Stocks A to Z / Stocks C / Cummins (CMI)
No. of Recommendations: 24
Given that Buffett..
A.) has bought stock at prices above today’s close.
B.) has been willing to pay a $4 per share premium to that market purchase price when you include the 1% buyback tax (I don’t see how it could be avoided under the ‘netting’rules—they don’t issue stock) and
C.) has indicated he’ll only buy back stock at a meaningful discount to intrinsic value…
I feel pretty confident that a buyer at these levels will be very satisfied with the entry price over the longer term. And other than the need for cash/liquidity I don’t think it’s a good sell point.
Just a personal thought: over the years—I’ve come so close to selling meaningful shares of Berkshire in the name of diversification, but by employing wide intrinsic value estimates that the stock rarely, if ever, meets…I’ve been “forced” to hold.
Buying Berkshire decades ago at a ridiculous discount to Intrinsic Value…the dream scenario emerged: the stock rose steadily with an almost constant DISCOUNT to IV of 5-20%. By trading so “poorly” relative to value I was forced to hold—and even buy MORE shares at times when I logically needed to sell for diversification. I’ve always thought this is what Warren wanted. He doesn’t want to lose long term shareholders—an extension of his family. It’s like Berkshire’s given us excellent returns AND removed selling temptation :)
P.S. With plans to sell a large chunk of stock the next couple months…I actually BOUGHT more shares this week. It happened..again!
No. of Recommendations: 3
Same with me.
I started selling when it hit $430 premarket earlier this year to reduce concentration.
Bought it all back and more ($402 to $407)
No. of Recommendations: 0
I Should not have bothered trading in and out. Sold 4pct of the position at 412 and bought it back the other days for 402.
I am keen to diversify away, and doing so at a snails pace but its difficult when comparing brk to the alternatives
No. of Recommendations: 21
Given that Buffett..
A.) has bought stock at prices above today’s close...
Yes, but technically only A shares, not what most of us buy most days.
The A share closed at $611500, versus the highest absolutely known price paid $623205.69 in March.
In B share terms, which just closed at $405.92, the highest absolutely known repurchase was at only $357.22.
He would certainly pay more than that today, so I don't mean to sound like I'm quibbling meaninglessly, but it isn't a simple 1500:1 conversion as the economic interest would suggest.
The buybacks have shown a strong (and perhaps even rising) preference for A shares, so the observed "willing buyback" ratio is pretty far from 1500. I have estimated around 1540.
(e.g., the last two months that both A and B shares were purchase, the average prices paid had ratios of 1542:1 and 1544:1.
So, in round numbers and the 1540 guess, if he was willing to pay an average of $623206 in March for A shares, he would probably have been willing to pay around $404.68 for B shares based on prior actions.
Yet it's also worth noting that he didn't do so, despite B shares having traded below that price on half the trading days in March, and being much more liquid and easy to buy. Similarly, the B shares traded below 1/1540th of February's average A share repurchase price on 12 of 19 tradings day in February, but he bought no B shares. None since November, in fact. One might infer a relative attractiveness ratio considerably over 1540 might now be at work.
Reading between the lines is not that easy : )
All that being said, I think one is unlikely to do too badly with B share entries under $400, and I think Mr Buffett would probably grudgingly agree. Even if it is at a multiple of apparent value somewhat higher than the average in recent years. Worst case expectation is that you get a somewhat below average year or so at some point.
Jim
No. of Recommendations: 10
The A share purchases, heavily RECENTLY, are significant moves consistent with “I can read actuarial tables…I hope to return next year”.
Buffett I’m sure is quite concerned aver “control” of Berkshire. Consolidating control by putting super voting shares in the treasury vault and away from activists seems a logical move to infer from this activity. He gains further control with each tendered A share. Big for HIM.
The appointment of daughter Susie Buffett and his Omaha neighbor longtime shareholder Wally Weiss to the BOD seem like moves to lock in control of the BOD to ward off activists who will surely try to break this up.
