somewhat sub rosa, in The Snowball.

By: Cogitator99

Cogitator99 — Thu, 13 Dec 2012 07:24:12 +0000

Salmon, you’re missing the point. It’s fairly obvious that you haven’t bothered to look into the financials of the company lately to get any idea of its value. Berkshire’s intrinsic value is higher than its book value, and if Buffett can buy shares of the company below its true worth, then it is beneficial to continuing shareholders.

The fact that you: 1) used Yahoo! Finance for your “numbers” and 2) didn’t even know about BRK’s earlier buyback really shows your lack of knowledge about the company.

Should probably stick to commenting on AAPL and Greece.

By: Cogitator99

Cogitator99 — Thu, 13 Dec 2012 07:22:18 +0000

Felix, you’re completely missing the point. It’s fairly obvious that you haven’t bothered to look into the financials of the company lately (if ever) to get any idea of its value. Berkshire’s intrinsic value is higher than its book value, and if Buffett can buy shares of the company below its true worth, then it is beneficial to continuing shareholders.

Additionally, BRK’s logic towards repurchases is public and well-documented, which (again) you would know had you actually read past company filings.

The fact that you: 1) used Yahoo! Finance for your “numbers” and 2) didn’t even know about BRK’s earlier buyback really shows your lack of knowledge about the company, so why bother commenting?

Should probably stick to talking about AAPL and Greece; keep churning out five-minute analyses like this and you’ll be the next Ben Stein.

By: Anonymous

Anonymous — Wed, 12 Dec 2012 22:50:42 +0000

“Firstly, they reduce the number of shares outstanding, which means that the value of the remaining shares goes up: the company is worth the same amount, so the value per share is higher.”

A share buyback by definition reduces the value of the company. It uses some of its book value to buy back the outstanding shares. It will not affect the stock price since the loss in book value will be equally offset by the fewer shares on the market. Thus its market cap will be reduced but the per share price will be equal.

By: fintime

fintime — Wed, 12 Dec 2012 22:02:19 +0000

QCIC is right – cash goes out the door. Company is worth less, but fewer shares outstanding. And actually (this is the whole Berkshire thing), Book Value Per Share DECREASES when you repurchase at prices above Book Value. $2B company, 100 shares = $20M BV/share. Buy back shares at 120% Book, or $24, and you now have $1.976B and 99 shares = $19.96M BV/share.

So very interestingly Berkshire’s buybacks limit themselves – book value per share falls as long as they buy at over 100%.

The article is right that it is just weird. Apparently they couldn’t announce first as the price would shoot up, but they obviously got the deal pen-ready, approved 120%, signed the deal, and then announced the new rules. Maybe THAT’s why trading was halted, but it still seems like an insider got early access over common shareholders.

By: Auros

Auros — Wed, 12 Dec 2012 21:46:17 +0000

BTW, the unreliability of that free data you were using about trading volumes kinda illustrates the point I and other commenters were making on your post about Bloomberg and LinkedIn.

By: QCIC

QCIC — Wed, 12 Dec 2012 19:50:24 +0000

“the company is worth the same amount”

It is not worth the same amount, it has a smaller amount of cash on hand (or higher debt) in whatever amount it paid for the stock.

By: Bernardo_CM

Bernardo_CM — Wed, 12 Dec 2012 19:02:55 +0000

I don’t understand the first reason. If you buy some shares at market value, the share value of the remaining ones should remain pretty much unchanged… I guess I’m missing something.

By: Auros

Auros — Wed, 12 Dec 2012 18:59:24 +0000

What KenG_CA said. The market price for Berkshire shares is more than the book value of Berkshire’s assets. (That’s normal for most healthy companies. In fact, Berkshire has a relatively low multiple, though I’d guess that most companies they’ve bought had higher multiples before assets got evaluated for Fair Market Value, and assigned some Goodwill, during the process of being merged into the Berkshire empire.)

By: KenG_CA

KenG_CA — Wed, 12 Dec 2012 17:13:51 +0000

Doubleday, that’s what I was wondering, but I think they are talking about a premium over their book value, not their market price.

By: MrRFox

MrRFox — Wed, 12 Dec 2012 17:13:18 +0000

It looks like that’s what they did, DD – yesterday’s closing price $130,831. It’s higher this am. Much ado ….

By: Doubleday

Doubleday — Wed, 12 Dec 2012 16:32:17 +0000

Help me understand why BH would pay *any* premium when the could just buy 9200 shares at the market price to achieve the same effect?