Berkshire Hathaway, under the guidance of Warren Buffett, has been actively engaging in share buybacks in recent years as a way to reward long-term shareholders. This repurchase program has proven to be an effective strategy in enhancing shareholder value. Over a period of five and a half years, the conglomerate has repurchased nearly $75 billion worth of its common stock, resulting in the elimination of more than 10% of the company’s total shares outstanding.
Warren Buffett, often referred to as the “Oracle of Omaha,” initiated the buyback program in 2011. He believes that buybacks are beneficial to shareholders because they allow for an increase in the percentage of shares held without the need for additional investment. In his 2021 annual letter to shareholders, Buffett stated that buybacks are the easiest and most certain way to increase shareholder wealth when the price/value equation is right.
Berkshire Hathaway has set specific conditions for share buybacks. The company will only proceed with repurchases if Buffett believes that the stock is trading below its intrinsic value and if Berkshire will still have ample cash reserves after the buybacks are completed. Buffett is adamant about not overpaying for Berkshire shares, as he views it as “value-destroying.”
Current Buyback Activity
In the first quarter of 2024, Berkshire Hathaway spent $2.6 billion on buybacks, a significant increase from the previous quarter. Despite this uptick in repurchase activity, Buffett remains cautious about overpaying for shares. He has expressed a willingness to deploy more capital into buybacks if prices are attractive. Berkshire’s share price has experienced a notable increase in value, outperforming the S & P 500 in 2024 thus far.
UBS estimates that Berkshire’s shares are currently trading at a 6% discount to intrinsic value, compared to the average 19% discount since the company resumed buybacks in 2018. This indicates that there is still room for further share repurchases at an attractive valuation. Moving forward, Buffett and Berkshire Hathaway will continue to prioritize buybacks as a strategy to enhance shareholder value and capitalize on occasional big opportunities in the market.
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