Halls of Shrewd'm / US Policy❤
No. of Recommendations: 5
No. of Recommendations: 5
My wild guess is that Buffett has some sort of insight on the sustainability of energy investing returns throughout this sector. The mantra is that you briefly rent particularly oil and gas businesses but if there's a continual lack of over-investment this may not be as accurate as in the past.
In any event Berkshire has gone bigger consistently in this industry and posts about energy should not be considered off topic or deleted as they were on the previous MF board.
No. of Recommendations: 1
Chevron issues a ton of shares over time, the share count doesn't go down.
They care more about the dividend over the buyback. From the last earnings call:
I'll just point out that we increased our dividend 6% earlier this year. We've been growing our dividend at a compounded annual growth rate of 6% for 15 years. And that is our first financial priority. So there's a lot of tension on the buyback, but it's clearly our fourth priority after sustaining and growing the dividend, investing to grow both traditional and new energy businesses, maintaining a strong balance sheet. And as Mike said, we intend to do it across the cycle for multiple years.
No. of Recommendations: 2
No. of Recommendations: 0
If anyone has the energy to research it, how many shares has Apple bought back in the past five years? How many shares have been issued as part of stock based compensation? Net , net, the reduction in actual issued and outstanding? Being an insider is a beautiful thing.
No. of Recommendations: 13
It doesn't take much energy. Apple has continued to shrink the float dramatically
https://www.macrotrends.net/stocks/charts/AAPL/app...From a high of around 26.5B shares at year end 2012 down to 16.2B shares at the end of 3Q 2022
39% reduction with about 2% takedown each year.
Tremendous
No. of Recommendations: 1
"with about 2% takedown each year."
I mean 2% going forward. Time will tell
No. of Recommendations: 0
Thanks a great site. While she's driving I plugged in ko, khc, etc.
No. of Recommendations: 1
Wow, that AAPL bar chart is just a thing of beauty! I plugged in BAC and AXP too- very strong. May these managers never retire as long as it's done appropriately!
No. of Recommendations: 0
"I plugged in BAC and AXP too- very strong."
AXP is amazing. Try LOW and UNP, too, even though Berkshire does not own shares.
No. of Recommendations: 1
Tremendous indeed, and thank you for the data.
Especially as regards a Berkshire board, let me quibble with the word "float", however.
"Float", from an insurance/Berkshire standpoint is (my phrasing) "no-cost (or at worst, low-cost) capital we have indefinite access to. While it's not ours, any gain we accrue on it is ours"
whereas I think you meant "outstanding share count" (or some such equivalent) which is "entities who have claim on our future cash flows, and we thus wish all of them (except thee and me, of course)to be bought out and therefore go away"
--sutton
happy with big float, small shareholder base
No. of Recommendations: 2
No. of Recommendations: 1
It doesn't take much energy. Apple has continued to shrink the float dramatically Great site, thanks.
Just for snickers I plugged in TSLA. Reminds me of the trudge home from school in 3rd grade after getting my ass kicked on the playground.
https://www.macrotrends.net/stocks/charts/TSLA/tes...
No. of Recommendations: 21
Here's an unpopular opinion or three (buy one, get two free!). A share count that decreases steadily, year after year and quarter after quarter, indicates a company that throws off a lot of cash, run by managers who are lazy, stupid, dishonest, or more interested in virtue signalling than doing right by their shareholders. They may be using repurchases at high prices to hide stock-based compensation, or justifying them under the cloak of "signalling confidence," or they may have an inflated idea what the company is worth. But repurchases at prices that are too high are simply destructive to value. That there are even worse, more destructive things to do with shareholder capital (e.g., lighting it on fire, making expensive, "transformative" acquisitions) is no excuse.
I think people forget that Singleton wasn't just a "cannibal" -- he used Teledyne shares as currency when they were overpriced. Buffett has done that too. It's really exceptional.
As much as I hate having an involuntary taxable event inflicted on me quarterly in the form of a dividend, at least that money -- which was, let's not forget, mine to begin with -- is now out of the grubby hands of managers. I get to choose where and when to reinvest it. In theory, it should be really hard to make up the tax hit, but prices of S&P firms fluctuate so much that if you know eight or ten companies reasonably well, there's usually one that's sufficiently cheap. I do remember times when I really couldn't find anything to buy -- and redeploying dividends should have been the least of my worries then.
