MP173 wrote: Further, what you are saying is that there would have been no motivation for BH to have made large purchases at one time, well above the market price...since that volume could be handled on a "steady" basis over a period of time. We seem to know that the accumulation stage was three months. Figuring 37 million shares over 60 days would average 600,000 plus average per day. We also know after April, there were very large blocks purchased without huge impacts on the share price (except after the original announcement was made).
Further, what you are saying is that there would have been no motivation for BH to have made large purchases at one time, well above the market price...since that volume could be handled on a "steady" basis over a period of time. We seem to know that the accumulation stage was three months. Figuring 37 million shares over 60 days would average 600,000 plus average per day. We also know after April, there were very large blocks purchased without huge impacts on the share price (except after the original announcement was made).
Even if the purchases were spread evenly over the period described, the idea that 600,000 shares per day, in a market that routinely traded between 1 and 2 miilion shares -- 3 million on a busy day, would not be "noticed" and not affect price is a proposition new to anyone who has traded in the market. This is simply stretching too far to try and justify a proposition. We do "know" there were some very busy days prior to April, with activity unrelated to any general financial news. This argument really seems like an effort to substitute what isn't supported by any proof -- steady buying of very large quantities -- for what we do actually know and for which there is specific proof, substantial activity far above normal during a key period of a rise in the stock price.
Now, this interesting comment: "We also know after April, there were very large blocks purchased without huge impacts on the share price (except after the original announcement was made)."
Uh, reread my post. The stock price began to deteriorate based upon deteriorating industry performance news. Regarding earlier purchases, I originally specifically identifed a specific period of time when someone was purchasing a substantial amount of stock, and based my views on specific prices paid during that period.
That is a different approach than the analysis that attempts to suggest -- without any evidence whatsoever -- that Buffet bought everything on the market and was buying daily, inflating the market volume by between 30% and 60% per day, and nobody noticed and it didn't affect a thing!
Ed, I think you are really reaching too far for something with that premise. It is simply not supportable.
Purchases that size for 60 or more days would be noticed -- and they aren't there. But there are periods of high intensity buying. And a run-up in price. There's no need to just make stuff up.
It made sense for BH to begin buying during the slide to lower its average cost per share. Ed offers evidence that this has happened in the manner and tone as to suggest that this is not exactly what I said is happening. And of course this would happen without "huge impacts" -- the huge impact had already been priced in during early April when the BH announcement was made and when shares soared past 90 upon the market reaction that Buffet's interest really meant something. Well, bad news for those guys.
The question as BN has bumped down to 75 and oscillating within a range above that, does the current market price reflect investors' realistic views of BN, or does the current price reflect an artifical expectation based on Buffet's well-advertised continued purchases? Is Buffet's continued interest designed to create, as one poster suggested, an artificial floor price to protect his own investment against further deterioration?
Where would the current price be without Warren Buffet?
Dakguy:
Thanks for your input. So, basically what you are saying is...we cant say for sure.
I can accept that. My source was the SEC documents and the chart for BNI from January thru April.
Thanks for your help.
ed
Just to make things more complicated, there are several transaction tools available to a large institutional investor that are not offered to retail investors.
First, a brokerage house will enter into a deal with an institutional investor (or a wealthy individual investor) to buy or sell a block of stock at a) tomorrow's opening price, b) today's closing price, or c) today's volume weighted average price. If the transaction is large enough that it could seriously move the market, the same kind of deal can be made for "x" shares per day for "y" days. I have personally seen offers from Goldman Sachs to do this but do not doubt that any of their major competitors would do it as well.
Also, a brokerage has available to it computer screens the average investor does not. It shows every offer to purchase or sell BNSF stock, the price being asked/offered and by which market maker. For a stock priced in BNSF's range, 10,000 shares is a very popular share block size, and someone who understands the trading pattern of BNSF can watch the screen, cherry-picking the offers. If done with a skill it can have very little market effect. A company such as Berkshire may have a trader who accumulates/disposes of a stock by effecting a series of such transactons.
I have no way of knowing exactly how Berkshire accomplishes their transactions, but my point is that trying to detect their presence in the market regarding a specific stock is an extremely iffy business, even when done in retrospect.
