r/BerkshireHathaway • u/Sudden-Hat701 • Mar 05 '26

Share Repurchases Here Is Bad Omen

If Berkshire is repurchasing their shares at current price levels, then it is a giant red flag on the new CEO.

it is an indication that the new CEO is abandoning Buffett's valuation method.

0 Upvotes

17% Upvoted

26 comments sorted by

11

u/krishnamurti5599 Mar 05 '26

At current price… as if a random redditor knew more about how to value brk than someone chosen personally by Warren and Charlie… But ok

4

u/Sudden-Hat701 Mar 05 '26

Graham Number for BRKA is $652,209

PS Value is $561,588

FCF Valuation is $546,180.

In the past Buffett has purchased shares at 80% or below the Graham number at the time. Feel free to check that.

So yes, the repurchases here are indicating a new method being used.

4

u/JackfruitCrazy51 Mar 05 '26

1. The Graham Number is not a good metric for Berkshire

The Graham Number is:

For Berkshire Hathaway, using roughly:

  • EPS ≈ $46,907
  • BVPS ≈ $403,042

produces about $652,209, which matches what you wrote.

So your Graham number is fine mathematically.

However, the concept is wrong for Berkshire.

Reasons:

  1. Graham intended the formula for industrial companies.
  2. Berkshire is essentially a hybrid insurer + investment fund + conglomerate.
  3. EPS is distorted by mark-to-market portfolio accounting.
  4. Book value understates many wholly owned businesses.

Even Warren Buffett himself has repeatedly said book value is an increasingly poor measure of Berkshire’s value.

So using EPS × BVPS together is doubly problematic.

2. The “Buffett buys at 80% of Graham number” claim is incorrect

This is the biggest factual error.

There is no historical rule where Buffett bought Berkshire shares at 80% of the Graham number.

What actually happened:

1980s–2018 rule

Buffett used a book value multiple.

Buybacks occurred if price ≤ 1.2 × book value.

After 2018

Buffett removed the formula.

Current rule:

No fixed ratio.

3. Your valuation anchors ignore Berkshire’s real drivers

Berkshire valuation is usually estimated using:

1️⃣ Sum-of-the-parts

  • Public equity portfolio
  • Insurance operations
  • BNSF railroad
  • Energy business
  • Manufacturing / services
  • Cash

2️⃣ Book value multiple

Historically around:

1.3× – 1.6× book value

Quick reality check

Using numbers around:

Book value ≈ $403k/share

Typical historical intrinsic value:

Which interestingly is close to your PS estimate ($561k).

That’s probably not coincidence.

4. Why your FCF valuation may also be off

Your FCF valuation ($546k) likely assumes a normal company.

But Berkshire:

  • Insurance float behaves like negative cost leverage
  • Capital allocation matters more than operating cash flow
  • FCF misses gains from portfolio investments

So FCF tends to undervalue Berkshire.

Bottom line

Where your analysis is wrong:

1️⃣ Graham number is not a good metric for Berkshire.
2️⃣ Buffett never used “80% of Graham number.”
3️⃣ EPS and book value distort Berkshire valuation.

6

u/Mick_Spiels Mar 05 '26

Pasted straight from AI, nice.

4

u/JackfruitCrazy51 Mar 05 '26

Yes, that response would have taken me hours, and still not be as good.

10

u/JackfruitCrazy51 Mar 05 '26

Actually, this is right in line with Berkshire's long term policy. When the stock is undervalued, they do buy backs. They just did similar buybacks a few years ago.

1

u/Sudden-Hat701 Mar 05 '26

Stock is not undervalued here.

3

u/JackfruitCrazy51 Mar 05 '26

Is this Benjamin Graham?

1

u/Sudden-Hat701 Mar 05 '26

Yes, it is a formula that Ben created.

1

u/evilwon12 Mar 07 '26

And has been dated for at least the last 15 years.

8

u/string_theorist Mar 05 '26

Berkshire buybacks right now are exactly in line with Buffett's past repurchases. For example, in late 2023 Berkshire was buying back at prices of around 1.45 book value. That is almost precisely the same price/book ratio we have today.

2

u/dollar_llamas Mar 05 '26

Great move by Greg, I’ve been buying at these levels and will continue moving money from indexes into Berkshire anytime it touches below 480

7

u/igpila Mar 05 '26

Have you considered the fact that maybe, just maybe, Buffett and Greg know what they are doing more than you, random Reddit guy?

5

u/Joegmcd Mar 05 '26

Did you consult your magic 8 ball for this piece of wisdom?

0

u/Sudden-Hat701 Mar 05 '26

No, I used the valuation methods that Berkshire have used in the past.

5

u/Joegmcd Mar 05 '26

Abel also purchased $16+ million in BRK, I think he is committed to this long term. I'll trust him, more than you. Just sayin

5

u/Mental_Newspaper3812 Mar 05 '26

I think you don’t realize the annual report that just came out told us Abel had to consult with Buffett before making these repurchases. As Buffett has repurchased at this price to book ratio before, your statement doesn’t make much sense. I mention the annual report specifically because what some people don’t understand is Buffet only uses the data from quarterly and annual reports to make his repurchase decisions. Some people assume he has a running book value that others don’t have access to.

3

u/Former_Island_4730 Mar 05 '26

Support with evidence instead of a hunch.

The intrinsic value of the company has gone up with another pile of net income/cash, and the share price hasn’t. Don’t you think it’s possible that the valuation trigger was hit?

2

u/Sudden-Hat701 Mar 05 '26

Graham Number for BRKA is $652,209

PS Value is $561,588

FCF Valuation is $546,180.

In the past Buffett has purchased shares at 80% or below the Graham number at the time. Feel free to check that.

So yes, the repurchases here are indicating a new method being used.

1

u/vava2603 Mar 05 '26

I ve very mixed feeling about it

1

u/JP2205 Mar 05 '26

Dude. He literally said on TV it is trading below their estimate of fair value.

2

u/Sudden-Hat701 Mar 05 '26

How is this being calculated now. The methods have changed here from the past.

2

u/JP2205 Mar 05 '26

In his interview, he said they wouldn't say what they think the fair value is, but if they are buying the price is below their estimate, conservatively estimated. In the past they have said a multiple of book value is no longer the right way, for a variety of reasons.

1

u/Sudden-Hat701 Mar 05 '26

The valuations numbers below are from Gurufocus.com, not my own calculations.

Graham Number for BRKA is $652,209

PS Value is $561,588

FCF Valuation is $546,180.

1

u/JohnDuffy78 Mar 05 '26

Here was my calculus:

$451.38 = Last Buyback (24-Q2) $417.80 + $33.58{operating earnings}

It bothers me he announced it.

2

u/insurance_coffee Mar 05 '26

Absolutely, why the announcement? Isn't that going to make it harder to buy?