And I believe the steady rise in cash with a surprising “guidance” to $200 Billion I believe is ALSO partially attributed to mortality concerns. Unlimited bullets if the stock craters.
A shares maintain ECONOMIC value of 1,500 X B shares. That’s all that matters for those of us who do not seek voting control of the entity. 100 pennies for us equals a buck. The last B share buyback to me is inconsequential for above factors... What Buffett paid for a buck can safely be translated in Pennies for us folks. And that number is 1% higher than numbers higher than today’s price (we don’t pay tax).
No. of Recommendations: 1
mungo: In B share terms, which just closed at $405.92, the highest absolutely known repurchase was at only $357.22.
He would certainly pay more than that today, so I don't mean to sound like I'm quibbling meaninglessly, but it isn't a simple 1500:1 conversion as the economic interest would suggest.
I'm not sure what "economic interest" refers to, but it seems to me that the 1500 to 1 ratio of B to A shares must be continually adjusted for buybacks (and issuances, if any).
Unq
No. of Recommendations: 11
Buffett has repeatedly said it IS exactly a 1500/1 economic ratio with the ONLY difference being additional voting rights for the A shares. That is ALL. This is not debatable any more than a dollar is worth 4 quarters.
Investors have typically added 1-2% for that benefit. ECONOMICALLY it is EXACTLY a 1,500 to 1 ratio, Buffett said this explicitly when he issued the shares. It remains that way. It is not debatable.
And I’m not sure average overall prices paid on 1 share type versus highest known price paid for another share type is significant or even meaningful. And possibly confusing. Simply…
Buffett has paid more than this price for a lot of stock.
Buffett paid $4 more for each share than the published price.
The extent to which Buffett is clearly buying much more heavily at lower prices, well below $400, IS meaningful. Yes, there are better potential deals than “good” :)
But Warren buying shares at “all-in” prices of roughly $410 with his declared necessary margin of safety..is useful information IMO certainly to potential sellers. Those of us who always have an eye towards non urgent modest rebalancing/selling should take note.
Hold on to your lousy B shares…and your Quarters too :) and embrace the fact YOU will always get a better price than Warren Buffett on every share of Berkshire you buy.
No. of Recommendations: 6
Buffett has repeatedly said it IS exactly a 1500/1 economic ratio with the ONLY difference being additional voting rights for the A shares. That is ALL. This is not debatable any more than a dollar is worth 4 quarters.
To be clear, I'm not debating anything. I'm simply acknowledging my ignorance by expressing curiosity as to how a fixed 1500 to 1 ratio accommodates differing A and B share buyback values. In my simplistic understanding a dollar is worth 4 quarters only so long as both are equivalent in value. No offense intended.
No. of Recommendations: 1
No apology needed as no offense alleged! It’s a very good question.
No. of Recommendations: 14
To be clear, I'm not debating anything. I'm simply acknowledging my ignorance by expressing curiosity as to how a fixed 1500 to 1 ratio accommodates differing A and B share buyback values. In my simplistic understanding a dollar is worth 4 quarters only so long as both are equivalent in value. No offense intended.
Very politely asked!
The 1500:1 exactly economic ratio means things like:
1) If a $1 dividend was declared on B shares, Berkshire would necessarily have to declare a $1500 dividend on A shares
2) If berkshire were to spin out Dairy Queen by issuing shares in Dairy Queen to currently shareholders in Brk, and it spun out 1 DQ share per B share owned, it would necessiarly have to offer 1500 DQ shares per A share owned.
3) If Berkshire was liquidated, and the proceeds were distributed to shareholders, if the proceeds were $400 for each B share held, the proceeds would necessarily be $600000 for each A share held.
Further
4) any A share holder always has the right to hand in their A share to BRK and receive in return 1500 B shares. The reverse is not the case, you cannot "buy" an A share from Berkshire using 1500 B shares.
