Some Thoughts on Buffett’s BRK Buyback Announcement

Buffett is not a typical CEO, in fact he is very hands off CEO. He doesn’t have stock options, he owns a lot of Berkshire (BRK) stock and has a very long-term time horizon.

Some Thoughts on Buffetts BRK Buyback Announcement

Most CEOs are not good capital allocators when it comes to their stock:

  • They are not objective analyzing their company and thus not objective in share buyback. In majority of cases they think their stock is a buy all the time. Why? Because they spend long hours trying to grow the business, they keep telling their customers how great their products are, they keep telling their board and Wall Street about the bright future of the business etc… They start believing their own spin.
  • Most CEOs don’t know the difference between a good company and a good stock. Often good companies make a horrible stock.
  • Since they own a lot of stock options they have an inherent bias to be bullish and a tremendous bias to drive EPS growth at any cost (i.e. Colgate buying its stock through late 90s and 2000s at 30 plus times earnings is an example of that). In fact since their stock options are linked to the stock price (not the total return to shareholders) the bias is always to buy back stock than to pay a dividend.

Buffett is not a typical CEO, in fact he is very hands off CEO. He doesn’t have stock options, he owns a lot of Berkshire (BRK) stock and has a very long-term time horizon (an important difference). He has a tremendous track record as an INVESTOR (capital allocator) and is trusted the market and the perceived value of Berkshire stock. A combination of all of the above means that when Buffett comes out and says we’ll buy back BRK stock, the market takes this as THIS stock is really cheap.  At roughly 1x book, there is no Buffett premium priced into the shares.

Please read the following important disclosure here.

Related Articles

The Slippery Slope of Student Loan Forgiveness

The Slippery Slope of Student Loan Forgiveness – Edition 2024

My daughter Hannah was just accepted to University of Denver. She might take out student loans. Why wouldn’t she?
Hedging the Portfolio with Weapons of Mass Destruction

Hedging the Portfolio with Weapons of Mass Destruction

Uber's business is doing extremely well. It has reached escape velocity – the company's expenses have grown at a slow rate while its revenues are growing at 22% a year.
2024 IMA Annual Client Meetings

From Twinkies to Rolexes (IMA Client Dinner 2024 Video)

Once a year, we host what the IMA team gently calls “client appreciation week.” This week is very special to me, as I get to meet people who have entrusted their life savings to us. 

Cable Stocks Keep Getting Punched in the Mouth

Despite weakness in cable stock prices, our thesis on Charter Communications (CHTR) and Comcast (CMCSA) has not really changed. We made a small, superficial change in the portfolio.

Leave a Comment