By Katherine ChiglinskyThe worlds most famous stock-picker showed a growing appetite for equities in the third quarter -- including a rare move to buy his own firms shares.
Now, Octobers market slide opens the door for Warren Buffett to finally make a dent in his giant pile of cash.Berkshire Hathaway Inc.s chairman poured more money into stock purchases last quarter than he has in over four years.
Buffett also spent $928 million on share buybacks during a few weeks in August, a move hes typically spurned.
While the repurchases amounted to less than 1 percent of the companys cash, they set a new precedent.Its really important in terms of a signaling effect, Jim Shanahan, an analyst at Edward Jones, said in a phone interview.
What theyve demonstrated is a willingness to use cash to buy back the stock if it reaches a value that they believe is less than intrinsic value.Buffett, 88, has been facing a conundrum.
Hes long preferred to use Berkshires cash to hunt for large deals or snap up stocks in companies such as Apple Inc.
and Coca-Cola Co.
While its still a goal to have one or more huge acquisitions, hes bemoaned that prices for many businesses have reached all-time highs.
Thats left him struggling to put to work a cash pile thats topped $100 billion in the past five quarters.Too much cash is a high-class problem, and one made possible by well-performing operations across the conglomerates swath of energy, railroad and retail businesses.
A rebound in the companys insurance unit led to operating profit doubling to $6.88 billion in the third quarter.But sitting on such a large stack of cash has led to pressure from investors to use it or give it back to shareholders through buybacks and dividends.If this were any company that he owned, he wouldnt be able to understand why they arent buying a ton of stock back, Bill Smead, whose Smead Capital Management oversees $2.2 billion including Berkshire shares, said in a phone interview.Berkshires board acknowledged that pressure in July with a loosened repurchase policy, allowing Buffett and Vice Chairman Charlie Munger to buy back stock whenever they felt the shares were below intrinsic value.
The previous policy limited them to purchasing stock only when the price was below a 20 percent premium to book value.Buffett repurchased $1.2 billion from the estate of a long-time shareholder in 2012, but hes detailed to shareholders how he prefers to find other uses for that money unless prices make sense.
During his annual meeting in May, Buffett said he would prefer share buybacks to a special dividend.Now, the worst month for United States stocks in seven years has made several of his favorite companies significantly cheaper.
Shares of Apple Inc., Berkshires top holding, have dropped 8.1 percent since the end of September, while Bank of America Corp.
has slumped 5.3 percent in that time period.Fear in the market creates prices that make me want to shovel out the money as fast as I can, Buffett said in August in an interview with Bloomberg Televisions David Westin.
But weve been shoveling out money anyway.Despite prices that have thwarted any major deals, Buffett has found stocks he likes.
He purchased $12.6 billion of equity securities on a net basis during the third quarter, the most in more than four years.
A regulatory filing indicated Berkshire added billions to its stake in Bank of America in the third quarter, continuing a trend from the second quarter of adding to positions in financial stocks.The market declines have also left Berkshires shares below the price where Buffett bought them back, leading some investors to think he could dwarf the third quarters total in the final three months of the year -- despite his feelings on buybacks.Its close to one of the last things he wants to be doing, said Steven Check, president of Check Capital Management, which oversees $1.5 billion including investments in Berkshire.
Hes avoided it pretty well for 50-plus years.