The stock market is now in correction, with major indices down more than 10% from their January highs. And the correction hasn't spared Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), the conglomerate led by billionaire investor Warren Buffett. In fact, Berkshire's stock has slightly underperformed the market, causing Buffett's net worth to decline by more than $11 billion.
Buffett's Berkshire Hathaway stake is worth $11.2 billion less
Over the past 12 years, Warren Buffett has been gradually giving away his Berkshire Hathaway stock as part of his plan to eventually donate most of his wealth to charity.
However, Buffett still has a huge stake in the company. As of 2016, Buffett still owned 308,261 class A shares, and he gave away 18.63 million class B shares in mid-2017. Based on the A-to-B conversion factor of 1,500, some quick math tells us that Buffett still owns approximately 295,848 of Berkshire's class A shares. As of this writing, this translates to a value of $85.2 billion.
This is a lot of money, but is significantly less than Buffett's stake was worth just a week ago. Over the past week, Berkshire's stock price has fallen by 11.6% as part of the overall stock market correction.
Thanks to this sharp decline, Buffett's class A shares are each worth about $37,800 less than they were just a week ago. Overall, Buffett's Berkshire Hathaway stake, which makes up virtually all of his net worth, has fallen in value by $11.2 billion.
What this could mean for investors
From a long-term Berkshire shareholder's perspective, the decline in both Berkshire's stock price and the overall market is likely to be a good thing. For starters, it's an opportunity to buy shares at a far more attractive price than they have been trading for recently.
More significantly, the market correction could give Berkshire incentive to finally solve one of its biggest problems -- what to do with its $109 billion cash hoard. Berkshire would love to acquire companies, add to its stock positions, or buy back its own stock if and only if the price is right. While Berkshire's acquisition and investment evaluation process is a well-guarded secret, it's fair to assume that most potential targets look more attractive to Berkshire's team than they did just a week ago.
As far as share buybacks go, Berkshire's current threshold is 1.2 times book value, which is still far below the company's valuation. However, Berkshire has gone from about 1.74 times book value to a multiple of just 1.54 because of the market's decline. Buffett has indicated that Berkshire's board might be willing to adjust the buyback threshold if the cash stockpile keeps building, and this could certainly make doing so more attractive -- especially if the market (and Berkshire) continues to fall.
The Foolish bottom line
Here's perhaps the most important takeaway for investors. Although Warren Buffett's holdings have declined in value by an 11-figure sum over the past week, it's highly unlikely that Buffett is unhappy about it. He simply doesn't see it that way.
What Buffett likely sees is a stock market that just went on sale, more attractive entry points to stock investments, better chances of finding a reasonably priced acquisition target, and a more palatable stock price to consider implementing a buyback. As Buffett said in the wake of the financial crisis in reference to Berkshire's declining stock portfolio:
This does not bother Charlie [Munger] and me. Indeed, we enjoy such price declines if we have funds available for increase our positions. Long ago, Ben Graham taught me that "Price is what you pay; value is what you get." Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.
Although they've been rare over the past nine years, stock market corrections are a normal, healthy occurrence. They shouldn't be feared. Rather, they should be embraced as long-term opportunities.