Why even consider investing with management teams who are willing to pay too much (of your money) to buy back shares? I think there's one good reason: management isn't everything. There are extraordinarily few humans who are able to behave rationally, consistently, in a business environment. In contrast, there are always some quite good businesses being run by the managerial equivalent of a ham sandwich, and sometimes these businesses get cheap.
No. of Recommendations: 0
Look at snow, heads insiders win, tails, public shareholders lose. Not a great way for retail to win, long term.
No. of Recommendations: 16
Here's an unpopular opinion or three (buy one, get two free!). A share count that decreases steadily, year after year and quarter after quarter, indicates a company that throws off a lot of cash, run by managers who are lazy, stupid, dishonest, or more interested in virtue signalling than doing right by their shareholders. They may be using repurchases at high prices to hide stock-based compensation, or justifying them under the cloak of "signalling confidence," or they may have an inflated idea what the company is worth.
Well, based on 10 recs (at this writing) I'd say it's not an unpopular opinion at all.
And surely there are lots and lots of examples of the problems you describe, but since this thread is about Berkshire (mostly) and Apple (a little), I'd say your generalization is too sweeping. Berkshire had to be prodded into buybacks, which have since proceeded apace (by one of the best capital allocators in history, I think).
And Apple seems to have a disciplined approach to it; I'm not sure what else they would do with the 'excess' funds except spend it foolishly (see: Google) on projects that will never come to pass, or perhaps double the dividend (temporarily, if things should slow down). It doesn't appear that they're camouflaging outrageous stock grants to executives nor merely stacking up dollar bills in a private room for stripper parties, so where's the beef?
One of the things about buybacks is that - like everyone else from hedgies to mutual fund managers to you and me - you have to decide when a stock is overvalued or not, and not everybody gets it right, and nobody gets it right all the time. So sometimes a buyback is a bad idea, but sometimes it *is* a good idea. In the two cases at greatest discussion in this thread, I'd have to say 'good idea.'
(At this rate Apple will be a private company in a decade or two. Wouldn't that be odd?)
No. of Recommendations: 4
I'm not sure the thread is only about Berkshire and Apple. We're also talking about buybacks at the company level at Bank of America, Chevron, Davita, etc. My point, which may be a tired one, is that share repurchases aren't inherently virtuous. Clearly Mr. Buffett approves in principle -- he's applauded the role of buybacks in increasing the size of Berkshire's ownership stake in its long-term holdings. But I'd hate to see Berkshire itself become a company where shares are repurchased at high prices regardless of the other options for capital allocation. I don't think there's much danger of that as long as current management is around.
Share repurchases might make sense for Apple. I don't know what their options are, because despite taking a run at it several times I really don't understand the company (which is a little uncomfortable for a Berkshire shareholder, but there we are). There's no way I could have predicted the durability of their returns on capital or the resulting ramp in value in the last decade. Plenty of people did -- I just don't understand, at a molecular level, why people buy their products. My work phone is an iPhone (I didn't have a choice). It's fine. It's a phone. There's no earthly reason it should cost as much as it does. Obviously I'm missing something. I'm sure lots of people will be happy to explain at me, but hopefully not in this thread.
No. of Recommendations: 4
As much as I hate having an involuntary taxable event inflicted on me quarterly in the form of a dividend, at least that money -- which was, let's not forget, mine to begin with -- is now out of the grubby hands of managers. I get to choose where and when to reinvest it.
I wonder do you also have a similar choice (with some effort) in the case of buybacks at elevated prices. I'm not 100% sure if this is correct, but consider the following (ignoring taxes).
Company is worth 100B but has market cap of 200B and you own 1% of the shares. The company has 1B cash that they want to allocate to either dividends or buybacks.
Scenario 1: They pay it out as a dividend.
Company is now worth 99B.
Your holding is has a value (not price) of 0.99B
You have 10M cash.
Scenario 2: Company spends it buying 0.5% of their shares back and you immediately sell 0.5% of your holding at the same (double value) price.
Company is now worth 99B
You still own 1% since both the number of shares you own and the total number of shares in the company have reduced by 0.5%.
Your holding is has a value (not price) of 0.99B
You have 10M cash.
So it seems to me that by taking some initiative, you can have exactly the same result (ignoring taxes) and for some when taxes are considered, an even better result.
