Here's Why Berkshire Hathaway's $9 Billion Buyback Is So Significant

When Berkshire Hathaway (BRK.A -0.35%) (BRK.B -0.28%) reported its third-quarter earnings, investors were surprised to discover the company bought back more than $9 billion of its own stock.

In this Fool Live video clip from our Nov. 9 "Industry Focus" show, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss why Warren Buffett and his team might have made such an aggressive buyback and what it means for investors.

Jason Moser: But let's go ahead and start with really the skylights talking about elephant guns. Let's talk about the elephant in the room here, Berkshire Hathaway. I'll let you talk about this quarter, but I'll just tell you, I was amazed at how much stock they bought back.

Matt Frankel: Yeah. You just hit the nail on the head. That's the big headline. Berkshire bought back $9.3 billion worth of stock. I just wrote something about it on Fool.com today. Berkshire actually takes it one step further than most companies. It breaks down its purchases by month, by class of shares, whether they bought back the A shares or the B shares, and the average price they paid per month. Remember that Berkshire can only buy back stock if Buffett and Charlie Munger both agree that it's trading cheaply at any given time. The average purchase price in September when they bought back the most stock out of that three-month period was in the $216 range, which is even after today's move is not that far from where it is now. That stem telling the market that even at that price, the stock was much cheaper than its intrinsic value and was a really good just investment in general. Berkshire is operating businesses really didn't give us any big surprises. The company still is about $140 billion of cash even after that buyback that we just mentioned. I'm really looking forward to its 13F coming out this weekend because remember, we don't get to see what they did in their stock portfolio yet. They're going to release their 13F filing it's called, which they have to release 45 days after the quarter ends, which adds up to the 14th of the month. We'll see that soon. We do know that Berkshire's cost basis in its stock portfolio went up by $9 billion during the quarter from these earnings report. The only thing that we know they bought is about $2 billion of Bank of America stock. What's with that other seven billion? What did they buy? That's what I'm curious about it.

Jason Moser: Well, I feel like we'll be able to talk about that next week maybe. What do you think that agreement between Buffett and Munger looks like? Whenever they're deliberating the intrinsic value of that stock, whether it's worth a repurchase. Do you think they ever really like vehemently just disagree with one another.

Matt Frankel: Well, this quarter, it doesn't look like they disagreed much at all. But in general, who would you say is the more conservative out of the two? I'd have to go with Munger?

Jason Moser: Yeah. I think you're probably right. I think that's right.

Matt Frankel: They're both very conservative investors, which is why when they are buying back stock and sending the message that they think it's cheap, that's why I take it very, very seriously because they are both very conservative investors. I'm sure they do have their own little closed door. Now they're doing it probably through Zoom. They probably have an argument about what the company is really worth and all that. Obviously, they didn't argue too much this quarter. They bought back a whole lot of stock. That's almost 2% of the outstanding in one quarter, which is a pretty aggressive buyback.

Jason Moser: That is aggressive. Well, that tells you a lot right there. That's worth keeping in mind and we'll look forward to learning a little bit more about the equity moves here next week and beyond as well.