Berkshire Hathaway loosens its share buyback policy. While previously it did not allow itself to repurchase shares at prices 20% or more above its book value, Tuesday’s announcement from the firm indicates potentially less stringency going forward.
According to the announcement, Berkshire's new policy would let CEO & Chairman Warren Buffet and Vice Chairman Charlie Munger buy back shares whenever they felt that the firm’s stock price was below its “intrinsic value, conservatively determined”. Book value of a company measures its value of total assets minus value of total liabilities. Intrinsic value, on the other hand, is often considered the expected future free cash flows (i.e. cash that would be available for shareholders) of the firm discounted to present value.
With Berkshire's stockpile of cash ballooning to more than $115 billion by Q4 2017, and staying above $108 billion as of Q1 2018, many people might view the firm’s shift in buyback policy as a natural move. However, the new policy comes with a caveat: Berkshire won’t make share repurchases that push its cash-pile below $20 billion.