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Warren Buffett issued his annual letter to shareholders on Saturday, saying his Omaha-based conglomerate, Berkshire Hathaway, was planning to buy more of his shares.
Buffett wrote that it is likely, over time, that "Berkshire will be a major buyer of its shares, transactions that will take place at prices above book value but below our estimate of intrinsic value".
This prospect is likely to spur the likes of politicians such as Senators Bernie Sanders and Chuck Schumer, who wrote in a New York Times editorial earlier this month that corporate buybacks should be limited.
"In this period of high income and wealth inequality, Americans should be outraged by the fact that these profitable companies are laying off workers while spending billions of dollars to increase the value of their shares and further enrich the rich", they write.
Senators argued that the buyout of shares by state-owned companies exacerbated income inequality and hindered long-term economic growth, adding that they were not benefiting the vast majority of Americans.
Senators Sanders and Schumer's press contacts did not immediately respond to Business Insider's requests for comment on Berkshire Hathaway's plans.
But Berkshire is not the only one planning to buy back much of his stock. According to Bank of America Merrill Lynch, 2019 is expected to be another record year for share buybacks. Last year, companies announced more than $ 1.1 trillion in share buybacks.
Buffett and his Vice President, Charlie Munger, are big fans of buyouts. He wrote that most of Berkshire's major holdings, like American Express, are buying back their shares.
"We like that a lot: if Charlie and I think that a shareholder's shares are undervalued, we are delighted when management uses part of its profits to increase Berkshire's holding percentage."
According to badysts, this quarter's share buyback forecast would be particularly interesting as the company's board of directors last summer eased its share buyback policy. Buffett and Munger announced that they would authorize the redemption of shares when the redemption price falls "below the intrinsic value of Berkshire".
In the third quarter, Berkshire repurchased nearly $ 928 million of its shares, at a price of about 1.35 times its book value per share in the third quarter. Prior to the policy change, the company had announced that it would not buy back its stock above 1.2 times the book value per share.
Morgan Stanley badyst Kai Pan said 1.35 times the book value per share could be the new "floor" below which Berkshire would consider the stock below its intrinsic value.
After all, valuing has long been a fundamental principle of Buffett's investment philosophy. He wrote in his letter that redemptions should be "price sensitive".
He added, "Blindly buying overvalued stocks has a destructive value, a fact lost for many promotional or optimistic CEOs."
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