Buffett pledges further buybacks as faithful look for answers

Berkshire Hathaway repurchase scheme a small portion of company’s $114bn cash pile

Warren Buffett underlined his commitment to buy back shares of Berkshire Hathaway to the tens of thousands of shareholders at the company's annual meeting in Omaha on Saturday, calling recent repurchases "nothing like my ambitions".

The so-called Oracle of Omaha, who has amassed billions of dollars of personal wealth over his more than five decade career at Berkshire Hathaway, has overseen a vast increase in share buybacks by the sprawling conglomerate although the repurchase programme remains a small portion of the company's $114 billion cash pile.

The company repurchased $1.7 billion of its own stock in the first three months of the year, a steep acceleration from the $1.3 billion it bought in the entirety of 2018.

The pace of share repurchases at the end of last year disappointed analysts and investors, with some questioning the signal it sent on Berkshire’s intention to buy back shares over the coming years.

Charlie Munger, the company's vice-chairman who shared the stage in Omaha with Mr Buffett, added that he believed Berkshire would get "a little more liberal in repurchasing shares".

The pledge came as the duo faced critical questioning from shareholders, in a record crowd that included Apple chief executive Tim Cook, about embattled investments in Wells Fargo and Kraft Heinz, as well as its 3G private equity partner, and its more recent Amazon purchase as not being a "value" investment.

Kraft Heinz

Mr Buffett began the meeting by opening a bottle of Coca-Cola, one of the long-held Berkshire investments, but swiftly moved on from his usual folksy greetings to address the issue of a lack of accounting from the troubled Kraft Heinz business in which Berkshire is the largest investor.

He acknowledged that Berkshire had overpaid for its investment in the tie-up of Kraft with Heinz. “The Heinz part of the transaction, when we owned half of Heinz, we paid an appropriate price. We paid too much money for Kraft. To some extent our own actions had driven up the prices,” he said.

Investment portfolio

While the company last week agreed to invest $10 billion into oil and gas producer Occidental Petroleum to back its $55 billion hostile takeover of rival Anadarko Petroleum, it has not been able to clinch a significant takeover of a company in more than three years. It has instead pumped money into its stock portfolio – now valued at $192 billion – as well as its own shares.

Berkshire's stake in Apple was worth nearly $49 billion at the end of March, with its holdings in Bank of America and Wells Fargo valued at $25 billion and $21 billion, respectively.

The company has long capped its investments in individual stocks at 10 per cent, but Mr Buffett indicated that could soon shift as the Federal Reserve considers relaxing regulations that govern the ownership of banks.

“If the Fed should change its rules, there will be companies where we drift up over 10 per cent simply because they’re repurchasing shares,” he said. “If we like 9.5 per cent of a company, we’d like 15 per cent better.”

Investors were surprised this week when Mr Buffett disclosed Berkshire had taken a stake in ecommerce behemoth Amazon. Messrs Buffett and Munger noted they had missed many great investment opportunities and that Todd Combs and Ted Weschler, Mr Buffett's two investment proteges who did the deal would help the company identify stocks to buy.

– Copyright The Financial Times Limited 2019