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Rupert Hargreaves
Rupert Hargreaves
Articles (689)  | Author's Website |

Warren Buffett's Buy-Back Plan Should Be Heating Up

The Oracle of Omaha has had plenty of opportunities to buy back shares in the past 60 days.

December 11, 2018 | About:

At the end of October, I speculated that after recent declines, Warren Buffett (Trades, Portfolio) had been buying back shares in his conglomerate, Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), throughout the third quarter of 2017.

At the time of writing, I didn't really have much evidence to support my thesis apart from some comments Warren Buffett (Trades, Portfolio) made when being interviewed by CNBC. In a CNBC interview at the end of August regarding the new policy, Buffett said he had bought "a little" of the stock. I concluded that with Berkshire A shares trading in a range of around $300,000 to $318,000 in the weeks before the interview, Buffett had continued to buy shares in Berkshire throughout September and October as at the time of writing the original article, shares in Berkshire Hathaway were changing hands for around $300,000.

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At the beginning of November, when the insurance to candy conglomerate published its results for the third quarter of 2018, we found out that Buffett had indeed been spending some of his $100 billion-plus cash pile to repurchase shares.

Berkshire starts buying

Previously, Berkshire was allowed to repurchase its own shares only if they were trading below 1.5 times book value. Earlier this year, Buffett and the rest of his directors decided to initiate a new policy whereby the company can now repurchase its shares if Buffett and Munger believe that the stock is trading below their (conservative) estimate of intrinsic value.

In the third quarter of 2018, according to Berkshire Hathaway's quarterly results publication, Berkshire bought back $928 million in shares. This isn't a huge amount, but the very fact Buffett was willing to pay what he did is very revealing.

Buffett paid an average price of $312,806.74 a piece to repurchase 225 Class A shares in the third quarter. Based on this activity, it is reasonable to assume that he believes Berkshire Hathaway's intrinsic value is above $312,806.74.

The good news for Berkshire Hathaway shareholders is that over the past three months, and since the conglomerate published its third-quarter results, the Oracle of Omaha has had numerous opportunities to buy back stock at a much more attractive price than he was able to in the three months to the end of September.

After rising to a high of $335,630 at the beginning of October, Berkshire Hathaway shares slumped to just under $297,000 by the end of the month before rising back to around $333,000 in mid-November. They are currently changing hands for only under $305,000, which is 2.5% under the average price paid by the company to acquire its own shares in the three months to the end of September.

Buybacks ramping up

According to my analysis, between the end of September and today, there have been 18 trading days when shares in Berkshire Hathaway changed hands for less than $312,806.74.

Some quick math gives a rough idea of how much stock the Oracle of Omaha could have acquired over these trading days. The average daily trading volume of Berkshire Hathaway A shares over the past three months is 333. If Buffett bought up 10% of daily trading volume on the 17 days where the stock traded below $312,806, we can estimate that Berkshire Hathaway has acquired another 561 shares since the end of September. At an average price of $313,000 (once again a very rough estimate) that could be a total spend of $175 million.

These are very rough estimates and are intended to be nothing more than speculation.

There are many other different factors to consider, such as buying back of B as well as A shares (there is much more liquidity in the B shares (an average of 4.7 million shares traded a day), which makes them a better candidate for buybacks), and we don't know how aggressive Buffett is with his repurchases. Still, these numbers clearly show that Berkshire Hathaway has almost certainly been repurchasing shares since the end of September and could even be doing so today.

Disclosure: The author owns shares in Berkshire Hathaway.

Read more here: 

Buffett's Most-Loved Stocks Are on Sale: Time to Load Up

Investments and Strategies From the Buffett Partnerships Era: Controls

Phil Fisher: What About Dividends?

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.

Visit Rupert Hargreaves's Website


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