Relative to Guru
Whitney Tilson
's announcement yesterday announcing to buy more shares of
Warren Buffett
's Berkshire Hathaway, immediately following the widespread news
of
Berkshire's stock repurchase,
it is safe to take a trip down memory lane and look back on what
Tilson's repurchasing beliefs entail.
In a Wall Street Journal article published in February, titled
The Pros and Cons of Stock Buybacks
, Tilson said, "It never ceases to amaze me-and, when a company
we own does the wrong thing, infuriate me-how few companies think
sensibly about this topic and thus buy back stock for all the
wrong reasons: to prop up the price, signal "confidence," offset
options dilution, etc."
Tilson, who joins many investors who advocate
Warren Buffett
's value investing insights, and who heads hedge fund firm, T2
Partners Management, maintains Berkshire as one of his top
holdings.
As of the end of the third quarter, Tilson owned 90,382 Berkshire
B shares (
BRK.B
), representing 4.6 percent of his portfolio. In the second
quarter, he only had a little bit under 5,000 shares, making his
latest Berkshire transaction in the third quarter a 1,790 percent
increase.
Figures pertaining to how many shares he plans to add to his
Berkshire stake have not been reported.
Given his long position in the company, Tilson cites Warren
Buffett in the WSJ article, bringing forth the importance of
intelligent repurchasing:
"Warren Buffett, in his 1999 letter to Berkshire Hathaway
shareholders, perfectly captures the key elements of a smart
share repurchase program:
'There is only one combination of facts that makes it
advisable for a company to repurchase its shares: First, the
company has available funds-cash plus sensible borrowing
capacity-beyond the near-term needs of the business and, second,
finds its stock selling in the market below its intrinsic value,
conservatively calculated.'
In other words, once a business has a strong balance sheet,
then it should first take its excess cash/cash flow and reinvest
in its own business-if (and only if) it can generate high rates
of return on such investment. Then, if it still has cash/cash
flow left over, it should return it to shareholders, who are,
after all, the owners of the business-it's their cash. But this
raises the question of whether cash should be returned via
dividends or share repurchases."
(Read the rest of the article at The Pros and Cons of
Stock Buybacks)
Accompanying Tilson's elation to hearing Berkshire's repurchase
news, was also an update to his Berkshire Hathaway presentation
slides, which placed Berkshire 26 percent below what the firm
claimed an intrinsic value of $180,000, which T2 partners showed
was a multi-decade low. (View the presentation at Whitney Tilson
Update on Berkshire Hathaway)
Reported by CNBC, Tilson wrote in a note to clients reacting to
the buyback: "Buffett just put a floor on the stock of
$134,000...Go figure. Needless to say, I'm even happier having
this as my largest position - and added to it this morning the
moment I saw the news."
Berkshire Hathaway Class B stock is up 0.01 percent in this
afternoon's trading. However, both A and B shares have a
GuruFocus rating of 1 star in Business Predictability, 6 out of
10 in Financial Strength and 8 out of 10 in Profitability and
Growth.
To read more on related topics, visit the following GuruFocus
articles and submissions:
Warren Buffett and Share Repurchases - The Facts
Warren Buffett Finds Berkshire Share Valuation
Attractive, Completes Buyback
Whitney Tilson Update on Berkshire Hathaway
Whitney Tilson On Why He Thinks Berkshire Hathway is
Still Super Cheap
T2 Partners - March Investor Letter
Whitney Tilson - I Don't Want a Dividend From Berkshire
Hathway, Let Warren Invest the Money
Warren Buffett Annual Shareholder Letter for 2011 is
Out
Notes on Warren Buffett's 2011 Letter to
Shareholders
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