I do appreciate that most of us don't and won't take this initiative, but it is an option if you really dislike overpriced buybacks.
StevnFool
No. of Recommendations: 0
No. of Recommendations: 1
I had a look at HPQ after Bark's purchase but it made me think of IBM, thoughts?
No. of Recommendations: 10
While I agree that buybacks of very overvalued stocks are not in the shareholder's interests, I also think the danger of this is perhaps overstated.
In a general sense, both Graham and Buffett agree that the market is a weighing machine over time. That it is generally efficient. This doesn't mean that price accurately reflects value in the short term, but that it provides a close approximation over the long term.
Thus companies that have a continuing and relatively consistent, buyback activity over time should be getting approximately the correct value over time. This should particularly hold in the case of large, long established companies that are closely followed by Wall Street analysts.
As one example, Chevron just reported that their buybacks over the past two decades happened in three out of every four years. Total was $65 billion. And that their prices averaged $2 under market price over that period. That suggests that Chevron management did pay some attention to value in their buybacks, but the net effect is probably under 2% over time.
Would AXP, KO, JNJ, etc. be expected to be much different?
Obviously, there are periods to not be buying - BRK in 1998 is one example. And periods to be actively buying - BRK in 2000 another (missed) example. And if we really believe that BRK is consistently undervalued by the marketplace, a consistent buyback program should be in the shareholders interest.
I'm not saying that management shouldn't use some judgment at market extremes, especially for the kind of companies BRK invests in. But I do say that I think the risk to shareholders is overstated over time, especially for blue chips.
Other opinions may differ.
No. of Recommendations: 6
"
Here's an unpopular opinion or three (buy one, get two free!). A share count that decreases steadily, year after year and quarter after quarter, indicates a company that throws off a lot of cash, run by managers who are lazy, stupid, dishonest, or more interested in virtue signalling than doing right by their shareholders. They may be using repurchases at high prices to hide stock-based compensation, or justifying them under the cloak of "signalling confidence," or they may have an inflated idea what the company is worth. But repurchases at prices that are too high are simply destructive to value."
Apple's CFO (Luca Maestri) has talked about their average price for each share bought back over the last ten years.I forget the number quoted.
Rough math shows:
$554,300,000,000 spent over the past ten years
10,311,000,00 number of shares reduced
$53.76 average price for each retired share
I'll take it.
No. of Recommendations: 2
If we assume the market is a weighing machine over time then the buybacks should be at an average price close to the intrinsic value of the company over time as well. Essentially the should equate to a tax free dividend to the shareholder.
No. of Recommendations: 17
No doubt Apple shareholders have done very well, with or without buybacks. Pick anything where the price has gone up and to the right dramatically, and 2010's buybacks look like a wonderful use of capital, just as investors at those levels look prescient. Congratulations.
But as to buybacks being carried out at the average price, over time, there's some evidence to suggest that managers at the *average* firm buy back stock at higher than average prices. That is, their timing isn't neutral, but pathological. For those interested, Fortuna Advisors publishes an annual study of the efficacy of corporate buybacks. Here's the study for 2021 (SB: link opens a PDF), but you might want to look at pre-pandemic studies as more representative of 'normal' economic conditions -- it's up to you.
https://fortuna-advisors.com/wp-content/uploads/20... In general, lots of shares get repurchased when people are optimistic and prices are high. Many fewer shares (not just lower dollar amounts!) are repurchased when conditions are challenging. So managers aren't dollar cost averaging their repurchases -- they're stopping purchases when they should be starting, and vice versa. In theory, I'd think a highly-compensated manager would be able to foresee that economic conditions will sometimes be challenging, but few seem able to overcome an incentive system that rewards optimism and happy thinking and punishes hoarding cash. More reason to appreciate those who can!
Here's a recent real-world example: CarMax, which had happily been buying back stock at prices over $95, announced a pause in buybacks in the most recent Q (which was pretty dreadful) "to maintain a conservative balance sheet." So lots of shares got repurchased just under $100 and presumably zero shares at $55, $60, $65. Assuming we haven't seen a permanent injury or existential threat to the business, this was a stupid capital allocation decision.
No. of Recommendations: 2
I have no way to prove this theory out- but in my opinion, when a company with a good history of repurchases, stop because the environment is tough or un-clear, it is time to buy. They'll come back to the stock when 'the coast is clear'- KMX is cheap here.
