Warren Buffett (Trades, Portfolio), CEO and chairman of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial), said Thursday that the company has repurchased its own shares since changing its buyback policy on July 17.
Speaking to CNBC before his annual charity auction lunch, Buffett did not give an amount, saying only that he bought “a little” of the stock.
“We tie it now to intrinsic business value, which we should have done all along but for a while book value was a good proxy,” Buffett said. “It didn’t fully describe intrinsic value, but it tracked it, and it was a reasonable proxy.”
Under Berkshire’s previous repurchase program, it would only buy back shares when they traded within 120% of book value, which would be less than $262,020 per share. In the second quarter, Berkshire’s A-share price averaged $293,012, or about 134% of book value. Berkshire’s share price advanced to $317,000 Thursday, placing the stock around 145% of book value and giving insight into Buffett’s calculation of the company’s intrinsic value, which he does not publish.
“What really counts is what are the businesses worth, along with the securities we own, and if it’s at a discount to that figure, Charlie and I will buy,” Buffett said.
Buffett would not have begun buying the shares until after Aug. 3, when it announced its second-quarter earnings, according to a press release.
The repurchases come as Berkshire’s stock has grown pricier. Shares of Berkshire Hathaway have gained 7% year to date and 17% for the past year.
Buffett has praised the concept of corporate repurchases in the past but only if the decision is made based on price.
“For continuing shareholders, however, repurchases only make sense if the shares are bought at a price below intrinsic value,” Buffett wrote in a 2016 shareholder letter. “When that rule is followed, the remaining shares experience an immediate gain in intrinsic value.”
The massive conglomerate’s repurchase program also has the stipulation that it will buy back shares only so long as its cash equivalents total more than $20 billion. At of the end of the second quarter, Berkshire had $120 billion in cash ready to spend. The stockpile has increased from $116 at year-end, when Buffett wrote in a letter to shareholders that he was already having trouble finding a place to deploy it.
In the CNBC interview, Buffett mentioned that he has been spending some of it on stocks and bought some that morning. In the second quarter, his largest buys were Goldman Sachs Group Inc. (GS, Financial), Delta Airlines Inc. (DAL, Financial) and Southwest Airlines Co. (LUV, Financial).
See his portfolio here.
