He is also “adjusting” numbers for 9/30 using a list of holdings from 6/30. For instance, several billion dollars worth of Banks/Insurance/Financials have been sold and are reflected in the 9/30 balance sheet. No need to adjust. Especially not before the updated 13f
Using a similar method (5 groves):
- Earnings multiple of 14 (to match Tilson’s 11x pretax) on after-tax rolling 4 quarters
- Equities value of 9/30/22, deducting deferred taxes
- Deducting 30% of float for reserves ($45bn)
Estimated IV: $470k/$313
Non-insurance businesses 40%
Equity investments 42%
Partially owned 2%
Cash available 16%
Note that 60% of Berkshire’s estimated value does not deserve a multiple of book value.
I filled out the table for all purchase dates from Sept 2011 through Sept 2022, with columns for P/B at the beginning of the quarter, P/B at the end of the quarter and estimated P/B at the time of purchase. The estimated P/B paid ranges from 1.08 to 1.41, with a median, average and standard of 1.30, 1.28 and 0.09 respectively. I didn’t try fitting a normal distribution, but as we can see in CWAGS02’s graph, the cumulative distribution fits a 3rd order polynomial, as do normal distributions. The $64 question is what the minimum discount to IV is where Warren will buy. He has said that he would not buy at a 5% discount, but that he would buy aggressively at a 25% to 30% discount. If the maximum P/B paid of 1.41 represents a 6% discount to IV, then IV/BV = 1.5. We each can infer IV from Warren’s repurchases as we see fit, but I do think that we can infer IV within a reasonably tight range, so repurchases do make a reasonable valuation method.
A histogram of number of purchases (27 total) versus P/B range is not normal. It’s skewed to the left and drops off sharply at the right, with no purchases above a P/B of 1.41.
- Buffett wouldn’t buy at P/B above 1.5
- When market was scared, like in March 2020 when the economy was suddenly frozen, Buffett was also scared and bought little when P/B was near 1.0
Another possibility is that when there are more attractive opportunities than Berkshire stock to deploy capital into, the interest in Berkshire buybacks wanes. March 2020 would probably have fit that definition, except that we know now that Buffett didn’t leap on other opportunities for whatever reason at that time.
I suspect the decision to buy back shares hinges on two requirements: 1) First and foremost: a lack of better opportunities to deploy capital into near term, and only then 2) Berkshire’s price being attractive relative to valuation.