Bear markets can be cruel; sometimes, the proverbial kitchen sink gets tossed out, and both quality and speculative stocks are sold by a fearful Wall Street.

Even the Oracle of Omaha himself, Warren Buffett, isn't safe. His life's work in Berkshire Hathaway (BRK.A 0.55%) (BRK.B 0.50%) has fallen more than 20% in just over two months.

The slide has created a situation that can benefit shareholders over the long run. Here is what Buffett might be thinking and why you should consider buying Berkshire Hathaway. 

The stock is on sale

Berkshire Hathaway is a conglomerate, owning independent companies and brands. For example, it owns the insurance company Geico and the Dairy Queen ice cream franchise. However, you wouldn't know it because you'll never see Berkshire mentioned anywhere.

Berkshire has more than that; the conglomerate owns dozens of businesses and equity positions in various publicly traded companies like Apple, Bank of America, American Express, Coca-Cola, and more.

Investing in Berkshire Hathaway is more or less the equivalent of entrusting Warren Buffett with your money and letting him manage the business, steadily growing profits for its shareholders over time.

All these different businesses and investments make valuing the stock difficult, so it's best to look at book value, which is the cumulative value of its assets. The chart below shows Berkshire's price-to-book-value ratio (P/B), which is currently near its lowest level over the past five years, not counting the COVID-19 market crash in 2020.

BRK.B Price to Book Value Chart
BRK.B price-to-book value. Data by YCharts.

What Buffett might be thinking

Berkshire Hathaway is very profitable, generating between $20 billion and $30 billion in free cash flow annually, and has steadily built a large cash pile over the years. Buffett came into 2020 with nearly $150 billion in cash, which he's begun putting to work over the past two years.

BRK.B Free Cash Flow Chart
BRK.B free cash flow. Data by YCharts.

While Buffett keeps an eye out for deals, like his continued investment into oil and gas company Occidental Petroleum, he's been spending billions on share repurchases, something he didn't do much of until recent years.

You can see below how Buffett's significant repurchases have affected the number of outstanding shares, which have fallen 10% over the past three years.

BRK.B Stock Buybacks (TTM) Chart
BRK.B stock buybacks (TTM). Data by YCharts. TTM: Trailing 12 months.

The logic is simple: If Buffett doesn't see a deal he likes on the market, he can buy Berkshire's stock, meaning that shareholders own more of the company with each share that gets taken off the market. It also increases profits and book value per share, which can help drive the share price higher over time.

Warren Buffett said it best in his 2022 letter to shareholders:

Periodically, as alternative paths become unattractive, repurchases make good sense for Berkshire's owners. During the past two years, we therefore repurchased 9% of the shares that were outstanding at yearend 2019 for a total cost of $51.7 billion. That expenditure left our continuing shareholders owning about 10% more of all Berkshire businesses, whether these are wholly owned (such as BNSF and GEICO) or partly owned (such as Coca-Cola and Moody's).

He noted that Berkshire's appetite remains large but will always be price-dependent.

With the stock's valuation at a similar place as when Berkshire did much of its previous repurchases, Buffett could be taking another bite out of existing shares. It might not be a bad idea to consider doing the same.