On November 6, 2018, MarketWatch.com published an article titled “This is what happened the last time Warren Buffett’s Berkshire Hathaway bought back stock.” In the article, the author, Tomi Kilgore says, “Perhaps what is of value to investors, Berkshire Hathaway disclosed in its 10-Q quarterly filing with the Securities and Exchange Commission that it repurchased about $928 million worth of its Class A and Class B shares during the quarter, something it hasn’t done since December 2012.”
In the past, it has been indicated that Berkshire Hathaway, “…would repurchase Class A and Class B shares at no more than a 10 percent premium over the current book value of the shares ("Berkshire Hathaway to repurchase stock." UPI NewsTrack, 26 Sept. 2011. Infotrac Newsstand,. Accessed 7 Nov. 2018.).”
Why wait until after Berkshire announces a buyback plan to find out when the stock is at or below a “10 percent premium?” Our work on the topic has consistently pointed to when Berkshire was undervalued as noted in our May 6, 2012 article titled “Should Berkshire Hathaway Be Trading at 1995 Prices?” which outlined the fact that Berkshire Hathaway was severely underpriced.
In addition, Berkshire Hathaway has consistently performed within the parameters of overvalued and undervalued that we expected since that article in May 2012. Based on the data that we generated in May of 2012, we are posting the undervalued and overvalued ranges that would have been expected from 1998 to 2018.
1998 to 2009
Below is the charting of the undervalued and overvalued ranges from June 1, 1998 to March 5, 2009.
Much of the data shows a relative range that Berkshire Hathaway generally trades in. However, at certain times, Berkshire Hathaway’s stock price has run to extremes of overvalued and undervalued. This is made more clear in the next chart, a continuation of the above from December 3, 2007 to November 6, 2018.
2007 to 2018
Below is the charting of the undervalued and overvalued ranges from December 3, 2007 to November 6, 2018 with a reference to our May 6, 2012 posting with the May 7, 2012 closing price of Berkshire Hathaway.
Our October 11, 2018 posting, well before the announced buyback plan, of Berkshire Hathaway’s price targets (2019 to 2030) easily demonstrates why Berkshire would be in a mood to buy back shares at the current levels.