Are you ready to learn about the master of investing, Warren Buffett, and how he has been using buybacks to reward long-term shareholders? If so, you’re in the right place!
At Extreme Investor Network, we want to provide you with the most valuable insights on trading, stocks, and bonds, and what better way to do that than by delving into Warren Buffett’s strategy when it comes to buybacks.
Warren Buffett, also known as the “Oracle of Omaha,” has been reducing the share count of Berkshire Hathaway through buybacks in recent years. This strategy, initiated in 2011, has seen the conglomerate repurchase nearly $75 billion worth of its common stock over the past five and a half years, eliminating more than 10% of the company’s total shares outstanding.
But why does Buffett believe in buybacks as an effective way to reward shareholders? According to him, buybacks allow shareholders to increase their percentage of shares held without spending a dime. This, in turn, helps increase the shareholders’ wealth when the price/value equation is right.
Buffett’s approach to buybacks is disciplined and strategic. Berkshire will only buy back shares when two conditions are met: 1) Buffett believes the stock is selling for less than it’s worth, and 2) Berkshire will still have sufficient cash after the buybacks. The legendary investor emphasizes the importance of not overpaying for shares, as it can be “value-destroying” for shareholders.
In the first quarter of 2024, Berkshire spent $2.6 billion on buybacks, a slight increase from the previous quarter. Buffett has expressed satisfaction with the pace of buybacks but is open to deploying more money if prices are attractive. He aims to reduce shares when it makes sense to do so and is always on the lookout for big opportunities.
As of now, Berkshire Hathaway’s shares are up more than 20% this year and have outperformed the S&P 500. UBS estimates that the shares are trading at a 6% discount to intrinsic value, indicating a potential for further buybacks in the future.
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