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Berkshire to Buy Berkshire. Should You Follow?

When Warren Buffett buys stock in a company, investors everywhere rush to follow. And so it goes today: The announcement this morning that Berkshire Hathaway would be buying back its own shares for the first time in Buffett’s 40-year tenure as CEO, has pushed shares in the company up almost 6%.

But observers say Buffett’s decision may not be such a clear buy signal. The move marks a significant departure from previous Buffett practices: The company has never used its cash for either share repurchases or dividends. In fact, Buffett has said that paying a dividend in particular would be a sign that he couldn’t find good investment opportunities elsewhere.

Today’s announcement to buy back shares is likely driven by the same logic, says Greggory Warren, a Morningstar analyst who covers the stock: Buffett is essentially saying there’s little out there worth the investment risk at this point. That may be doubly discouraging for Main Street investors, who aren’t typically privy to the specially structured investment deals Buffett is.

For Berkshire (BRK.A) shareholders, the news is more mixed. Buffett is signaling that he sees little opportunity for the company to grow through investments, which could mean lower expected returns. But that’s likely already reflected in the stock’s price, which prior to today’s jump had fallen about 17% this year.

On the other hand, Buffett’s move is “a vote of confidence,” Warren says. It’s not the first time that Buffett has said he thinks Berkshire’s stock is cheap – in 2000, Buffett wrote in his annual letter that he had missed good opportunities to buy back shares at previous low points – but it’s the first time he’s backed that up with a plan to buy it.

As it is, the repurchases may not have a huge impact. The actual amount of repurchases could be somewhat limited, he says, given that the stock is already trading at nearly 7% above book value, and they’ve said they won’t pay more than a 10% premium. “The broader issue for investors is what happens once Warren [Buffett] is no longer running the show,” and the ability for the company to find good investing opportunities, Morningstar’s Warren says.

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    • I would think that the other thing that is missing from Buffett’s mmnceots would be the impact on foreign investors in our economy as well as his fellow millionaires and billionaires who don’t share his desire to pay more taxes. What is Buffett’s strategy, raise the capital gains rates? Doesn’t that also have an impact on non-millionaires and billionaires? Would he just raise the capital gains rates on people who start with $X million in assets? Again, wouldn’t that drive away foreign money from our economy? I recommend that if Mr. Buffett wants to start a campaign, it should be a campaign to get other millionaires and billionaires to join with him in sending checks to the government to pay down the debt. If he thinks the government does a great job spending his money, he is free to give the government more of it. He doesn’t need to drag everyone else with him. Why is it that so many do-gooders don’t want to do their good voluntarily on their own, but want government to force everyone to do the “good” that the do-gooder wants done?

    • It is GREAT NEWS that Sheriff Joe is going to take his time investigating bo and his Criminal Cohorts and will be tuinrng Criminal Information over to State and Federal LEO’s once bo is out of office.I expect that we will see multiple indictments in multiple State and Federal Courts of bo and his Criminal Cohorts shortly after January 20, 2013. Obviously no Republicans are going to indict bo before he is re-nominated by the demRats.Demand that your congressman, senators, County Sheriff, DA, State Legislators, Governor, and County Grand Jury Foreman indict and prosecute BO and his local co-conspirators in State Courts for these crimes:Murders and False Imprisonment of Opponents of the BO regime, “Fast & Furious” Sales of Guns to Mexican Drug Cartels, Birth Document Forgeries, TSA Sexual Assaults & Illegal Searches, Union Assaults, Election Fraud & Voter Fraud, Identity Theft, Illegal Foreign Campaign Contributions, Aiding and Abetting of Muslim Terrorists, Poisoning of the Gulf of Mexico, Theft of Private Property (Chrysler, GM, Pension and Retirement Accounts etc.), Embezzlement of Government funds distributed to Foreign Entities, WikiLeaks and other Leaks of US Secrets by the BHO regime to our enemies, and War Crimes in Libya.If the politicians refuse to take action then form a Grand Jury.

    • Stock buyback announcements are just like political promises, as they help even if they are never done as “promised”. Each says it will do something positive, and both get immediate cred from the public as a result. The pol gets it in votes or ratings, and the stock gets it in buyer interest and price increase.

      I am so very sure that in both cases if the intent was forthright and heartfelt it would not have to be announced far and wide well beforehand. As they are always announced to great fanfare well before they actually happen, these “promises” certainly have the stench of speciousness all over them.

    • Remember, balance……………………… a part of life, for EVERYONE.

    • Buffett’s magic has dried up…………….the “Oracle of Omaha” has run out of gas and set to explode.

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