No, I dont think I am putting words in your mouth, Michael...just repeating what you wrote and then taking a look at the picture. We are at a stalemate at this time.
You are assuming that WB paid considerable more than market price for the shares in question, I am assuming he paid market price. An internet source I examined indicated he had made purchases of 37,808,400 shares of BNI over a three month period of time with a return of 6%. This can be located at form4oracle.com/insider?cik=0001067983. If this link doesnt work, try searching SEC filing Berkshire Hathaway in Google. It will be there.
The database indicates "open market" purchases.
Doing the math allows me to confidently assert that BH has not lost 15% on the investment.
As far as your comments about me that WB actions ("everything is automatically brilliant"). Why that seems to be putting words in my mouth, doesnt it Michael?
For the record, BH (or WB, if you think I am being selective in my wording) has made some poor investments. US Air was a disaster. We have discussed Coca - Cola, which has mixed returns. Soloman Brothers took a little work.
But, I trust you know and understand his body of investing over his career. If not, take a look at the 2007 Berkshire Hathaway annual report. The returns are documented.
I admire the man for his accomplishments and the manner in which he has achieved them. I will make no misreprestation about that, but your comment about "automatic default" is an interesting one. Please explain.
jeaton wrote:Prior to April 4, 2007 he accumulated about 37.5 million shares appearantly in the previous 90 days. From January 2 to April 4, 2007 the highest market close for BNI stock was 84.92 on February 22. However, at April 4 the average price for the previous 90 days was about $78. This still doesn't tell us exactly how much Buffet paid for his purchases prior to April 4, but if there had been a 7% gain on the value of those shares as of 4/4/07, it looks like he may have made some good buys off the exchange.
This still doesn't tell us exactly how much Buffet paid for his purchases prior to April 4, but if there had been a 7% gain on the value of those shares as of 4/4/07, it looks like he may have made some good buys off the exchange.
And prior to April 4 is the period that I referred to as the benchmark for subsequent purchases.
Ordinarily, BN shares trade in the 1-3 million share volume range. BN's market "momentum" is generally positive, and on 1/17/07 showed a 1.28 momentum benchmark at 77$/share. Within a few days, volume trading shot up to 6.7 million shares. Somebody had entered the market big time, and was buying at 81.6, with a "momentum" metric of 7.21 -- very high. On February 14, shares traded at 4.8 million shares at 84.6, and on February 22, traded at a high during the day of $85.9 -- the source of the $86 a share, I referred to.
On February 26, momentum went negative, and shares dropped to 81.22 on 2/27, there was a selloff at 6.4 million shares -- I am sure Buffet was buying in there somewhere, although guessing when a player might be selling to drive the price down is pure guess work. Might be buying, might be selling. In any case, there was a strong market, measured by momentum, between January 17 and February 26. It pushed the stock to nearly $86 a share. And that had to be because someone was buying the stock at that price -- or more in outside market channels.
During those few weeks of significant activity, the market was priced at between $81 and $86.
During that run-up, large private block purchases would have commanded a premium from sophisticated institutional investors because the price was clearly going up, and that is part of what would drive the market price up as well since these guys talk over coffee about what they just did with their portfolio.
That is the basis for my estimate that, prior to April 4, BH was paying as much as $85 to $90 a share since 1) BH was clearly the source of the buying power that drove the market price to $86 at a key point in the buying cycle, and 2) $81 to $86 are appropriate market benchmarks for estimating the cost of private block purchases as they provided a floor estimate for the premium, which I estimated at $85 to $90. Historically, that is a small premium compared to that offered for large share interests in other contexts, and I am not going waste any further energy arguing that a 5-8% premium for large blocks of shares is unreasonable by any stretch compared to the market price plus costs and commissions incurred in purchasing similar amounts in the market. It isn't.
Now, Ed argued that purchases since then have averaged much lower purchase prices, and attempted to assert that this somehow disproved my premise. However, that put words in my mouth I did not say.
On the contrary, what happened is exactly what I said would happen when a price drops sharply against an originally higher purchase price -- in an effort to reduce the average cost per share. Such purchases can stand as evidence that a higher price was previously paid rather than the Ed's apparent default position that everything the man does is automatically brilliant.
