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Warren Buffett on $100 Billion Buybacks and His ‘Nightmare’

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Warren Buffett’s nightmare

In an interview with the Financial Times, Berkshire Hathaway (BRK-B) CEO Warren Buffett said, “The time may come when the company buys back as much as $100bn of its shares.” In response to the hypothetical question “What happens when Berkshire’s shares are trading at a fair price, and companies and stocks look expensive too?” Buffett replied that such an event would be his “nightmare.”

Last year, Berkshire changed its share repurchase policy. Previously, its buybacks had been linked to book value. However, the company relaxed its buyback policy, providing Buffett and Vice Chair Charlie Munger with more leeway in allocating Berkshire’s cash. While buybacks in general have received some criticism, Buffett defended them earlier this month in an interview with Yahoo Finance, saying they make “nothing but sense.”

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Buybacks

Several US companies (SPY) (QQQ), including Apple (AAPL), which was Berkshire’s biggest holding at the end of the fourth quarter, have used buybacks to utilize their excess cash. In his 2018 shareholder letter, Buffett said Berkshire’s repurchases would “take place at prices above book value but below our estimate of intrinsic value” and that “the math of such purchases is simple: Each transaction makes per-share intrinsic value go up, while per-share book value goes down.” Read Warren Buffett and the Problem with Elephants for a detailed analysis of Buffett’s 2018 letter.

How much of Berkshire’s cash Buffett deployed in the first quarter will be revealed in May once the company files its 13F form. The next major Berkshire event will be the company’s annual shareholder meeting that’s scheduled for May 4.

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