Berkshire Hathaway bought $1.7 billion of its own stock back last quarter. In absolute terms that’s a lot, especially added to the $1.3 billion the conglomerate purchased in the last half of 2018.
But for a business as big as Berkshire, it takes a far greater acquisition to make a significant dent in its books. Chairman Warren Buffett recently said he’d consider buying as much as $100 billion in his company’s stock, about 20% of its current market capitalization, according to the Financial Times (paywall).
Today at Berkshire’s annual shareholder meeting in Omaha, Nebraska, Buffett offered some insights on when the company might be ready to make a purchase of that size.
“We will buy stock when we think it is selling below a conservative estimate of its intrinsic value,” Buffett said—for example, if Berkshire’s stock was selling for 25% to 30% less than it was worth and the company had no more attractive acquisition on horizon. (Asked about the process by which he reached that $100 billion figure, Buffett said it took “about three seconds when I was asked the question.”)
With typical terseness, vice chairman Charlie Munger added: “I predict well get a little bit more liberal in purchasing shares.”
The relatively small impact the $3 billion in buybacks Berkshire has already made of late point to the company’s biggest obstacle to future growth: its past success. Despite its profits, the company no longer beats the S&P 500, and is in its longest-ever stretch of underperformance. Replicating its past success is virtually impossible because of its size. Even if a hypothetical Berkshire investment of $1 billion were to immediately rise by 50%, Buffett said by way of explanation, that’s not much—for them.
“Making $500 million sounds great and $1 billion sounds like a big investment, but [$500 million is] less than a tenth of a percent” of Berkshire’s assets, Buffett told the FT.