Berkshire - Printing Cash and Buying Shares

Warren Buffett's investment conglomerate, Berkshire Hathaway came out with a strong set of numbers for the third quarter. Operating profit doubled in the third quarter, to $6.9 billion year-on-year. This is all thanks to lower taxes and fewer natural disasters on the insurance side of the business. Including investment gains, profits jumped to a mouthwatering $18.5 billion.

Berkshire bought back its own stock for the first time since 2012 . Buffett has been quoted in the past saying that he would consider buybacks when there are no other cheaper alternatives. Share buybacks are the closest thing to a free lunch, if done at the right price of course.

According to the report, Buffett will only repurchase Berkshire stock whenever its share price falls below what he determines as intrinsic value. This is an interesting shift in policy because previously the company used book value per share as a key input in the buyback exercise.



The quantum of the said buyback was $928 million which was done in the month of August. The last buyback programme was $1.3 billion in December 2012.

This reminds me of the book The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprints for Success. In the book the CEOs did lumpy buybacks when the stock was really cheap, and this (and other capital allocation decisions) created a lot of value for shareholders in the long-term.