Given all these official constraints, the people who own A and B shares are still free to sell them or buy them at whatever prices they can negotiate with their counterparties. And apparently that ratio is typically a bit above 1500.
R:)
No. of Recommendations: 0
IIRC 1500 B shares have fewer votes than 1 A share.
No. of Recommendations: 3
From the website:
https://www.berkshirehathaway.com/brkshareholderin...Interesting WEB put in writing that a Bs may be a “better buy” if they trade at a >1% discount to the As. I wonder how WEB and CTM originally arrived at an A has nearly 7x the Voting power of 1500 Bs. I understand the logic, just wondering how they decided upon that ratio/disparity between the A vs. 1500B voting power.
No. of Recommendations: 1
WEB has admitted to missing billions in profits because he was unwilling to pay more than 1/4 of a point (when stocks were priced in fractions)up for Walmart stock.
He is extremely deliberate and disciplined on price paid.
You are buying for a lower price, no matter how small or other intentions, than what Buffett paid. PERIOD.
No. of Recommendations: 1
I would much rather have a dollar than four quarters. I used to own a rental property with coin operated laundry machines and dealing with all those quarters cost time and money. There are fees for coin conversion and Bank of America actually short changed us depositing them.
No. of Recommendations: 10
Interesting WEB put in writing that a Bs may be a “better buy” if they trade at a >1% discount to the As. I wonder how WEB and CTM originally arrived at an A has nearly 7x the Voting power of 1500 Bs. I understand the logic, just wondering how they decided upon that ratio/disparity between the A vs. 1500B voting power.
I never thought of that.
I can only surmise that he felt it was [just] enough of a difference to keep the bulk of aggregate voting power among the committed long term holders, the A share folks. Including, but far from exclusively, himself. And without going to the extreme of having any non-voting shares, which might be seen as unseemly.
He was probably also thinking ahead to the issue of gradually giving away his fortune without giving away too much voting control too soon, which required that the voting power ratio be fairly significant. His vote fraction has barely budged since the B shares were introduced because of A-to-B conversions by him and by others.
Jim
No. of Recommendations: 6
I can only surmise that he felt it was [just] enough of a difference to keep the bulk of aggregate voting power among the committed long term holders, the A share folks. Including, but far from exclusively, himself.
Voting power has value. Passive investors rarely care about it, but owners always do.
Consider that a new generation is taking over the empire that WEB spent his lifetime building. He built it to last. I suspect he has a carefully thought out strategy to guide the company for some time after he leaves. He trusts Greg, Ajit, and the board to follow that strategy. But Greg and Ajit work for the board, and the board is elected by the A shareholders. If he cares what happens after he is gone, and I'll bet he does, then he cares who holds the A's, and is probably happy to buy them (at a fair price) from anyone who has decided to sell.
abromber
No. of Recommendations: 3
Voting power has value.
Which makes it hard to understand why GOOGL (with voting rights) has traded a smidge lower than GOOG (w/o voting rights) for several years now, I believe. Maybe there's value in not having to type an extra letter each time you want to get a stock quote :)
John
No. of Recommendations: 11
Which makes it hard to understand why GOOGL (with voting rights) has traded a smidge lower than GOOG (w/o voting rights) for several years now, I believe.
Yes, it's a bit of a surprise, if not a mystery.
There is no doubt that a share of GOOGL is worth some hard-to-quantify amount more than a share of GOOG.
I have read that the reasoning goes like this:
The founding bosses want to keep their voting share, so they are selling GOOG stock without votes to raise money for beer and pizza.
But they want to get a good price for the shares they are selling, so they are using their control of the firm to ensure that the firm is buying GOOG (non voting) shares instead of GOOGL (voting) shares.
This causes a *very* slight premium for GOOG over what it "should" be.
Other market participants, noting all of the above, come to expect GOOG to be stronger (even though it's worth less), so they bid it up a bit more, widening the small premium to a bigger one.
