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All signs suggest more stock buybacks at Berkshire Hathaway

Berkshire Hathaway Inc. (BRK-A, BRK-B) has underperformed the S&P 500 during the decade-long bull market run. However, at the company’s annual shareholders meeting on Saturday, Chairman and CEO Warren Buffett offered what many investors viewed as good news — by hinting at plans for future stock buybacks.

“We will buy stock when we think it is selling below a conservative estimate of its intrinsic value,” Buffett said during the meeting, exclusively live streamed on Yahoo Finance.

Buffett’s longtime business partner, Charlie Munger, also chimed in, saying Berkshire will “probably be more liberal with buybacks.”

In an interview with Yahoo Finance’s, On The Move, Rusty Vanneman, CLS Investments President and CIO, described the company’s position on buybacks as a highlight of the meeting for him.

“Charlie's one sentence was probably the real key to it, and he said, we're probably going to become a lot more liberal in our stock buybacks.”

“You look at Berkshire Hathaway, the amount of cash they have is like 20% of their overall market cap. So, it's definitely a lot of cash they have. And a lot of people are speculating why they're keeping it on the sidelines.”

Warren Buffett, Chairman and CEO of Berkshire Hathaway, speaks during a game of bridge following the annual Berkshire Hathaway shareholders meeting in Omaha, Neb., Sunday, May 5, 2019. (AP Photo/Nati Harnik)

As to whether or not stock buybacks are a consolation prize for investors, with the stock having its longest run of lagging behind the S&P, Vanneman dismissed the idea and said Buffett isn’t influenced by the whims of shareholders.

“I don't think Warren and Charlie are going to play to what investors might think short-term, of course. I mean, they're going to do what they've always done. And probably the biggest reason why they've underperformed is that their type of industry exposure or market exposure is simply not what investors have been rewarding the most.”

Berkshire Hathaway bought $1.7 billion of its own stock back last quarter. When executed properly, buybacks are an effective use of corporate capital, according to Buffett. And with Berkshire’s cash reserves hitting $114 billion at the end of the quarter, a case for buybacks is mounting.

While corporate buybacks have been booming recently, the practice has stirred up some controversy becasue it arguably benefits only shareholders rather than workers and the community.

In a joint op-ed in The New York Times published Feb. 3, Senators Chuck Schumer and Bernie Sanders called buybacks “corporate self-indulgence.”

Yvette is a Producer for Yahoo Finance’s On The Move.


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