Berkshire Hathaway Resumes Share Buybacks and Shifts to Net Stock Purchases After Two Years

Berkshire Hathaway's stock has historically outperformed the S&P 500 index. Past data confirms that Berkshire's performance was significantly superior to the S&P 500 index. However, a look at the data from the past three years shows a different situation. Particularly in 2023 and 2024, Berkshire's stock performance was not significantly different from the S&P 500 index, failing to achieve the dominant performance of the past.

Berkshire Hathaway underwent a significant leadership change, as Greg Abel took over as CEO from Warren Buffett starting January 1, 2024. Warren Buffett made a surprise announcement of Abel's succession plan at Berkshire Hathaway's annual shareholders' meeting in May 2023. Coincidentally, however, Berkshire's returns have remained poor since Abel's appointment as CEO, which raised the need for CEO Abel to find a breakthrough to reverse the performance.

CEO Greg Abel made a decisive move to reverse the sluggish returns, and the results were reflected in this Q2 earnings report. Berkshire Hathaway's Q2 operating profit was $12.98 billion, an increase of about 16% year-over-year, indicating overall strong performance. However, what is more important is that Berkshire's approach to managing funds has changed. In particular, Berkshire shifted to an aggressive investment stance, repurchasing approximately $4.5 billion worth of its own shares in Q2.

Berkshire Hathaway has been very passive in share buybacks for the past two years. After the last share buyback in May 2024, it did not repurchase any shares for about eight months, from June of that year to February 2025. During this period, Berkshire's stock underperformed the S&P 500 index in the market, and investors continuously demanded share buybacks. However, Warren Buffett's principle on share buybacks was firm. He adhered to the principle of buying back shares only when the stock price was below its conservatively estimated intrinsic value. The resumption of share buybacks is interpreted as a strong signal that Berkshire believes its current stock price is below its intrinsic value.

It is significant that Berkshire Hathaway chose to disclose additional share buybacks in July, which was not strictly necessary to announce in its Q2 earnings report. This can be interpreted as Berkshire's intention to send a strong signal to the market that its shares are currently undervalued. When a company actively announces share buybacks, it is a statement that management is not satisfied with the current stock price and expresses confidence in the company's long-term value.

This decision to buy back shares should be seen as initiated by CEO Greg Abel's judgment. As a CEO, one is ultimately evaluated by the stock price, so he must have keenly felt the need to rebound the stock price, which had been sluggish compared to the index immediately after his appointment. However, CEO Abel did not unilaterally decide on the share buyback without Warren Buffett's permission. According to Berkshire Hathaway's disclosure regulations, the chief executive officer can repurchase common shares at any time if, after consulting with the chairman of the board, they determine that the share buyback price is below Berkshire's intrinsic value. Here, the CEO is Greg Abel, and the chairman of the board is Warren Buffett. Therefore, it is clear that Buffett did not oppose and agreed to the large-scale share buyback.

Another key point of this Q2 earnings report is that Berkshire has shifted from a long-standing net selling stance to net stock purchases. In this quarter, Berkshire purchased approximately $20 billion more in stocks than it sold. Until now, Berkshire had maintained a net selling stance, with sales outweighing purchases. Recent reports showed that the light blue graph representing sold stocks was much longer than the blue graph representing purchased stocks. However, this quarter, for the first time in a long time, it shifted to a net stock purchase stance, indicating a significant change in its investment direction.

For a long time, the market has been watching when Berkshire would utilize its enormous cash pile for investments. In this Q2, Berkshire's cash and short-term debt holdings finally decreased. While still holding vast amounts of cash, the simultaneous large-scale net stock purchases and share buybacks this quarter marked a crucial change in direction. In other words, Berkshire has transformed from a company that hoards cash to one that actively uses it.

In interviews around the shareholders' meeting in May, Warren Buffett characterized the current market as one where 'people have never been as caught up in a gambling mentality,' expressing concern about the increasing culture of betting on short-term options or stock price fluctuations. At the time, Buffett stated that it was not an ideal time for Berkshire to deploy large amounts of cash. Interestingly, however, at that very time, Berkshire was already buying back its own shares and gradually shifting to a net stock purchase stance. This suggests that, regardless of Buffett's conservative market assessment, investments in specific stocks and its own shares began through consultation with CEO Abel.

It is difficult to believe that CEO Greg Abel unilaterally made a large-scale investment decision, disregarding Warren Buffett, who has shown overwhelming foresight for decades. Warren Buffett recently stated in an interview that he is still involved in Berkshire's decision-making, and that neither he nor Greg Abel decides anything without the other's agreement. This statement serves as strong evidence that Berkshire's current large-scale share buybacks and shift to a net stock purchase stance are not Abel's sole decisions but rather the result of intense discussions and agreements with Buffett.

Even Warren Buffett, who remains cautious and worries about the market's 'gambling mentality,' seems to consider Berkshire Hathaway's own shares and certain stocks like Google as some of the few stocks that can outperform the market. This shows that while Berkshire maintains prudence regarding the overall market environment, it is also prepared to boldly invest in undervalued assets through its own valuation. Ultimately, Berkshire is expected to continue its strategy of pursuing excess returns regardless of market conditions through selective investments.