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Stocks B / Berkshire Hathaway


Subject:  Re: Maystery purchase Date:  11/4/2018  7:02 AM
Author:  mungofitch Number:  239423 of 243205

4.9bn were added to the BAC position and the remaining 12.8bn went mostly into some other financials. The 13f should be interesting!

I too admire your eagle eyes, but I don't see how you arrived at the 4.9bn number...?

Berkshire owned 700m shares of BAC at end 2017. (actually a bit fewer in the Q2 13f, but a 13f can be off by a bit due to quirks of pension funds, voting control, etc)

At end Q3 the position was worth $26.5bn (per footnote page 11) and the shares were trading at $27.50 at end Sept, so we know they owned 963.6 million shares.
So, year to date, 263.6 million shares were added, apparently almost all of them in Q3.
If we assume that the purchases were spread over time a bit but tilted towards the weaker price spots in the
latter half of the quarter, they probably paid an average of around $31.50 a share, give or take.
That suggests they spent about $8.1bn on BAC shares, no?

Frankly, I don't get it.
Surely Mr Buffett is much better at this than I am, so presumably I'm missing something, but it must be hiding well.
It seems like throwing in the towel in terms of trying to get outperformance from capital allocation.
I can see BAC as a "too big to fail" bond substitute, so maybe they have a place in Berkshire's balance sheet sitting between the equities and the cash.
But they just don't seem to be a good place to allocate money in equities long term.
Their return on incrementally allocated capital is poor, and I don't see why one would expect that to change.
Even with the tax cuts in effect this year, net income year to date has been only 0.85% of average assets.
A bank that can't manage 1%, a number they can only dream of based on the last decade, has no real reason to be in business.
Traditionally a really good bank would manage 1.5%.
Bank leverage is lower these days, so if anything you need a higher number than in days gone by.
It's only a short period, but ROE year to date has been 7.43%, and total shareholders' equity is down.
Sure, the future might be brighter, but book per share has been growing less than 2% faster than inflation in the last 5 or 10 years.
Berkshire was buying at a price suggesting a 2% dividend yield, so they're either expecting a
big improvement in BAC's business economics or a real total return of 4% before Berkshire's tax bill.
Half current, half compounding.
The reasoning that springs to mind is "we have too much cash, and there are only 25 companies big
enough to soak up a meaningful amount, and this one is not going to go out of business, so that will have to be good enough".

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