Chart: Berkshire Hathaway's New Price Floor

Warren Buffett is in the news again.

Yesterday, it was announced (link opens PDF) that his company, Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) , will repurchase $1.2 billion of Berkshire stock from the "estate of a longtime shareholder." Going forward, moreover, the company said that it will now repurchase shares anytime they trade for less than 120% of book value, up from its previously announced price floor of 110%.

For those of you wondering how effective the new policy will be, check out the chart below. After Berkshire announced the original 110% price floor in September of last year, shares never once traded below that level. And this is despite the fact that Berkshire spent only $67.5 million on share buybacks, a rounding error for a company of Berkshire's size.

Sources: Yahoo! Finance and Berkshire Hathaway's Investor Relations. The inspiration for the chart came from Bloomberg's Chart of the Day.

Misgivings aside, it should be no surprise that investors are thrilled at the decision. According to Whitney Tilson, a co-founder and managing director of T2 Partners: "Needless to say, I'm even happier having this as my largest position -- and added to it this morning the moment I saw the announcement." For at least the foreseeable future, in turn, I think it seems safe to assume that the current, albeit higher, floor can expect to hold.

Want to learn more about Berkshire Hathaway?
Warren Buffett's long track record of success has made him one of the best investors of all time. With the Buffett at the helm, Berkshire Hathaway has grown book value per share at a compounded annual rate of 19.8% for nearly 50 years! Despite an incredible historical track record, investors have to understand the key issues to watch moving forward. To help investors, The Fool's resident Berkshire Hathaway expert Joe Magyer has created this premium research report on the company. Inside you'll receive ongoing updates as key news hits, as well as reasons to both buy and sell the stock. Claim a copy by clicking here now.


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  • Report this Comment On December 13, 2012, at 2:11 PM, JohnCLeven wrote:

    Here is a chart that shows what 1.2x bv really means for Berkshire shareholders over the next 10 years.

    http://www.flickr.com/photos/90843665@N05/8267557732/in/phot...

  • Report this Comment On December 13, 2012, at 3:54 PM, Chuck3296 wrote:

    "After Berkshire announced the original 110% price floor in September of last year, shares never once traded below that level. And this is despite the fact that Berkshire spent only $67.5 million on share buybacks, "

    Well obviously they DID trade below that level. Berkshire couldn't buy the shares until after the announcement and after he couldn't pay more than 110%.

    By the way, the 110% and 120% limits are ceilings- not floors. They're limits below which BRK MAY buy shares but is not required to do so. Until Buffett actually goes in and buys some shares, the market seems to think he's just bluffing.

  • Report this Comment On December 13, 2012, at 5:43 PM, TMFKopp wrote:

    @Chuck3296

    A couple quick thoughts...

    "By the way, the 110% and 120% limits are ceilings- not floors."

    They're ceilings on what Berkshire is willing to pay, but effective floors on what Berkshire should now trade at.

    "Until Buffett actually goes in and buys some shares, the market seems to think he's just bluffing."

    As John noted, he just announced the company's buying $1.2 billion worth.

    Matt

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