Berkshire has eliminated 10% of outstanding shares as Buffett values the enduring power of buybacks

Published Sun, Jul 21 20247:37 AM EDT

Berkshire Hathaway has reduced a sizable chuck of share count through buybacks in recent years as Warren Buffett views the repurchase program as an effective way to reward long-term shareholders. Over the past five and a half years (22 quarters), the conglomerate has repurchased nearly $75 billion worth of its common stock, eliminating more than 10% of the company's total shares outstanding, according to Greggory Warren, Berkshire analyst at Morningstar. The "Oracle of Omaha" initiated a buyback program in 2011 and relied on repurchases in recent years during a competitive dealmaking environment and an expensive stock market. Buffett believes buybacks are beneficial to shareholders for one simple reason: You don't need to spend a dime to increase your percentage of shares held. "Through that simple act, we increase your share of the many controlled and non-controlled businesses Berkshire owns," Buffett said in his 2021 annual letter. "When the price/value equation is right, this path is the easiest and most certain way for us to increase your wealth." The Omaha-based Berkshire will only buy back shares when two conditions are met: 1) Buffett thinks the stock is selling for less than it's worth; 2) Berkshire will still have ample cash after the proposed buybacks. The 93-year-old legendary investor believes that it would be "value-destroying" if he overpaid for Berkshire shares. "If you're repurchasing shares above a rationally calculated intrinsic value, you are harming your shareholders, just as if you issue shares beneath that figure, you are harming your shareholders," Buffett once said in 1996. Hoping for an occasional big opportunity Berkshire spent $2.6 billion in the first quarter of 2024 to buy back its own common stock on the open market, up from $2.2 billion in the fourth quarter of 2023. Earlier this year, Buffett said he feels good about his conglomerate's pace of buybacks right now, but if prices are attractive, he would spend even more. BRK.A YTD mountain Berkshire Hathaway "Under certain market conditions, we could deploy quite a bit of money in repurchases," he said at the shareholder meeting. "We will try to reduce shares when it makes sense to do so. We will hope for an occasional big opportunity. And we're quite satisfied with the position we're in." Shares of the conglomerate are up more than 20% this year after hitting a record closing high this week. The stock has outperformed the S & P 500 in 2024 so far. UBS estimated that Berkshire's shares are trading at around a 6% discount to intrinsic value, compared to the 19% average discount since the conglomerate resumed repurchases in 2018. The Wall Street firm projected that Berkshire repurchased almost $2.5 billion worth of stock in the second quarter.