Nov

4

Hypothesis One, by Victor Niederhoffer:

Whenever BRK big breaks through 100000 one way or the other it's wrong for the market.

Hypothesis Two, by Daniel Grossman:

Whenever Buffett pays stock rather than all cash (e.g., for General Re), he is bearish about the market. It's his only available way of selling BRK stock.


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2 Comments so far

  1. James Starr on November 4, 2009 10:26 pm

    Obviously issuing stock is not a true sale, but rather a reduction in his percentage interest in BRK. If he were truly bearish, he’d pay a dividend.

    He has often commented that BRK would be better off if they had paid cash for many of their acquisitions. I’d assume he had this choice largely available this time … and so issuing stock does not suggest that Buffett thinks BRK nor BNI are all that cheap.

  2. Rocky Humbert on November 5, 2009 3:47 pm

    Perhaps it all boils down to tax avoidance?

    The purchase of Gen Re (which mostly owned bonds) for stock was a tax-efficient way to reduce the equity allocation of Berkshire Hathaway without paying any capital gains tax on the sale of their low cost-basis stocks. Although Gen Re turned out to be a mess, he made this allocation near the top of the stock market.

    Likewise, giving BNI shareholders a stock-election (with a collar) allows some BNI shareholders to realize their gain without paying capital gains taxes. I would hope that the Board of BNI insisted on that, as well as on the 50:1 split. (It's a pro-rata 60% cash/40% stock election.) The merger agreement (when it's posted) may give some color on whether this was negotiated by BNI or offered by BRK.

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