Well, it turns out we are going to get what is a rare share buyback by Berkshire Hathaway (BRKa).
Last Tuesday, I happened to explore the following question in this post:
Should Berkshire Hathaway Repurchase Its Own Stock?
To me, the answer was a firm yes. Berkshire Hathaway's recent stock price seemed an odd undervaluation when considering its combination of assets. A share repurchase made a lot of sense if you compare recent market prices to a conservative estimate of intrinsic value.
It all came down to whether other available investing alternatives were available for Berkshire Hathaway.
Otherwise, to me it was a no-brainer.
Well, we got explicit confirmation of Buffett, Munger, and the Board of Directors view six days after that post in the form of this morning's Berkshire share repurchase announcement.
Berkshire Hathaway Authorizes Repurchase Program
An excerpt from the announcement:
Our Board of Directors has authorized Berkshire
Hathaway to repurchase Class A and Class B shares of Berkshire at prices no higher than a 10% premium over the then-current book value of the shares. In the opinion of our Board and management, the underlying businesses of Berkshire are worth considerably more than this amount, though any such estimate is necessarily imprecise. If we are correct in our opinion, repurchases will enhance the per-share intrinsic value of Berkshire shares, benefiting shareholders who retain their interest.
Lately, he and Charlie Munger have been more than hinting that they think the stock is cheap. Something they've said infrequently.
Buffet & Munger on Berkshire's Stock
At recent prices, the market value implied that the non-insurance operating businesses have little to no value.
That's nonsense, of course.
It also implied that Berkshire's exceptional ability to allocate capital funded in large part by low cost insurance float was of little future value.
That also makes no sense.
The long run value of exceptional capital allocation abilities is harder to quantify but no less real.
Adam
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Applying Newton's Fourth Law
Origin of Newton's 4th Law?
"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac's talents didn't extend to investing: He lost a bundle in the South Sea Bubble, explaining later, 'I can calculate the movement of the stars, but not the madness of men.' If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases." - Warren Buffett
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Find good businesses; buy at nice discounts to value; stay within limits & stick to what's understandable (necessarily unique for each investor); minimize trading, frictional costs, & errors of all kinds.
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This site's emphasis? Put simply, it's on finding and buying -- with the long-term in mind -- good businesses at a plain discount to conservatively estimated value; it's on selling shares of those well-bought high quality business reluctantly. The view here is that selling makes sense only when core economics become permanently impaired, prospects have been misjudged, market price not just somewhat but, instead, meaningfully exceed per share intrinsic value, or opportunity costs are high. Buy/sell decisions aren't just an opportunity to increase returns; they're also an opportunity to make mistakes. It's easy to overemphasize the former and forget the latter. The focus here is on minimizing trading, frictional costs, and errors of all kinds; it's on staying comfortably within realistically assessed limits. First and foremost is the view that an investor should never make a specific investment based upon what someone else thinks. In other words, what makes sense to own is necessarily unique for each investor and it'd be unwise to not act accordingly. So, more generally, this site simply attempts to better understand some useful principles and ideas in context of investment. It's about, in a practical sense, what tends to work over the long haul as well as what, at times, gets the investor into trouble. It's not about grand theories in finance and economics. These too often distract from what matters or, worse yet, lead to costly misjudgments. As a result, they are mostly viewed with a healthy dose of skepticism here. Otherwise, the best thinking across disciplines should be learned well then put to good use in a way that's uniquely suitable.
About
Notable Quote
"Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions.
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude.
It's kind of a snare and a delusion to outguess macroeconomic cycles... ...very few people do it successfully and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides?" - Charlie Munger
Our system is to swim as competently as we can and sometimes the tide will be with us and sometimes it will be against us. But by and large we don't much bother with trying to predict the tides because we plan to play the game for a long time.
I recommend to all of you exactly the same attitude.
It's kind of a snare and a delusion to outguess macroeconomic cycles... ...very few people do it successfully and some of them do it by accident. When the game is that tough, why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides?" - Charlie Munger