Large US companies have relied on their own stock market. But Warren Buffett's Berkshire Hathaway did not attend the Bonanza. That can change soon.
Berkshire Hathaway ( announced late Tuesday that the company could loosen an old company rule and now buy back shares whenever Buffett and Berkshire are Vice Chairman Charlie Munger " believe that the repurchase price is below the conservative value of Berkshire. " )
In other words, Buffett and Munger can pretty much decide to buy stocks whenever they feel like it.
Share buybacks have helped the market reach record highs in 201
Companies repurchased $ 436.6 billion of their own stock in the second quarter alone – a new record, according to market research firm TrimTabs. The companies have now repurchased nearly $ 670 billion of their own shares this year.
Repurchases are considered a bullish symbol for several reasons.
First, a company could signal that their stock is a bargain. Repurchases also reduce the total number of shares in a company, which in turn increases earnings per share.
But the last time that Berkshire – an industrial empire that owns Geico, Railroad Burlington Northern Santa Fe, Dairy Queen and numerous other companies – bought its own stock was in December 2012.
One reason why Berkshire Reward reasons are based on the company's old rule that Berkshire can not pay more than 20% over Berkshire's book value per share – a key measure of a company's financial health.
At the end of the first quarter, the carrying amount for a [Berkeleystock class A Berkshire ( was 211,184. But the price of a Berkshire A share is currently trading for nearly $ 300,000. This is 40% higher than the book value, which means that Berkshire was not allowed to buy the shares under the old rule. )
Berkshire also has cheaper B shares traded at around $ 200. Berkshire Class A and B shares rose more than 3% on Wednesday.
Whether or not Berkshire repurchases part of its own shares remains to be seen.
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The company said late Tuesday that it would not buy back any shares until after the close on Friday, August, his gains in the second quarter reports 3 – earliest.
Berkshire also said he would maintain a rule prohibiting the company from buying back shares when the purchases reduce cash holdings to under $ 20 billion.
That should not be a problem. Berkshire had more than $ 108 billion in cash and near-term Treasury holdings at the end of March. Berkshire, like many big American companies, has been hoarding money lately.
At the end of the first quarter of 2017, the company had $ 96.5 billion in cash. As a result, some companies have urged Berkshire to use cash for share repurchases, investments and acquisitions.
The final major acquisition was the purchase of aircraft component manufacturer Precision Castparts for $ 37 billion in 2015.
Berkshire-backed Kraft Heinz ( tried to buy ) Unilever ( last year, but went away from the deal after Unilever had decided that it was not interested. )
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Although Berkshire has not repurchased itself in more than five years, many of the companies that Berkshire has invested in include Apple () Coca-Cola [ and ) IBM ( have frequently repurchased shares in recent years.
Buffett has also praised buybacks. He defended the practice in last year's letter to shareholders.
"Some people have called it almost un-American [buybacks] – calling them entrepreneurial misdeeds that divert funds for productive ventures, which is simply not the case: both US corporations and private investors are flooding funds today meaningful use, "he wrote.
So do not be surprised if Berkshire – which obviously "floats in money" – soon decides to use some of them for a share buyback.
CNNMoney (New York) First published on July 18, 2018: 11:01 ET