No. of Recommendations: 7
If you think about it, if it's a good idea, it is because it would increase the long-term value of the company (increasing the return of a quarter of the company from 4% to 10%, say), so that means the intrinsic value (defined as the discount sum of all future cash flows would increase.
There is a circularity problem here which is quite subtle, but a big one.
Yes, Berkshire is a pretty good long term investment, even if the valuation level is a little higher than usual. So even if it's not particularly cheap, buy!
But the sole *reason* that it is a pretty good investment over time is because management has the discipline never to allocate capital at low rates of return, which a repurchase today would probably be. The only reason they can get away with a high cash allocation is that the cash that HAS been allocated to date *has* been allocated at high (above average) rates of return. They wait for fat pitches. That is the secret sauce, and the only one.
As soon as Berkshire caves in to buying Berkshire stock (or anything else) when it's not at a discount, it is no longer a firm that it worth buying without a discount itself.
I'll see that circularity and raise you one more circle.
Keeping what now amounts to 30% of the company ($347b) in cash that returns next to nothing after tax and inflation makes the company a low return investment, meaning shares shouldn't be repurchased. Buying back more Berkshire shares is essentially just buying more of all the good (and bad) investments Berkshire has already made. Getting rid of the cash and reducing the share count puts it back on the path of being a high return company in which repurchasing shares makes sense.
Grok helped me find Buffett's comment, made at the annual meeting in 2017 when cash reserves were approaching $100b, in which he said that he would have to consider dividends or repurchases if the cash pile reached $150b:
"If we don't think we can allocate the capital into things we like, we'll make a decision, it might include both, but it could be repurchases, it could be dividends... It would be dificult to justify not returning some of it to shareholders."
dtb