MP173 wrote: Since April5th there have been the following SEC filings of BNI stock4-4 1,219,000 $81.18 (.606 81.69)4-5 427,900 $81.80 (1.531 82.72)These purchases got BH's holdings to 39,027400 shares which had been accumulated over 3 months at a return of 7%. Doing the math, it is obvious the to have a 7% return would place average price at that point to be around $76. Further, purchases were made in August:8-3 1133600 $80.40 (2.061 79.10)8-6 424000 $79.45 (2.414 80.68)8-7 62400 $79.78 (1.537 81.25)8-15 500700 $78.96 (2.515 78.70)8-16 900800 $76.50 (5.108 77.87)8-23 431500 $79.96 (1.605 79.98)8-24 2439100 $79.97 (1.556 80.55)8-27 3322170 $80.00 (1.119 80.33)Today's closing price is $78.66. Implying a 15% loss on investment would mean he paid an average price of $92.54 for all 52.1 million shares. We know from the above he has paid around $79 per share for about 15 million shares. We know that he had an average return of 7% over 3 months for the 37million shares he purchased prior to April's announcement. Doing the math, there is no way he has lost 15%.Another way to look at it, we know the above 15 million shares was purchased at around $79.To reach the $92 level, the balance of the 38 million shares would have averaged $96.34 in order to level out at $92.It appears he has an average purchase price of hmmm, say $75 - $78.ed
Since April5th there have been the following SEC filings of BNI stock
4-4 1,219,000 $81.18 (.606 81.69)
4-5 427,900 $81.80 (1.531 82.72)
These purchases got BH's holdings to 39,027400 shares which had been accumulated over 3 months at a return of 7%. Doing the math, it is obvious the to have a 7% return would place average price at that point to be around $76.
Further, purchases were made in August:
8-3 1133600 $80.40 (2.061 79.10)
8-6 424000 $79.45 (2.414 80.68)
8-7 62400 $79.78 (1.537 81.25)
8-15 500700 $78.96 (2.515 78.70)
8-16 900800 $76.50 (5.108 77.87)
8-23 431500 $79.96 (1.605 79.98)
8-24 2439100 $79.97 (1.556 80.55)
8-27 3322170 $80.00 (1.119 80.33)
Today's closing price is $78.66. Implying a 15% loss on investment would mean he paid an average price of $92.54 for all 52.1 million shares.
We know from the above he has paid around $79 per share for about 15 million shares. We know that he had an average return of 7% over 3 months for the 37million shares he purchased prior to April's announcement. Doing the math, there is no way he has lost 15%.
Another way to look at it, we know the above 15 million shares was purchased at around $79.
To reach the $92 level, the balance of the 38 million shares would have averaged $96.34 in order to level out at $92.
It appears he has an average purchase price of hmmm, say $75 - $78.
I have added the closing market price and shares traded on the market for the same dates as the reported BH purchases. (Bold parens). I don't have the intra day ranges, but it is fairly obvious that Buffet is able to make purchases below or just a little over the closing market prices.
Prior to April 4, 2007 he accumulated about 37.5 million shares appearantly in the previous 90 days. From January 2 to April 4, 2007 the highest market close for BNI stock was 84.92 on February 22. However, at April 4 the average price for the previous 90 days was about $78.
Of course it is true that the seller of a large block of stock may be able to command a premium over the market. On the other hand, if for some reason the seller wants to liquidate a large position in a very short time, dumping an extraordinary large block on the exchange could have a negative impact on the price. Willing buyer-willing seller is certainly a two way street.
"We have met the enemy and he is us." Pogo Possum "We have met the anemone... and he is Russ." Bucky Katt "Prediction is very difficult, especially if it's about the future." Niels Bohr, Nobel laureate in physics
I hope that he keeps on buying more BNSF stock. BNSF is one big POWERFULL Railroad right now.
More than I can say for the up.
Some added insight into Warren Buffet the man.
