Berkshire Hathaway may be in Buffett's buyback range

Underperforming the S&P 500 this year by 220 basis points is Berkshire Hathaway (BRK.A, BRK.B) which is down 7.2% since January 1. At $165,150, the A-class shares are trading for just 1.3x September 30 book value of $126.8K.

Seeing as it's likely book value is higher today than it was more than 4 months ago, Berkshire could well be below the 1.2x book at which Warren Buffett has said it makes sense to buy back stock.

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Comments (8)
  • physdude
    , contributor
    Comments (160) | Send Message
    I think the buyback threshold should be around 106 if end of year book was 88/shr as estimated by many who follow Berkshire closely. 109 is an insanely good price given the threshold and low overall risk and I have backed up the truck for 2016 80 strike calls. Limited downside and a good chance for a nice return make for a great deal.
    4 Feb 2014, 04:02 PM Reply Like
  • Default Investing
    , contributor
    Comments (145) | Send Message
    Agreed. I get $89 per B. That gets me to $107 at 1.2x book value. So like 2% downside before Berk can repurchase. Think intrinsic value is $140-$150 per B share.
    4 Feb 2014, 04:18 PM Reply Like
  • mostserene1
    , contributor
    Comments (3697) | Send Message
    Good, I've been buying up BRK.B during this correction, dip, whatever. Under 112 it is a screaming buy.
    4 Feb 2014, 04:21 PM Reply Like
  • CJ
    , contributor
    Comments (3) | Send Message
    Sold some march 100 puts of the Bs yesterday. Would love to add to my position.
    4 Feb 2014, 06:41 PM Reply Like
  • J Mintzmyer
    , contributor
    Comments (8850) | Send Message
    Everyone needs to remember that the equities BRK.B owns are all down several %. Likely still 125% or higher from BV.
    4 Feb 2014, 09:07 PM Reply Like
  • Mike Arnold
    , contributor
    Comments (2376) | Send Message
    Might be an oppy to sell some puts on BRK and collect a premium and a good business at Warren Buffett prices if the price continues to decline.
    4 Feb 2014, 10:52 PM Reply Like
  • King Rat
    , contributor
    Comments (1831) | Send Message
    Just as Warren Buffett made major investments in financials in 2008, coincidentally just after making several calls to government officials and equally coincidentally just before the government bailed out said financials, Warren Buffett probably has made calls regarding government policies FOMC policy on tapering, etc. Not that any of that would be insider trading, of course.


    If the consensus is a policy that will likely see stocks drop 20% this year, 1.2x book value is more like 1.5x book value meaning no stock buyback.


    What would be more likely is to see Berkshire Hathaway increase ownership in selected businesses in which it only owns a partial share, rather than repurchasing A or B shares of BRK. To me that would be the smarter move for increasing ROI for both Berkshire Hathaway and BRK shareholders.


    That said, a decision to buy back BRK stock would be a signal of continued loose money policy which would mean continued asset inflation which would be bullish for the broader market. Just as Warren Buffett went on CNBC for 3 hours the morning the market bottomed out on March 9, 2009, his decisions in 2014 will be tell-tale signs of where the market will go. He may have information that we don't but we can invest our little money faster than he can invest his big money and much faster than his multi-billion dollar coat tail riders can invest theirs.
    4 Feb 2014, 11:19 PM Reply Like
  • physdude
    , contributor
    Comments (160) | Send Message
    Why would a stock drop of 20% lead to the current price being 1.5x book? Only 36% of the assets of Berkshire are stocks and almost all have deferred capital gains taxes which will reduce any effect of a fall in price on the book value. The increase in retained earnings will further stem that fall if not reverse it. My estimate is that a minor 20% fall in stock prices over the year will only lead to book ending this year at the same value as at the end of 2013. Given the S&P's overvaluation, I fear that 20% might prove optimistic.
    4 Feb 2014, 11:42 PM Reply Like
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