2019: Why didn't Berkshire repurchase more stock?
CAROL LOOMIS: Many people — a number of people — wrote me about repurchases of stock. And, hence, the question I picked for my first one.
The question, this particular question comes from Ward Cookie (PH), who lives in Belgium and who was still emailing me this morning in reference to the first quarter report.
And he asked, “My question concerns your repurchase of Berkshire shares. In the third quarter of last year, you spent almost 1 billion buying Berkshire B stock at an average price of $207.
“But then you got to a period between December 26th and April 11th when the stock languished for almost four months under 207. And yet, you purchased what I think of as a very limited amount of stock, even as you were sitting on an enormous pile of 112 billion.
“My question is why you did not repurchase a lot more stock? Unless, of course, there was for a time an acquisition of, say, 80 billion to 90 billion on your radar.”
WARREN BUFFETT: Yeah, the question — whether we had 100 billion or 200 billion would not make a difference — or 50 billion — would not make a difference in our approach to repurchase of shares.
We repurchase shares — we used to have a policy of tying it to book value. But that became — really became obsolete. It did not —
The real thing is to buy stock — repurchase shares — only when you think you’re doing it at a price where the remaining shareholders have had — are worth more the moment after you repurchased it than they were the moment before.
It’s very much like if you were running a partnership and you had three partners in it and the business was worth 3 million, and one of the partners came and said, “I’d like you to buy back my share of the partnership for a billion” — I started out with millions, so I’ll stay with millions — “for $1.1 million?” And we said, “Forget it.” And if he said, “1 million?” we’d probably say, “Forget it,” unless — and if he said, “900,000,” we’d take it because, at that point, the remaining business would be worth 2-million-1, and we’d have two owners, and our interest in value would have gone from a million to a million and fifty-thousand.
So, it’s very simple arithmetic. Most companies adopt repurchase programs and they just say, “We’re going to spend so much.” That’s like saying, you know, “We’re going to buy XYZ stock, and we’re going to spend so much here.” “We’re going to buy a company.” “We’re going to spend whatever it takes.”
We will buy stock when we think it is selling below a conservative estimate of its intrinsic value. Now, the intrinsic value is not a specific point, it’s probably a range in my mind that might have a band maybe of 10 percent. Charlie would have a band in his mind, and it would probably be 10 percent. And ours would not be identical, but they’d be very close. And sometimes he might figure a bit higher than I do, a bit lower.
But we want to be sure, when we repurchase shares, that those people who have not sold shares are better off than they were before we repurchased them. And it’s very simple.
And in the first quarter of the year, they’ll find we bought something over a billion worth of stock, and that’s nothing like my ambitions. But it — what that means is that we feel that we’re OK buying it, but we don’t salivate over buying it.
We think that the shares we repurchased in the first quarter leave the shareholders better off than if we hadn’t — the remaining shareholders — better off than if we hadn’t bought it. But we don’t think the difference is dramatic.
And you will — you could easily see periods where we would spend very substantial sums if we thought the stock was selling at, say, 25 or 30 percent less than it was worth, and we didn’t have something else that was even better.
But we have no ambition in any given quarter to spend a dime unless we think you’re going to be better off for us having done so. Charlie?
CHARLIE MUNGER: Well, I predict that we’ll get a little more liberal in repurchasing shares. (Laughter)
WARREN BUFFETT: I was going to give you equal time, but then — (Laughter)