Berkshire Hathaway Accelerates Share Buybacks

(BRK.A), (BRK.B)

Investors wondering whether Warren Buffett thinks that Berkshire Hathaway stock has been undervalued, now have their answer. He does.

Berkshire Hathaway dramatically increased its share buybacks in the third quarter.

Approximately $9 billion was used to repurchase Berkshire shares during the third quarter, as compared to $5.1 billion in buybacks in the second quarter. This brings the nine month total share repurchases to approximately $16 billion.

The average share price Berkshire paid was: $188 for $2.5 billion in July, $210 for $3.1 billion in August, and $215.8 for $3.6 billion in September.

Warren Buffett’s annual letter to shareholders for 2019 detailed his thinking on share buybacks:

In past reports, we’ve discussed both the sense and nonsense of stock repurchases. Our thinking, boiled down: Berkshire will buy back its stock only if a) Charlie and I believe that it is selling for less than it is worth and b) the company, upon completing the repurchase, is left with ample cash.

Calculations of intrinsic value are far from precise. Consequently, neither of us feels any urgency to buy an estimated $1 of value for a very real 95 cents. In 2019, the Berkshire price/value equation was modestly favorable at times, and we spent $5 billion in repurchasing about 1% of the company.

Over time, we want Berkshire’s share count to go down. If the price-to-value discount (as we estimate it) widens, we will likely become more aggressive in purchasing shares. We will not, however, prop the stock at any level.

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.