Warren Buffett’s Berkshire Hathaway has bought back nearly $US30 billion of its shares in the past year and a bit or around 5% of its issued capital — a big sign he considers the company is a better growth prospect than much of the rest of the US stockmarket.
The purchases were updated in Berkshire’s 4th quarter and annual results, released on Saturday in Omaha, Nebraska, and in Buffett’s annual letter to shareholders – the most widely anticipated communication from a company CEO anywhere in the world.
Buffett’s company revealed that during the fourth quarter it bought back around $US9 billion of Berkshire shares, bringing the total 2020 repurchase to a record $US24.7 billion.
That is almost five times the $US5 billion worth of shares bought back in all of 2019. The buybacks were not included in the $US281 billion of marketable securities held for sale by Berkshire at the end of December.
That was despite plunging billions of dollars into the shares of Japan’s five major trading companies (such as Mitsui) and more than $US8 billion into the shares of America’s number 2 telco, Verizon.
Berkshire Hathaway’s class A shares hit a new all-time high on Thursday, after bouncing 52% from the March 23 low. After again underperforming the S&P 500 in 2020, the shares are now up about 4.8%, outperforming the S&P 500′s 1.5% gain.“Berkshire has repurchased more shares since year-end and is likely to further reduce its share count in the future,” Buffett said in his annual letter to Berkshire shareholders
The stock buybacks have continued in 2021, with Berkshire repurchasing more than $US4 billion of its own stock.
It ended 2020 with $US138.3 billion of cash. That was down from $US145.7 billion at the end of the third quarter and slightly up on the $US137 billion at the end of 2019.
Buffett’s stock repurchases suggest that he and Berkshire can’t find the massive deals he is famous for to use up the billions in cash his companies generate every year, so the smartest thing is to return it to shareholders by buying back shares.
His last two mega deals, Kraft Heinz and Precision have resulted in billions of dollars of write downs and losses – both before, during and after the pandemic.
In that Buffett is saying that Berkshire and its more than 90 businesses is a far better (and safer?) growth prospect than any other business at the moment and for the immediate future.
Up to the end of the third quarter, Buffett had bought back $US16 billion of Berkshire’s shares, including $US9 billion in the three months to September in the largest buying back spree so far seen from the world’s most followed investors. That was matched in the final quarter of the year.
“In no way do we think that Berkshire shares should be repurchased at simply any price,” Buffett said in the annual letter at the weekend.
“I emphasize that point because American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked. Our approach is exactly the reverse.”
Buffett also signalled a long-term commitment to Apple, calling Berkshire’s $US120.4 billion stake and its ownership of the BNSF railroad its most valuable assets – “it’s pretty much a toss-up” – after Berkshire’s huge insurance operations.
