Warren Buffett is keeping up his record pace of buybacks.

Warren Buffett

Warren Buffett has gone from shunning stock buybacks to one of the world’s biggest repurchasers.

The famed investor’s Berkshire Hathaway Inc. spent the third quarter buying back about $9 billion of its own stock, more than it had repurchased in any full year in its history. Buffett abandoned his long-held aversion to that use of capital a couple years ago as he struggled to find big deals and has ramped up the practice in 2020.

While many companies have stopped or slashed share repurchases to preserve capital during the pandemic, Buffett sees his own firm’s shares as a good investment at a time when he’s expressed concern about several other industries. Last quarter’s buying spree takes this year’s total buybacks to $16 billion, and the most recent pace would be the biggest of any U.S. company except Apple Inc., which happens to be Buffett’s largest investment.

The buybacks allowed Buffett to chip away at Berkshire’s cash pile in the third quarter, with that war chest dropping slightly to $145.7 billion. The funds, which still give him plenty of capital to deploy into acquisitions, stock purchases or buybacks, have recently been accumulating faster than Buffett can put them to work in higher-returning assets.

The heightened buybacks indicate Buffett’s faith in the conglomerate’s prospects, just months after telling Berkshire shareholders at the annual meeting in May that repurchasing shares wasn’t more compelling than when the stock was much higher before the pandemic.

Berkshire stock climbed 20% in the third quarter, surpassing the 8.5% gain in the S&P 500 Index during the same period. And the company accelerated its repurchases even as the shares climbed through the quarter.

Operating Profit

The conglomerate’s businesses have bounced back slightly from the depths of the slump in the second quarter. Profit at the railroad, while still down from a year earlier, was higher than the three months ended June 30, and Berkshire’s utilities posted its highest quarterly profit in more than a decade. Still, operating profit dropped 32%, hurt by the insurance unit’s first underwriting loss since the end of 2019.

Berkshire’s board announced a policy change in July 2018 that allowed Buffett and his business partner, Charles Munger, to buy back stock whenever the price is below whatever they consider Berkshire’s intrinsic value. Previously, they couldn’t make repurchases if the price was more than 20% above current book value.

Buffett’s appetite for equities wasn’t limited to his own shares. After selling the most stocks on a net basis in more than a decade during the second quarter, Berkshire reversed course in the following months, purchasing $4.79 billion of stocks on a net basis during the third quarter.

The company’s investments delivered almost $25 billion in investment gains amid the market rally, helping net income almost double despite the drop in operating profit.

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