Is Warren Buffett going to investment opportunities? Berkshire share buybacks at your fingertips | 07/27/18

Warren Buffett struggles to find lucrative investment opportunities. Since the star investor continues to reject dividend payments to Berkshire Hathaway, stock repurchases remain to satisfy his own investors.

With a balance of about $ 100 billion, Berkshire Hathaway is one of the most liquid companies on the market. But the business model of the company is not to stock as much capital as possible, but to invest it. However, lucrative investment opportunities are rare in today's highly valued market environment. Among other things, the holding has recently increased its stake in the US technology giant Apple, whose shares are currently barely valued at around US $ 190. The last major takeover date of some time ago, profitable candidates not seem to be in sight.

Dividend or repurchase of shares

Buffett and his team currently have only few options to make the best possible use of investors. At the top of the list: dividend payments or share buybacks. But Buffett had always rejected a shareholder payment stating that a single payment was an implicit promise to make it every year.

Option two, the repurchase of own shares, but up to here was also not feasible. Because Berkshire Hathaway shares are expensive. Even the direction of the investment group led by billionaire Warren Buffett recognizes it and has therefore made a possible share buyback program contingent on the fact that the stock price does not exceed its book value more than 20%.

The redemption limit no longer applies

However, the Berkshire management clearly departs from this redemption limit. Instead of limiting the repurchase price to 1.2 times the book value of the stock, treasury share buybacks are now possible on a larger scale – and the Executive Committee is confident that the repurchase price is below the intrinsic value of Berkshire. An ad hoc announcement from the company said that CEO Warren Buffett and his deputy, Chalie Munger, will jointly decide if this condition exists and that a share buyback can therefore be initiated.

However, the new rules will come into effect only upon presentation of the second quarter figures, which are scheduled for August 3. It is possible that Berkshire shareholders could expect a share buyback as of August 4. With fewer stocks on the market, each shareholder gets a bigger share of the Berkshire pie – a benefit for investors who have confidence in the Buffett Group's business model.

Writing finanzen.ch