Berkshire buyback

Buffett’s bleak outlook

With nothing better to spend its cash on, last week Warren Buffett said Berkshire Hathaway was in the market to buy back its own stock.
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Buffett: stuck for ideas?
<div style="text-align: left;"> Buffett: stuck for ideas? </div>

It’s common for chief executives to reckon the market is undervaluing their stock price — and for the market to disagree with them. After all, CEOs tend to own lots of stock options and have an obvious bias about the value of their own shares. But Warren Buffett is no ordinary CEO.


How should we interpret the move by Warren Buffet’s Berkshire Hathaway to buy back its own stock?

Positive – he doesn’t anticipate a big recession that will create lots of buying opportunities in other companies

Negative – he doesn’t see value elsewhere

As an early Christmas present for Berkshire's shareholders

Last week, the Sage of Omaha announced Berkshire Hathaway’s first ever share buyback scheme, saying that the firm was a buyer of its own stock at up to 10% above book value. At the time, it was trading at roughly $100,000 (which happens to be close to its book value). But Buffett hardly needed to bother buying his stock — as soon as he said it was undervalued, investors quickly jumped into the market and drove the stock up to more than $108,000.

Most CEOs would love to have such hypnotic influence over investors, but most would also love to have Buffett’s track record as an investor. When the Oracle speaks, investors listen — but what does the buyback scheme say about his overall view of markets right now?

We asked our readers last week what they reckoned. More than half took it to be a negative sign, reflecting that Buffett clearly cannot find anything else worth spending Berkshire’s cash on.

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