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Rupert Hargreaves
Rupert Hargreaves
Articles (1267)  | Author's Website |

Warren Buffett May Ramp Up Berkshire Stock Repurchases

Trading data shows there have been a lot of Berkshire shares changing hands recently

March 17, 2020 | About:

Over the past two years, the market has been keeping a close eye on Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) stock repurchase activity.

Around two years ago, the company's board, led by the Oracle of Omaha, Warren Buffett (Trades, Portfolio), announced that it was changing the group's approach to share repurchases. Previously, the company was only allowed to buy back stock when it was dealing below 1.2 times book. Under the new regime, Buffett and his business partner, Charles Munger, can authorize repurchases whenever the price is below Berkshire's intrinsic value, as determined by the two legendary business managers.

In 2019, Buffett spent around $5 billion buying back the company's stock at prices up to $220 per share for the B Shares. The level of share repurchases disappointed some investors, who wanted Buffett and team to deploy more of the group's massive cash mountain.

However, it looks as if the company has been a lot more active in the market as of late.

Buffett's buybacks

In his 2019 letter to investors, Buffett asked any shareholders with more than $20 million in stock who were willing to sell their shares in the conglomerate to call the company and ask for a quote. This is only the second time in history that he has made this call. Specifically, he said:

"Shareholders having at least $20 million in value of A or B shares and an inclination to sell shares to Berkshire may wish to have their broker contact Berkshire's Mark Millard at 402-346-1400. We request that you phone Mark between 8:00-8:30 a.m. or 3:00-3:30 p.m. Central Time, calling only if you are ready to sell."

It appears that there have been some investors who've taken Buffett up on this call over the past few weeks.

Insights from trading data

Looking at the trading data of Berkshire A Shares between when the letter was publishedon Feb. 22 and today (March 17), volumes have jumped. In fact, they jumped almost immediately.

Between Jan. 1 and Feb. 21, the average number of A Shares that traded every day was between 100 and 300.

On the first trading day after the letter was published, 700 shares traded hands. In the days and weeks since, a minimum of 400 shares have traded hands every day. The peak of trading was on March 12. On that day, 1,900 shares changed hands.

For some comparison, the daily trading volume of Berkshire A Shares has only exceeded 1,000 shares on 16 trading days in the past five years. Three of those have been in the past two weeks, and1,900 is the five-year volume high.

These numbers do not guarantee that Buffett is buying back stock. However, they suggest that, for the first time in five years, sellers are appearing in quantities that make buying back stock easier. Similar trading patterns can be observed in the B Share trading data.

If Buffett liked Berkshire B's share prices at $220, he should like them even more at $180.

Recent declines

What about the impact of the recent market declines on Berkshire's equity portfolio?

According to an analysis by Gurufocus, Buffett's portfolio has been marked down significantly by the sell-off. Year to date, the valuation of Buffett’s portfolio is down approximately $71.3 billion, or 29%, compared to the S&P 500’s 26% loss.

That has had an impact on the intrinsic value of the stock. However, what these numbers fail to take into account is the value of the brands Berkshire owns.

These brands and businesses are not immune from the Covid-19 disruption, but with Berkshire's financial backing and support, it's highly likely they'll emerge stronger from this upset than they went in. Other companies might not be so lucky.

Disclosure: The author owns shares in Berkshire Hathaway.

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About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

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