Buffett's SEC Filing Implies Repurchases; My updated calculation of Berkshire Hathaway's intrinsic value; Consumer Bureau Scraps Restrictions on Payday Loans; How Payday Lenders Target Consumers Hurt by Coronavirus; How To Write a Great Cold Email
1) A blog post I saw this week does some clever analysis to conclude that Berkshire Hathaway (BRK-B) CEO Warren Buffett likely repurchased at least $5 billion of the company's stock in May and June.
While we won't know for sure until Berkshire's second-quarter 10-Q report is filed in early August, I think this will prove to be correct – and is bullish for the stock. Buffett's SEC Filing Implies Repurchases. Excerpt:
In light of Buffett's comments only ten weeks ago, it was surprising to learn that Berkshire Hathaway almost certainly repurchased a significant amount of stock at some point between the annual meeting and July 8 when Buffett submitted a regulatory filing to the Securities and Exchange Commission documenting his annual charitable donations of Berkshire Hathaway stock. Sharp-eyed investors and journalists picked up on the implications of the filing which disclosed Buffett's holdings as a percentage of shares outstanding. Here are the facts that were included in the filing:
- Buffett owned 248,734 Class A shares and 10,188 Class B shares as of July 8.
- Each Class B share has 1/1500 of the economic rights of a Class A share.
- We can calculate that Buffett owned 248,740.8 Class A equivalents as of July 8.
- Buffett's ownership of Berkshire was 15.54% of the economic interest of the company.
- Dividing 248,740.8 by 0.1554, we calculate that there were 1,600,649 Class A equivalents as of July 8.
- The 10-Q report reveals that there were 1,620,023 Class A equivalents outstanding as of March 31.
- This shows that 19,374 fewer Class A equivalents were outstanding on July 8 than on March 31.
The average closing price of the more liquid Class B shares between May 4 and July 7 was approximately $180, which is equivalent to $270,000 per Class A share. If we assume that repurchases were made at around that average price of $270,000, this would imply that Berkshire allocated approximately $5.2 billion to repurchases over that two month span. It is very doubtful that these repurchases started immediately after the annual meeting given Buffett's clear indication that he was very concerned at that time and not eager to allocate capital. Given Buffett's reputation for integrity, it's inconceivable that he "talked down" the stock on Saturday, May 2 only to repurchase shares on Monday, May 4. But he might have changed his mind a couple of weeks later. We will not know the exact amount allocated to repurchases until Berkshire's second quarter 10-Q report is filed in early August, but the repurchase amount is likely to be in the $5 – $5.5 billion ballpark.
2) I just updated my estimate of Berkshire's intrinsic value to reflect the sharp rise in stocks since the end of the first quarter (the S&P 500 Index is up 25% since March 31).
Assuming Berkshire's stock portfolio has risen by the same amount – a conservative assumption, given that Berkshire's six largest positions have risen by 31%, led by Apple's (AAPL) 54% jump – this adds $27,700 to Berkshire's cash and investments per share, which ended the first quarter at $217,800 per A-share, for a total today of $245,500.
To this, we must add the value of Berkshire's wholly owned businesses – dozens of companies like BNSF Railway, various utilities, manufacturers, insurers, and so forth. These generated $29.25 billion in pre-tax earnings last year. To reflect the effect of the coronavirus crisis, I'm assuming that this number is 10% lower in 2020, or $26.3 billion.
From this, I subtract all insurance and investment income ($7 billion last year), but then add back $1.4 billion for normalized insurance earnings, to arrive at estimated pre-tax earnings of $20.7 billion or $12,760 per A-share.
I then apply a multiple of 11 times – again, I'm likely being conservative in light of the quality of these businesses and the high multiples being awarded to blue-chip companies in today's market – to arrive at a value for Berkshire's wholly owned businesses: $140,360 per A-share.
Adding cash and investments of $245,500 results in intrinsic value for all of Berkshire Hathaway of $386,000 per A-share ($257 per B-share) – 35% above today's price.
Berkshire is incredibly safe and has solid growth prospects. And the stock's underperformance this year – combined with the likelihood that Buffett has started to buy it back in size – has created a great entry point on the stock for conservative, long-term-oriented investors.
3) What a total disgrace! Consumer Bureau Scraps Restrictions on Payday Loans. Excerpt:
The Consumer Financial Protection Bureau on Tuesday formally rescinded a plan to impose new limits on payday lending, handing the industry a major victory by killing off tighter rules that it spent years lobbying to overturn.
The proposed rules would have been the first significant federal regulations on an industry that makes $30 billion a year in high-interest, short-term loans, often to already struggling borrowers. Those loans can leave borrowers trapped in cycles of debt, incurring fees every few weeks to replenish loans they cannot afford to pay off.
The change would have limited how many loans borrowers could take in a row and required lenders to verify that they had the means to pay back their debt. According to the consumer bureau's estimates, the rules would have saved consumers – and cost lenders – some $7 billion a year in fees.
Lenders fought hard against the rules, which were one of the bureau's signature efforts during the Obama administration, arguing that the changes would harm consumers by depriving them of access to emergency credit.
That argument resonated with the agency since it has taken a more business-friendly approach under President Trump...
The bureau "gave payday lenders exactly what they paid for by gutting a rule that would have protected American families from predatory loans," said.
4) And here's a related disgrace reported in the Wall Street Journal: How Payday Lenders Target Consumers Hurt by Coronavirus. Hopefully this article will spur Alphabet's (GOOGL) Google and Facebook (FB) – and other similar companies – to crack down on ads by predatory businesses. Excerpt:
Lenders that target struggling borrowers for loans with triple-digit interest rates have overcome yearslong efforts to restrict their lending and are pitching their products to consumers in need of cash during the coronavirus pandemic.
They sidestepped state crackdowns by joining with out-of-state banks to offer loans and now are bypassing ad bans put in place by Google which calls their offerings "dangerous financial products," and Facebook a Wall Street Journal investigation found.
The investigation, involving hundreds of online searches, shows that the lenders are marketing loans that typically carry annual percentage rates of around 200% to 500% to consumers looking online for financial help amid the biggest wave of job losses in U.S. history. Google and Facebook removed several ads and said they blocked the companies' websites from advertising again after they were contacted by the Journal.
5) There's some good advice here: How To Write a Great Cold Email That Will Actually Get a Response. Excerpt:
One of the best-kept secrets in the start-up world is that you can access almost anyone you want to with a great cold email. Well, almost anyone... see more below.
CEOs are remarkably accessible and easy to reach.
Most CEOs and VCs personally read every well-formed email they get, even if they don't know the sender. This means that if you send a great cold email to your favorite CEO, chances are it will get read...
When I was in college in the 1990s, I would send cold emails to people like Steve Jobs, then the CEO of NeXT, and Steve Ballmer (then #2 at Microsoft). Both of them would reply within hours... to a college student. And if you're wondering, yes, I would usually send them from my berkeley.edu email address at 3 am while in the computer lab waiting for a program to compile.
But just guessing someone's email address does not make your email worth sending.
If you want to start a meaningful conversation with the person you're trying to reach, you need to write a great cold email.
There are three things you need to do to write a great cold email:
- Personalize and send it to the right person.
- Emphasize how responding will benefit the reader.
- Make it short and clear.
That's it. That's all you need to do.
This reminds me of slide presentation I put together and taught entitled: "How to cultivate mentors, make friends, and develop deep relationships." I'm including it in the book I'm finishing, tentatively entitled: The Art of Playing Defense: How to Get Ahead By Not Falling Behind. There are five steps to cultivating a mentor, which I'll cover in future e-mails...
Best regards,
Whitney