Subject: Re: A hypothetical for brk brother Jim,
gift 100 billion, and have the foundations sell 100 BILLION brkb back to brkb for 1.3 xs BV, so that those shares never enter the float. How do you believe the stock would respond to that news?

This is simply a buyback.
Since pretty much everybody appreciates that a share is worth more than 1.3 times book, the net result would be to increase the value of remaining shares, so presumably the share price would settle a little higher at some point (even though book per share would be a bit lower). The fact that the share float did or did not change doesn't enter into it.

Here's another one for you.

Situation 1: Let's assume a half dozen of our wealthiest board members are going to sell their really big BRK stakes in the next year on the open market, to be bought by a half dozen other people out there somewhere.
Now, situation 2: assume those people all change their minds. Those shares don't trade--for all intents and purposes, this year they aren't in the float as they are not available for purchase.
Would the average stock price be higher or lower in the next year as a result? Answer: neither.


The key thing to appreciate is that capital goods and investments are very different things. The market price of pure capital goods like paintings is set by supply and demand. More supply and/or lower demand generally means a lower price. The market price of pure investment securities like stocks and bonds, on the other hand, is set by the market's appreciation of their financial return. More supply with the same investment return does not affect price. (except in a transient way sometimes during the moments of trading--way down in the rounding error)
If I put a sack of a hundred $1 bills up for sale, it will attract bids of about $100. If I put five such bags up for sale, they will each attract bids of about $100: the supply does not determine price, as there is generally an infinite demand for free money as soon as the word gets out.

This general principal is almost entirely true, but not quite perfectly so. There is a change way down in the rounding error for a few different reasons, the biggest of which is that many people THINK the size of the float should affect the price, so it affects their trading behaviour. I believe this is the reason that a voting share of GOOGL trades a bit lower than non-voting share of GOOG lately despite being worth more. Word got out that it was GOOG that Alphabet was purchasing, so people anticipate that they'll be able to sell at a higher price because there is one more bidder in the market. This mood effect seems to have started around the pandemic; the GOOGL price was rationally higher before that, not lower. A key point is that the relative value of the two hasn't changed, only the opinion of future price returns. The other reason supply and demand affects price down in the rounding error is that liquidity for anything is finite in any given time window: if there are only 100 people even considering buying today, if you dump 1000 trades worth of something to sell "at market" you'll move the price. But only so long as you keep it up, so it doesn't last. Another effect is found in purely financial securities that are very niche. If there are only a few hundred people worldwide who know about a given security and its value, additional supply could have a big effect on price when all of them already own as much as they want. That isn't a factor with large caps. And lots of things are mostly, but not purely, financial securities, so the rules may not hold. A lot of people buy Ferrari shares because they like Ferraris, not because of a rational DCF analysis. I would not speculate on what additional float would do to the price of those; the Beanie Baby rule may apply.

Jim