> > Excerpts from a CNBC interview with Warren Buffet, the third richest man in the world, who has donated over $31 billion to charity:> > > > 1. He bought his first share at age 11 and he now regrets that he started too late!> > > > 2. He bought a small farm at age 14 with savings from delivering newspapers.> > > > 3. He still lives in the same small 3-bedroom house in mid-town Omaha, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a security fence. In fact, there is no fence.> > > > 4. He drives his own car everywhere and does not have a driver or security people around him.> > > > 5. He never travels by private jet, although he owns the world's largest private jet company.> > > > 6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEO's of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis. He has given his CEO's only two rules. Rule number 1: Do not lose any of your share holder's money. Rule number 2: Do not forget rule number 1.> > > > 7. He does not socialize with the high society crowd. His pastime after he gets home is tomake himself some popcorn and watch television.> > > > 8. Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill Gatesdid not think he had anything in common with Warren Buffet, so he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.> > > > 9. Warren Buffet does not carry a cell phone, nor has a computer on his desk. His advice toyoung people: Stay away from credit cards and invest in yourself and remember:> > > > A. Money doesn't create man but it is the man who created money.> > B. Live your life as simple as you are.> > C. Don't do what others say, just listen to them, but do what you feel is good.> > D. Don't go on brand name; just wear those things in which you feel comfortable.> > E. Don't waste your money on unnecessary things; rather just spend it on those who are really in need.> > F. After all, it's your life; then why give a chance to others to rule our lives?
oltmannd wrote: Murphy Siding wrote: How much stock does one usually have to own, before they let you call the shots? 51% Although, the more you have, the more influence you have and the more the company pays attention to what you have to say.
Murphy Siding wrote: How much stock does one usually have to own, before they let you call the shots?
51%
Although, the more you have, the more influence you have and the more the company pays attention to what you have to say.
Thanks to Chris / CopCarSS for my avatar.
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
MP173 wrote: Today's closing price is $78.66. Implying a 15% loss on investment would mean he paid an average price of $92.54 for all 52.1 million shares. We know from the above he has paid around $79 per share for about 15 million shares. We know that he had an average return of 7% over 3 months for the 37million shares he purchased prior to April's announcement. Doing the math, there is no way he has lost 15%.
Ed, I don't know why you do this. Once again, I find myself in a conversation with you repeating, "that's not what I said."
It appears that his initial purchases, prior to his announcement last April, were purchased while the market was somewhere between 82 and 86. Typically -- and I emphasize typically -- large blocks of shares in an acquisition like this are bought privately from other investors, not on the market for a variety of reasons, not the least of which is that the market cost of acquisition does not show the true acquisition cost -- i.e. the cost of commissions is not shown -- and buying such large blocks on the market would tend to push the market to overprice the shares. Hence, a large buyer will pay a premium, over market, to another large holder to avoid an even higher market price if the buyer bought from the market exclusively.
Since those purchases, BN shares have been declining. At the time, some of the posters here thought it was absolute proof of a variety of self-induced enthusiasms about the BN or about Warren Buffet. Some of us suggested we thought the timing of his earlier purchasers was difficult to justify. Some of the posters at that time have been vindicated in their views stated at that time. I know you are not one of them, and that apparently motivates what to me is a distorted recitation of my statement that the stock has declined considerably. The fact is, it has.
Yes, more purchases have occured since those pre-announcemnt purchases, and those that were purchased on the open market and were purchased at prices considerably below February market costs, and no doubt considerably below the cost of any private purchases made.
Now, I set forth my reasoning as to why purchases would be made after a decline in market cost. I do think BH has suffered as much as a 15% loss from those earlier purchases. Please read my post again. You post these recent purchases at lower prices and then conclude that the average purchase price overall resembles yesterday's close -- even though I had specifically referenced the recent low of 75, not "yesterday's". If you will read my post, I state exactly why he would be purchasing now, and that is to leverage any future rise against the losses incurred.
That is, in fact, exactly what happens when the average cost per share overall declines, and the buyer continues buying shares, which is exactly what I said his strategy apparently is. It is an old stategy, going back to Russell Sage's era.
And that it is an "oops" strategy, but one that can still turn a profit by lowering the average cost of shares, but also opens the door to further and larger losses as well.
