On 21 September, after the close, Berkshire Hathaway and Warren Buffett made two filings with the US Securities and Exchange Commission: a form declaring status as a holder of more than 10% of homebuilder Lennar, and a form detailing the purchases.
And reading the detail, it turns out most of the money went in on the day the stock fell.
Every figure in this article was taken directly from the filings themselves on the commission's site.
Errors or inaccuracies are possible. Spotted something that looks wrong? Write to me and I will correct it.
In brief:
- $212.4 million across 16 transactions, in three sessions.
- About half of it went in on Friday, when the stock fell 4.1%.
- The backdrop: a weak quarter two days earlier, with profit almost halved.
- And the stock only reacted to the filing on Tuesday - rising 6.39%.
What Exactly Was Bought
Per the Form 4 filed on 21 September - 16 transactions, all purchases:
| Session | Amount purchased | What the stock did that day |
|---|---|---|
| 17 September | $54.9 million | - |
| 18 September | $105.6 million | -4.10% |
| 21 September | $51.9 million | - |
| Total | $212.4 million |
- 2,668,508 Class A shares for $206.7 million, in a price range of $76.39 to $79.41.
- 75,021 Class B shares for $5.7 million.
- The largest single transaction: 1,218,429 shares at an average price of $76.39 - on 18 September.
- The holding after the purchases: 23,719,109 Class A shares and 528,217 Class B.
- Per the filing's footnotes, the stake is held indirectly, through subsidiaries of Berkshire.
So the most expensive day was the stock's worst day that week. That is not accidental timing for an open-market buyer - anyone buying at this size in the open market buys more as the price falls, because the same money buys more shares.
The Backdrop: The Quarter That Arrived Two Days Earlier
On 16 September Lennar published third-quarter results, and they were weak:
| This quarter | A year earlier | |
|---|---|---|
| Diluted earnings per share | $1.19 | $2.29 |
| Net earnings | $284 million | $591 million |
| Gross margin | 15.8% | 17.5% |
| New orders | 20,879 | - |
| Deliveries | 20,840 | down 3% |
- Orders came in below the company's own guidance (21,000 to 22,000).
- Average selling price: about $372,000 - and roughly 12% of it is incentives, meaning discounts, mortgage rate buydowns and free upgrades.
- The company cut its full-year delivery target to 80,000-81,000 from 82,000-83,000.
- Next-quarter order guidance: 19,500 to 20,500 - i.e. continued contraction.
And a 12% incentive is not marketing. It is a price cut that is not recorded as a price cut, because it lets the company hold its stated list price while giving up the margin.
And the Wider Picture This Sits In
Rates: the yield on the 10-year US Treasury - the anchor for mortgage rates - closed above 5% on three of the mid-September sessions (5.00% on 15.9, 5.01% on 16.9 and 5.01% on 18.9), after the Fed raised rates on 16 September.
Inventory: US existing home sales in August ran at 3.98 million annualised, down 2% on the month. Inventory reached 4.9 months of supply - the highest in more than a decade.
Sentiment: the US homebuilder confidence index stands at 32, and 38% of builders report cutting prices.
So whoever bought here bought into a combination of high long rates, rising inventory, and an industry cutting prices.
And the Market Reaction
The filing was published after Monday's close. On Tuesday, 22 September, Lennar shares rose 6.39% to $83.07.
So anyone who bought the stock because of the filing paid more than Berkshire did - between 4.6% and 8.7% above the range at which the shares were actually bought.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What I take from this filing is the timing, not the identity.
It is easy to focus on the name. What is more interesting is that half the money went in on a day the stock fell 4%, two days after a report showing profit almost halved and a full-year target cut. Buying like that is not buying the quarter - it is buying the fact that the price reacted to the quarter.
And what in my view gives away the logic is the incentive line. When a company sells a house for $372,000 and gives 12% in incentives, its margin erodes without the list price falling. That looks bad in the report and fine on the balance sheet: the company keeps selling volume, and profitability returns if financing costs fall. Anyone who believes this is cyclical sees deferred profit here; anyone who thinks long rates stay high sees continued erosion. I do not know which is right.
And what I do think can be said with confidence: the gap between the price Berkshire paid and the price after publication is exactly the price of the information. Anyone who bought on Tuesday bought the same company, for more money, because they knew who had bought before them.
And one more point worth keeping in proportion: a $212 million purchase is a small sum relative to Berkshire's size. A 10% filing is a disclosure event, not necessarily a strategic one - and it says nothing about where the stock goes next.
(It is important to stress: this is my personal opinion only, and nothing herein constitutes a recommendation to take any action.)
Ilan Abramov, the author, or anyone on his behalf may hold some of the securities or funds mentioned in this article.
