Quora Answer: Why is Warren Edward Buffett Buying Shares of His Own Company, Berkshire Hathaway?

The following is my answer to a Quora question: “Why is Warren Edward Buffett buying shares of his own company, Berkshire Hathaway?”

This is actually very straightforward. Berkshire Hathaway is sitting on $110 billion in cash.  That money is a war chest to fund the acquisition of companies that are seen to be trading below their book value, with significant cash float, and have good earnings potential.  This is their template for taking a position.

The problem is that there is very little value in this market.  The stock market is overheated, most shares are inflated, and other companies are themselves engaging in buybacks to increase their share price, and leverage.  They are considering a large stake in Delta Airlines, or one of the other three major American airlines.  This is a similar position to when they bought Burlington Northern Santa Fe, in 2009.  But that is not going to cost anywhere near the cash Berkshire Hathaway has.

Such large cash reserves in the long term is never a good idea.  There is currency risk, which means that they are vulnerable to changes in monetary policy, and exposed to rate changes.  This is also a huge opportunity cost with negatively affects profitability at a time when there is pressure on the stock due to the massive Kraft-Heinz write down.

In light of the above, the most logical act is to buy back their own stock to ease pressure on the share price, reduce their currency risk exposure, and increase their leverage.  There is no good deal in the market at the moment, and they have no need for such a massive cash pile.