# Repurchase price

I think once again Warren’s repurchase prices give us an idea of his conservative estimate of IV. He bought in March at an average price of \$485K, or 1.40 times March 31 IV. He did not buy in April or May when the stock price ranged from \$529K down to \$484K, but he bought again in June at an average price of \$426K, or 1.36 times June 30th BV. Assuming that Warren did not buy when the price was within 5% of IV, as he has said he wouldn’t, then we can estimate that 1.40x BV represents slightly less than 95% of his estimated IV (1.40x BV was the average, not the high, price paid in March). This would put IV at 1.47x BV or slightly higher. If 1.40x BV equals, say, 93% of Warren’s estimate of IV, then IV equals 1.50x BV.

No IV model is closer than about +/- 7%, as they rely on assumptions about growth rate, appropriate discount rate, appropriate P/E, etc., but I’d say that a very simple model that IV equals approximately 1.5x BV, and based on Warren’s repurchase prices, works pretty well.

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Below are the dates, average purchase prices and approximate P/B for Warren’s stock repurchases, which began in October, 2018. From Oct, 2018 to March, 2020 Warren dave us the dates during the month during which he repurchased; from May, 2020 to June, 2022 he gave us the months during the quarter during which he repurchased. By interpolating the book value/share between the start of the quarter and the end of the quarter we can estimate the book value/share at the time of purchase to within 1% (Book value generally changes about 9% to 10% per year, or about 0.8% per month). Prior to Q2, 2022 we only knew the prices that Warren would pay, but we had a less precise idea of the prices that he would not pay. In April and May of 2022, Warren paused repurchases, and it wasn’t because he needed cash to buy other stocks. He didn’t buy very much stock during the quarter. As we can see from the data below, the highest P/B that Warren has been willing to pay is 1.40, which, coupled with his statement that he will not buy above 95% of IV, leads me to infer that Warren’s estimate of IV/BV is pretty close to 1.5.

By the way, some people inferred the same thing several years ago when Warren gave an example in the annual report of a hypothetical company that had an IV/BV of 1.5, but that was reading a lot into Warren’s words. I think his repurchase prices are a much stronger indication of what Warren’s estimate of IV is. I think of it as the repurchase price IV model. An IV equal to 1.5x BV is also about the average estimate of the numerous people who have posted or published IV estimates, based on multiple IV models. I wouldn’t argue with someone who concluded the IV equaled 1.35x BV or 1.65x BV, but 1.5x BV seems to be the general consensus, even for Warren if I infer correctly from his repurchase prices. FWIW.

date, average price, approx. P/B at time
Oct 11-Oct 18 2018, \$311K (Lowest price on 10/18 was \$314K.), 1.36 (1.37 on 10/11)
Dec 13-Dec 24 2018, \$296K, 1.39 (1.32 on Dec 24)
Feb 26-Feb 28 2019, \$303K, 1.32
March 1-Mar 29 2019, \$304K, 1.30
Apr 1-Apr 10 2019, \$306K, 1.34
Jun 3-Jun 26 2019, \$311K (Lowest price on Jun 26 was \$310K.), 1.33 (1.32 on Jun 26)
Aug 5-Aug 28 2019, \$300K, 1.25
Sept 3-Sept 30 2019, \$310K, 1.27
Oct 1-Oct 9 2019, \$306K, 1.26
Nov 11-Nov 29 2019, \$329K, 1.31
Dec 2-Dec 31 2019, \$333K, 1.29
Jan 3-Jan 15 2020, \$339K, 1.30
Feb 24-Feb 28 2020, \$325K, 1.32
Mar 2-Mar 10 2020, \$301K, 1.31
May 2020, \$263K, 1.11
Jun 2020, \$269K, 1.09
Jul 2020, \$281K, 1.14
Aug 2020, \$317K, 1.24
Sept 2020, \$325K, 1.23
Oct 2020, \$316K, 1.21
Nov 2020, \$341K, 1.21
Dec 2020, \$343K, 1.21
Jan 2021, \$348K, 1.21
Feb 2021, \$363K, 1.25
Mar 2021, \$396K, 1.35
April 2021, \$408K, 1.39
May 2021, \$433K, 1.39
Jun 2021, \$432K, 1.39
Jul 2021, \$420K, 1.33
Aug 2021, \$431K, 1.27
Sept 2021, \$419K, 1.27
Oct 2021, \$432K, 1.37
Nov 2021, \$430K, 1.31
Dec 2021, \$440K, 1.28
Jan 2022, \$456K, 1.33
Feb 2022, \$474K, 1.38
Mar 2022, \$485K, 1.40
Jun 2022, \$426K, 1.36

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If I could buy all \$645.3 Billion of Berkshire, I could pay myself at cash dividend of \$105 Billion.

Ignoring the tax on the dividend, I would be \$540.3 Billion out of pocket. But I would own a diverse collection of productive businesses currently generating \$55 Billion in owner, true economic earnings, which just seem to keep growing like a weed.

I like this arrangement a lot. Particularly as the downside seems so much less than alternatives. And that is the key for me. I can own a meaningful amount and believe rightly or wrongly that I’m in quite a safe investment if held for a long time.

1.36 x book or 10 x E works for me to provide a margin of safety and the potential to grow book value and earnings provides the prospect of a satisfactory return.

PS Amazed at the Q2 numbers. This is a growth company with some really high quality businesses run by an incredible team. Grateful to have found it.

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“Ignoring the tax on the dividend, I would be \$540.3 Billion out of pocket. But I would own a diverse collection of productive businesses currently generating \$55 Billion in owner, true economic earnings, which just seem to keep growing like a weed.”

Totally agree EV. +19% in op earnings over the first 6 months from 2021, in this inflationary environment and at our enormous size and diversity of businesses with minimal hiccups-just Amazing! Also love the handy 147B of float as well which hardly seems a liability given how it replenishes.

Always interesting to see Mr. Market’s reaction post earnings release.

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Jim (mungofitch), have you by chance updated this analysis you did in February 2021 of daily repurchase volume versus P/B?

You analysis showed a strong, negative correlation between daily repurchase volume and P/B. Extrapolation indicated that no repurchases would be made above a P/B of 1.433, which, if 1.433x BV represented 95% of IV, would imply IV/BV = 1.51. At the last annual meeting Chris Davis asked Buffett if he repurchased more shares when P/B was low, but Warren answered that the decision to repurchase shares was more of an all or nothing decision based on P/IV, not a graded decision in which he purchased more shares depending on the discount to IV.

Thanks.

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At the last annual meeting Chris Davis asked Buffett if he repurchased more shares when P/B was low, but Warren answered that the decision to repurchase shares was more of an all or nothing decision based on P/IV, not a graded decision in which he purchased more shares depending on the discount to IV.

Not that it matters but I believe that was Glenn Tongue’s question at the annual meeting. Chris Davis is on the Board of Directors now so he gets a front row seat. You probably remember Glenn as Whitney Tilson’s partner at their old hedge fund and Glenn was a some time contributor to the Chucks Angels board back in the day.

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“I believe that was Glenn Tongue’s question at the annual meeting”

You’re right. Thank you for the correction. Sorry, Glen.

Consistent with the above, Jul 2022 BRK was also still buying (1, 119 A shares).