Warren Buffett, the legendary investor known as the “Oracle of Omaha,” has implemented a strategic buyback program at Berkshire Hathaway in recent years. The conglomerate has repurchased nearly $75 billion worth of its common stock over the past five and a half years, eliminating more than 10% of the company’s total shares outstanding. This move is seen as a way to reward long-term shareholders and increase their share of the businesses owned by Berkshire Hathaway.
Buffett’s approach to buybacks is rooted in two essential conditions. Firstly, he will only consider buying back shares when he believes the stock is selling for less than its intrinsic value. Secondly, Berkshire Hathaway must still have ample cash reserves even after the buybacks are executed. Buffett has emphasized the importance of not overpaying for Berkshire shares, as doing so would be detrimental to shareholders. In his view, buybacks should only be pursued when they can increase shareholder wealth in a meaningful way.
In the first quarter of 2024, Berkshire Hathaway spent $2.6 billion on buybacks, demonstrating a continued commitment to reducing share count when it aligns with the company’s criteria. Buffett has expressed satisfaction with the current pace of buybacks but remains open to increasing spending if attractive opportunities arise. He has highlighted the importance of deploying capital strategically, waiting for occasional big opportunities while maintaining a disciplined approach to buybacks.
Shares of Berkshire Hathaway have performed well in 2024, with the stock up more than 20% and reaching a record closing high. The company’s shares are currently trading at a 6% discount to intrinsic value, according to UBS, representing an improvement from the 19% average discount seen since Berkshire resumed repurchases in 2018. This indicates that investors have confidence in Buffett’s strategic approach to buybacks and the overall performance of Berkshire Hathaway.
Looking ahead, Buffett has stated that under certain market conditions, Berkshire could deploy a significant amount of capital towards buybacks. While current buyback levels are deemed satisfactory, Buffett remains attentive to potential opportunities to further reduce share count and enhance shareholder value. By maintaining a cautious yet opportunistic approach to buybacks, Berkshire Hathaway continues to demonstrate its commitment to delivering long-term value to its shareholders.
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