ALLY financial is another one- they've stopped buying back to build capital due to losses.
No. of Recommendations: 2
speaking of buybacks that matter to Berkshire:
Amex is a great case study. With a quote on the timing of the buybacks :
"Between 1998 and 2005, Berkshire's stake climbed from 11.2% to 12%. In 2020, AXP became Berkshire's largest holding by percentage."
'Now we own 20% of American Express,' Buffett said at the 2022 Annual Berkshire Hathaway Shareholders Meeting. 'That happens to have worked out extremely well. If they overpaid for the stock and all that ' it doesn't solve every problem ' but it's a wonderful thing if you've got an asset you like and they take your ownership interest up.'
Buybacks are interesting to me in that they seem to illicit a lot of negative reactions. Far less reaction to dividends.
https://finance.yahoo.com/news/warren-buffett-berk...
No. of Recommendations: 22
Buybacks are interesting to me in that they seem to illicit a lot of negative reactions. Far less reaction to dividends.
I think that just comes from a lot of fuzzy thinking.
Buybacks done at fair value do not increase the value of the remaining shares at all.
A whole lot of people (including many a CEO) can not get their heads around that simple fact.
Depending on the particular way they misunderstand things, they'll react in various illogical ways.
Even Mr Buffett's comment is vague enough to let you believe he doesn't understand it. (I'm sure he does).
Yes, the buybacks have been good for Berkshire...but you have to consider that had they not taken place, it's likely SOMETHING of value would have been done with that money which would also have been good for Berkshire.
Capex, R&D, dividends, acquisitions, dubious lobbying...not always great, but on average positive.
Of course, similar problems exist with dividends.
It's surprising how many people don't realize that a share is worth less after a dividend is paid.
The people who like dividends the most seem to think that all share prices are completely random, so the dividend is a complete "extra" on top of what would have happened otherwise.
They think that adding a 2% dividend would increase their long run returns by 2%/year.
That's just magical thinking, since it would also decrease the value of a share by 2%/year.
Jim
No. of Recommendations: 5
Buybacks done at fair value do not increase the value of the remaining shares at all.
A whole lot of people (including many a CEO) can not get their heads around that simple fact.
Depending on the particular way they misunderstand things, they'll react in various illogical ways.
Buybacks done at fair value do not increase the value of the remaining shares at all in the present.
Yet, a smaller share count going forward increases the likelihood that earnings per share (EPS) will,
all things being equal, be greater in the future. And, EPS is the metric that, for the majority of companies,
investors take as indicative of value, and so, it tends to influence share price.
No. of Recommendations: 14
Buybacks done at fair value do not increase the value of the remaining shares at all in the present. Yet, a smaller share count going forward increases the likelihood that earnings per share (EPS) will, all things being equal, be greater in the future. And, EPS is the metric that, for the majority of companies, investors take as indicative of value, and so, it tends to influence share price.
You might have accounting slip here, in that you are double counting the effect of growing earnings within the fair value of any firm. As the market cap of a firm already accounts for the future earnings, then when a firm purchases the stock of any company at fair value (whether it done by buying its own stock, adding its own company to an investment portfolio, or adding some other other firm to the investment portfolio; it makes no difference) then it has simply exchanged cash for a similar value of something else. The firm hasn't magically become more valuable regarding its future projector of its earnings. I underline the future because the value of a firm is not determined with an assumption that the cash will be indefinitely hoarded, but rather we already assume the cash will be invested in various ways.
Forget about buy-backs and just think of it as purchasing any stock in your own investment portfolio. In fact, a company buying back its shares is economically the same as the same company creating a portfolio with shares of its own company (the share count thus not decreasing). Very few people realise that. But returning to your own portfolio, imagine you have some mixture of cash and stocks. When you purchase some stock, do you consider that your net worth has increased, or you do think your future likely wealth has increased. Of course you don't, because whilst it will have likely increased compared to never buying stock at all in the entire future, prior to the purchase you will have retained the optionality to purchase stock at any time.
- Manlobbi
No. of Recommendations: 4
It's surprising how many people don't realize that a share is worth less after a dividend is paid.
The people who like dividends the most seem to think that all share prices are completely random, so the dividend is a complete "extra" on top of what would have happened otherwise.