I would have expected them to have the company buy and retire voting shares so that their own voting power is maximized, somewhat akin to what Mr Buffett has done, so I thought perhaps they have so much voting control that there is no need to bother. But no: apparently they have only about 51.4% voting control, pretty close to the wire. So I guess the reasoning is different: since they have absolutely no need to sell ANY voting shares (lots of non-voting shares to liquidate), the 51.4% fraction won't be falling at all, so they're secure, so they can use the reasoning above.
Jim
No. of Recommendations: 0
I would have expected them to have the company buy and retire voting shares so that their own voting power is maximized, somewhat akin to what Mr Buffett has done, so I thought perhaps they have so much voting control that there is no need to bother. But no: apparently they have only about 51.4% voting control, pretty close to the wire. So I guess the reasoning is different: since they have absolutely no need to sell ANY voting shares (lots of non-voting shares to liquidate), the 51.4% fraction won't be falling at all, so they're secure, so they can use the reasoning above.
Interesting question: would it be worth a premium to buy control of a public company? Are there examples?
abromber
No. of Recommendations: 7
Interesting question: would it be worth a premium to buy control of a public company? Are there examples?
Assuming we are talking about one-share-one-vote company, there are complications...as you cross various thresholds of ownership you may be required by the local regulators (depending where the company is based) to stop buying before getting approvals, or make a bid for the entire portion you don't own. Barring those hurdles, though, you could just keep buying till you have control and then vote yourself a new board if you liked. Perhaps useful for setting the capital allocation strategy to something that suits you.
For companies with super-voting shares, I think a fair generalization is that the voting shares are really worth a premium, but only to a very specific set of individuals. If you're not one of those few, the votes are worth nothing to you, except in one way: those few individuals will normally be the ones bidding the extra that makes the voting shares have a higher price, so there may be a price premium you can realize when you sell.
Alphabet is really a strange exception in that regard. It makes no economic sense that the voting shares trade more cheaply (though of course supply and demand can trump economic sense for quite a while). This oddity is relatively recent, too: the voting shares traded as expected at a small premium to the non-voting shares until late 2019.
Jim
No. of Recommendations: 8
“Barring those hurdles, though, you could just keep buying till you have control and then vote yourself a new board if you liked. Perhaps useful for setting the capital allocation strategy to something that suits you.”
Hmmmm. Reminds me of a young determined greyhound who caught the mail truck & got control of a textile cigar butt. Story never gets old. Apologies, but I can only imagine the look on old Seabury’s face when the young Midwest Sheriff took control. 🤣👏 So glad he Did make an emotional decision here!
Don’t mess with Eastwood & Don’t mess with young Buffett! From Wikipedia:
“In 1962 Warren Buffett began buying shares of Berkshire because he thought the company was selling at a discount to its actual value after noticing a pattern in the price direction of its stock whenever the company closed a mill. Eventually Buffett acknowledged that the textile business was waning and the company's financial situation was not going to improve. In 1964 Stanton made a verbal tender offer of $111⁄2 per share for the company to buy back Buffett's shares. Buffett agreed to the deal. A few weeks later Buffett received the tender offer in writing, but the tender offer was for only $113⁄8. Buffett later admitted that this lower (undercutting offer) made him angry.[2] Instead of selling at the slightly lower price, Buffett decided to buy more of the stock to take control of the company and fire Stanton.”
No. of Recommendations: 3
Investors tend to be stupid ^h^h^h^h^h^h to do sub-optimal things.
A few years ago there was a oil(?) company that paid a handsome dividend. There were 2 classes of stock. One got the dividend in cash, the other got the same dividend in stock shares.
The stock price of the one that got the cash always was always about 10% higher than the one that didn't get cash.
If you wanted cash, you could hold the latter class and sell the shares immediately. And get more cash than the cash-dividend people got.
I always loaded up on the latter class. Eventually the company withdrew that class and ceased the free money ride. Sadly.