It certainly appears Dakguy that he feels comfortable purchasing the stock at the $80 or less range. What I find interesting is after the initial disclosure in April the stock spiked into the 90's then slid back to the present range.
Subsequent announcements of his purchases have not caused spikes. The market seems to be valuing it at current levels. I wonder if BNI is continuing its repurchase of stock?
In studying his purchase record, I have been wondering if his actions are not creating a price floor for the rest of us in the $76 to $78 range. He has the means to continue this program and is not adverse to 100% ownership (consider his insurance investments).
4-4 1,219,000 $81.18
4-5 427,900 $81.80
8-3 1133600 $80.40
8-6 424000 $79.45
8-7 62400 $79.78
8-15 500700 $78.96
8-16 900800 $76.50
8-23 431500 $79.96
8-24 2439100 $79.97
8-27 3322170 $80.00
MP173 wrote: Perhaps your statements should be based on facts rather than assumptions. Take a look at what he paid for the 39 million shares. Much lower than your assumption.
Perhaps your statements should be based on facts rather than assumptions. Take a look at what he paid for the 39 million shares. Much lower than your assumption.
During the month of February, when there was a heavy upward pressure on shares, the price reached 86. The number of shares traded, however, does not at any time prior to the announcement of the purchase reflect the heavy buying on the open market that would be necessary to support a purchase of 10% of the outstanding shares -- indicating that there were likely substantial private purchases. The Beta on BNSF suggests that such a premium might have been priced at about $88-$90 during that time. Since nobody sells at less than market, and the market does not show extraordinarily high numbers of open market purchases, it is likely that Buffet was privately purchasing at least some shares from institutional investors at a premium.
If you have a source for when he bought his stock and the actual price he paid, I'd take a look at it.
MP173 wrote: Michael:Double check your figures before you turn in your homework ( hint "lost nearly 15% on the price it paid for shares in March/April").ed
Michael:Double check your figures before you turn in your homework ( hint "lost nearly 15% on the price it paid for shares in March/April").
Assuming Berkshire Hathaway bought it's stock at share prices somewhere between 85 and 90, and the stock briefly traded as low as 75 recently, that represents a loss of between 13% and 17% in value.
CShaveRR wrote:No, Ed. He's interested in money, and has recently discovered that railroading is a good way to earn it.
Welll ... as far as "recent discoveries" go, as of last week Berkshire had lost nearly 15% on the price it paid for shares in March/April, a total loss of nearly $500 million. For those who pointed out at that time -- on these forums -- that the stock seemed due for a correction at that particular point in time, that a business cycle was heading into a downturn, and that the then-current high price already priced in alleged pricing power, Powder River Basin, etc, their caution was certainly better advised at the time, and far more accurate in hindsight than the cheerleaders who claimed differently.
Buying more shares after such a large loss is an old-fashioned "hedge" strategy ... on the theory that any recovery at all at this point can leverage to reduce any ultimate loss if the stock fails to regain its former high, and that a large enough purchase at the lower price can still produce a profit on a rise, even if the rise does not match the former high price.
This is an "oops" strategy, acknowledging a misreading the market, but one that can still pull a rabbit out of a hat, or ... expose the investor to even further losses.
samfp1943 wrote: CShaveRR wrote:No, Ed. He's interested in money, and has recently discovered that railroading is a good way to earn it. He's bought lesser amounts of UP and NS as well. But BNSF is the one he keeps going back to.Maybe, Warren Buffet wants to move the office closer to his 'home'--Can you see it now, BNSF and UP HQ's both with an Omaha address?
CShaveRR wrote:No, Ed. He's interested in money, and has recently discovered that railroading is a good way to earn it. He's bought lesser amounts of UP and NS as well. But BNSF is the one he keeps going back to.
Maybe, Warren Buffet wants to move the office closer to his 'home'--Can you see it now, BNSF and UP HQ's both with an Omaha address?
She who has no signature! cinscocom-tmw
Great point Carl, I stand corrected.
He is certainly putting that $60BILLION of cash to work. As much as I like railroads, I am not sure that I share his heavy conviction that BNSF is that great of an investment. Good investment? Sure. Great? I am undecided.
But then again, I dont have his success at investing over the years!
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