The wording of the original repurchase authorization and today's updated press release differs in one important way. The September 2011 press release referred to not paying more than 1.1x "then-current book value". Today's press release leaves out the "then-current" wording.What to make of this? Probably nothing. But given that we are now hovering right at the 1.2x book value level, the question of which "book value" calculation Buffett is using takes on increasing relevance. Should Berkshire shares trade modestly above 1.2x 9/30/2012 book value per share but below "current" but unpublished book value per share, can Buffett buy shares? My best guess (which will be wrong) is that book value/share has probably increased by around $1,000 since 9/30. Assuming this is correct, the repurchase limit would be somewhat higher than $135K rather than $134K.I think the question is worth asking at the annual meeting. Does Buffett mean the last published book value or current book value? Last published would make the most sense if his goal is total transparency since shareholders don't have any real clue of current book value until a new figure is published. On the other hand, during quarters where Berkshire's book value advances rapidly, Buffett would be prevented from repurchasing shares at 1.2x "current" book value until the next set of financials are issued.Yes, this is getting into the weeds but I find it interesting.
I've been trying to get an answer to that question for a year and a half. I submitted it last year, and I'll submit it again this year. It's completely surreal that we've never gotten an explanation on that point. Maybe I'll just send it to Uncle Warren directly, and see if that works any better.
If I were Buffet, and lets all be glad that I'm not, I would buy at any valuation up to 1.2x the last published book value adjusted for appreciation/depreciation in the value of BRK's publically traded equity holdings. That would retain reasonable transparency and improve flexibility over a strict prior quarter BV rule.
I submitted it last year, and I'll submit it again this year.It's completely surreal that we've never gotten an explanation on that point.To me the explanation is simple: 1.2 X most recent published book value. Repurchase at any other price could be construed as trading on inside information
Zamboni nailed it. I'm sure that Munger, Tolles & Olson would have preferred that WEB not publish a number at or below which BRK might repurchase shares. But given that WEB has published a number (now increased from the original number), it has to be based on book value at the most recently publicly disclosed book value, not some book value that WEB has calculated using undisclosed, insider info. We also shouldn't get too excited about the "floor" created by his repurchase number. That floor won't support a lot of the weight in the event of a strong market downdraft. WEB is not obligating the company to buy at or below that price. He is simply saying that BRK would consider buying at or below the publicly released multiple of book value. Current daily trading volumes make the potential impact on the value of such buys minimal at best. We are approaching a time, in my opinion, when the market will quit being happy due to the discoveries of rapid interest rate increases, earnings declines due to government and private sector spending reductions and the impact of tax increases (ignore the short term "fiscal cliff" ruse that the media and the politicians are hyping in order to respectively sell advertising or buy votes). When that happens, 1.2 times book value might be based on a book value of $100,000/share and WEB might find much better values for BRK cash than BRK trading at $95,000/share. Not a guaranteed future, but definitely not a zero probability either.
Then why didn't he say that? (Instead of the highly-ambiguous 'then-current BV?')
Then why didn't he say that?(Instead of the highly-ambiguous 'then-current BV?') In my view he did.Book value is a very specific number with a very specific meaning, which can be calculated and updated only on dates that a full balance sheet is completed.Those are the "books" from which the name is taken.Without the end result of that very involved process it can only be estimated crudely, whether by us or by Mr Buffett. Ergo, "then current" does mean "as on the most recently completed statements".If you're going to estimate something fuzzy, estimate intrinsic value.Jim
Book value is a very specific number with a very specific meaning, which can be calculated and updated only on dates that a full balance sheet is completed. Those are the "books" from which the name is taken. Without the end result of that very involved process it can only be estimated crudely, whether by us or by Mr Buffett. Ergo, "then current" does mean "as on the most recently completed statements".Well, he receives very frequent business updates from all operating companies and is clearly aware of movements in the securities portfolio that impact book value. The derivatives mark-to-market that is nearly impossible to estimate for outside observers is something I am sure is marked daily by Berkshire. He is aware of the extent of catastrophe losses that we can only speculate about (Sandy for example). I would be surprised if he couldn't walk over to Marc Hamburg's office at any time and get an estimate of book value that would be a pretty accurate "then current" figure.In any case, this could be cleared up with a thirty second question at the annual meeting followed by a five second response.
"To me the explanation is simple: 1.2 X most recent published book value. Repurchase at any other price could be construed as trading on inside information"I believe it is last published book value that matters, but for a different reason than cited above. If I were WEB, that is what I would want it to be, irrespective of any legal or transparency reasons, which simply put a nice touch on it. My reasons are based on economic fundamentals as WEB might see them. Consider 2 scenarios; 1.We are well into a quarter since the last published book value and the market has risen somewhat or even a lot for a quarterly move. The probabilities favor Current Book value to have risen too, but not by a huge amount, just because of its inherent upside inertia. Brk's price will probably have risen too since quarter end, perhaps typically by about the same percentage amount as book. So, even if WEB could buy at the true current book, there would not be much to gain from having bought at quarter end, assuming published and current book allowed for buying in either/both instances. So, having the right to buy at current book does not provide for much advantage. 2.For scenario 2, consider a relatively long recession that has depressed earnings, culminating in a severe fear-laced market meltdown such as 4Q08/1Q09. In this scenario, BRK's earnings and stock portfolio hit could result in a big drop in its price. WEB, thinking long term about the IV of BRK's businesses and its portfolio companies would likely see both sets of IV's well above where the panicked market sees them and hence decides to buy on the open market. Being able to use the last published book, rather than the lower current book, would give him the opportunity to buy more shares before the market price rise hits book, thus preventing more buying.Thus, using published book potentially gives BRK more buying opportunity when people are fearful, with very little loss of opportunity in more "normal" times. Carl
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