This idea is so pernicious, that Mr. Market rewards steady dividend payers, esp. consistent dividend growers with a higher valuation, than non dividend paying companies with higher growth. Many investors use dividends as a short cut to value companies as earnings are more easily manipulated. So maybe there is a bit of a free lunch after all with dividends.
No. of Recommendations: 1
The posts from mungo, manlobbi, and rnam are of course accurate. Things get a tad more interesting with buyback debt.
I was, for a long time, a young man who had endless energy to analyze financial things. Those days have eroded so I'll ask (and hope someone responds) by making a statement:
Buybacks funded with debt at fair or intrinsic value to are the same as the company borrowing money to buy stock in other companies.
No. of Recommendations: 0
My grammar????
Buybacks at fair or intrinsic value funded with debt are the same as buying stock in other companies at fair value or intrinsic value using debt.
No. of Recommendations: 4
This idea is so pernicious, that Mr. Market rewards steady dividend payers, esp. consistent dividend growers with a higher valuation, than non dividend paying companies with higher growth.
That sounds like it would be true, but I suspect if you dove into the mixing bowl there would be some 'tried and true' vs 'flash in the pan' in those numbers too. I don't really know, but you'd have to separate out those 'higher growth' companies who may not be around in 10 or 15 years, since my stock price is (supposedly) valued on my claim of future profits.
As I'm sure everyone on this board knows, there is a significant difference between a dividend and a stock buyback: I get my grubby hands on a dividend, and I only have a *chance* of getting it with a buyback. I've heard the argument 'well it's the same thing, if you want to own the company why not own more of it?' To which my reply is 'I have enough of that one, I don't want more. I prefer money, directly deposited, where neither the CEO nor flash traders can get their hands on it.' No muss, no fuss, no timing, play couch potato, period. ;)
No. of Recommendations: 2
I've heard the argument 'well it's the same thing, if you want to own the company why not own more of it?' To which my reply is 'I have enough of that one, I don't want more. I prefer money, directly deposited, where neither the CEO nor flash traders can get their hands on it.' No muss, no fuss, no timing, play couch potato, period. ;)
To each its own I guess.
I see cash management as being a balancing act. Some companies feel they have enough investment opportunities that they keep all the money for reinvestment. Growth. Some basically commit to paying out most of their cash flow to investors. There's a lot of that now going on in the O&G industry. Basically divesting the company.
And some blue-chip companies see their roles to be one of paying a sustainable and growing dividend that their shareholders can count out for the long term. That means they must reinvest enough to provide the future cash flow needed to both sustain and grow the dividend plus provide cash flow for the long term. The third leg of that stool is a strong enough balance sheet to keep this going through the business cycle. So they need cash reserves plus a good credit rating.
Then, if cash is left over, reinvest it in the company if that beats other investment opportunities.
That's the real world balancing act in my view - what's needed for the long term. Concentrating on growth at one end and paying out all the cash flow at the other end are just the two ends of the string. Dividend aristocrats try to operate between these extremes.
That's why I own BRK plus a couple of them. The BRK may go down and the others up when Buffett is no longer making these judgments about what to do with the money.
No. of Recommendations: 7
I see cash management as being a balancing act. Some companies feel they have enough investment opportunities that they keep all the money for reinvestment. Growth. Some basically commit to paying out most of their cash flow to investors. There's a lot of that now going on in the O&G industry. Basically divesting the company.
Easy to see that point of view. OTOH, O&G is cyclical, maybe way more cyclical than most other industries. Why is that? Among other things, when times are good (constrained supply, increased demand) they take all those profits and plow them back into increasing supply. What happens? Shortly down the road supply increases. Prices fall. There's a glut, and profits fade.
Lather, rinse, repeat. We've seen it for decades. O&G in the US is dominated by a few, shall I say, majors, with a bunch of little guys running behind catching the crumbs that fall off the table. While it sounds conspiratorial, by 'managing supply' (i.e. not plowing the profits back into 'investment opportunities') they flatten the cycle and stretch out the good times.
If they put it all into 'growth', they cut their own necks - a couple years down the road. Using it for dividends or buybacks puts (some of) the profits elsewhere to alleviate the inevitable bust later if supply is jacked up.
Do I think Exxon and Chevron management is smart enough to realize this? Yeah, I do.
