Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Berkshire Hathaway Is Buying Back Its Own Stock Aggressively in 2026
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- Lucas: Berkshire Hathaway is up over four percent in the last five trading days. That's a pretty sharp move for a stock that usually doesn't make big weekly swings. Luna: Four point two percent, to be precise. And it happened while the S&P 500 dropped two percent. So Berkshire is acting as a bit of a safe harbor. Lucas: Right. And part of that move is probably tied to the buyback. Berkshire has been aggressively repurchasing its own shares in 2026. We're talking billions of dollars per quarter. Luna: I remember earlier this year there was chatter that Buffett might slow down the buybacks because the stock was getting expensive. But clearly that hasn't happened. Lucas: No, it hasn't. In fact, the buyback pace seems to have accelerated. And I think that's worth unpacking, because it tells us something about how Buffett and his team view the current market environment. Luna: Let's start with the basics. How many shares has Berkshire actually retired? Do we have a number? Lucas: Through the first quarter of 2026, Berkshire bought back roughly 12 billion dollars worth of its own stock. That's up from about 9 billion in the same period last year. The total share count has been shrinking steadily for years now. Luna: Twelve billion in one quarter. That's serious money. Especially when you consider Berkshire also has a record cash pile – I think it was around 340 billion at last count. Lucas: Three hundred and forty eight billion, as of the end of Q1. So the buyback is one way of putting some of that cash to work. But it also signals that Buffett sees Berkshire's stock as undervalued relative to its intrinsic worth. Luna: The question is: undervalued compared to what? I mean, Berkshire's stock is trading around 490 dollars, and the price to book ratio is above 1.6. That's not cheap by historical standards. Lucas: No, it's not. But Buffett doesn't use price to book as his primary metric anymore. He's talked about using a more holistic measure – essentially, the value of Berkshire's operating businesses plus its investment portfolio, minus liabilities. And by that measure, he thinks the stock is still a bargain. Luna: Which operating businesses are driving that value right now? I know the insurance side has been strong, and BNSF Railway has been a steady performer. Lucas: Insurance is the big one. Geico has been gaining market share in auto insurance, and Berkshire Hathaway Reinsurance has been writing some huge policies. Then you have the energy business, which is benefiting from higher electricity demand. And BNSF is still a cash cow, though it's more sensitive to the economic cycle. Luna: And then there's the investment portfolio. Apple is still the largest holding, right? But Apple's stock has been down almost nine percent this week. Lucas: That's right. Apple dropped nine percent in the last five days. But Berkshire has actually trimmed its Apple position over the past few quarters, so the exposure is lower than it used to be. They've been rotating into more cash and short-term Treasuries instead. Luna: So the buyback makes sense in that context. If you're sitting on a mountain of cash and you think your own stock is a better deal than anything else out there, you buy your own shares. Lucas: Exactly. And I think that's the key insight. Berkshire's buyback is a direct statement about relative value. Buffett is saying: 'We can't find enough attractive whole-company acquisitions at reasonable prices, so we'll invest in ourselves.' Luna: It's also a tax-efficient way to return capital to shareholders. Buybacks are taxed as capital gains only when you sell, whereas dividends are taxed in the year you receive them. So long-term shareholders tend to prefer buybacks. Lucas: That's a good point. And Berkshire has never paid a regular dividend. So the buyback is really the primary mechanism for returning cash to shareholders. Of course, there's also the occasional special dividend, but that's rare. Luna: Let's talk about the valuation signal more specifically. When a company buys back shares above intrinsic value, it destroys value for remaining shareholders. So what makes Buffett so confident that Berkshire is undervalued at 490? Lucas: Part of it is the earnings power. Berkshire's operating earnings in 2025 were about 45 billion dollars. At the current market cap of roughly 720 billion, that's a price to earnings ratio of about 16. That's not expensive for a collection of high-quality businesses. Luna: Sixteen times earnings for Berkshire. The S&P 500 is trading at around 22 times. So you're getting a discount to the market, plus the safety of a fortress balance sheet. Lucas: Right. And that discount has actually widened this year, because Berkshire's stock has underperformed the broader market. Year to date, Berkshire is up about 8 percent, while the S&P 500 is up around 12. So the buyback may also be a way to signal confidence and narrow that gap. Luna: I want to bring in another angle. Berkshire just made a six billion dollar bet on housing, buying a large stake in a homebuilding company. How does that square with the buyback? Is it one or the other? Lucas: It's not either-or. Berkshire can do both. They have so much cash that they can allocate six billion to housing and still have plenty left for buybacks. In fact, the housing bet might actually complement the buyback, because it shows that Berkshire is willing to deploy capital when they see value. Luna: But it also raises the question: if housing is such a great opportunity, why not put more money there instead of buying back stock? Lucas: That's a fair question. I think the answer is that the housing bet is a specific, opportunistic play. The buyback is a broader capital allocation tool. Buffett has said repeatedly that if he can't find great whole businesses to buy at sensible prices, he'll buy a piece of his own business through the buyback. Luna: It speaks to the discipline. He's not forcing deals. He's patient. Lucas: Absolutely. And I think that discipline is partially why Berkshire's stock has held up well this week while tech stocks got hammered. Investors are gravitating toward quality and stability. Luna: Speaking of which, the Nasdaq is down 4 percent this week. Google, Amazon, Microsoft all down. Berkshire up. That's a notable divergence. Lucas: It is. And it might be the beginning of a rotation away from high-growth, high-multiple stocks into value and quality. Berkshire is the poster child for that trade. Luna: If a listener wanted to evaluate whether Berkshire's buyback is a good use of capital, what would you tell them to look at? Lucas: I'd say watch the share count. If it keeps declining at the current pace, that's a sign that management is confident. Also look at the buyback authorization – Berkshire has no set limit, so the board has to approve each repurchase. That gives them flexibility. Luna: And what about the risk? Is there a scenario where the buyback backfires? Lucas: Sure. If the economy enters a deep recession and Berkshire's earnings drop significantly, the buyback could end up looking costly. But given the diversification of their businesses, that risk is mitigated. Also, buybacks reduce the number of shares, so even if earnings fall, earnings per share might not fall as much. Luna: So it's a bit of a cushion. I think that's one reason long-term Berkshire holders are generally supportive of the buyback program. Lucas: Yeah. And it's worth noting that Buffett himself has been a buyer during the buybacks. His personal holdings haven't sold a single share. That alignment matters. Luna: He's eating his own cooking. That always sends a strong signal. Lucas: By the way, I want to mention something. We're able to have these conversations without any ads interrupting them. That's intentional. We run this network ad-free because we think the content should speak for itself. If you find value in shows like this, you can support that choice at buy me a coffee dot com slash fexingo. Luna: It's a simple way to keep things independent. And every contribution genuinely helps us keep the lights on without selling out to sponsors. Lucas: So back to Berkshire. Another factor driving the buyback is the sheer size of the cash pile. With interest rates where they are, Berkshire is earning a decent return on that cash through short-term Treasuries. But the after-tax return is still lower than what they could earn by investing in their own stock. Luna: That's the opportunity cost argument. If you're earning 4.5 percent on cash but your stock is yielding an effective earnings yield of about 6 percent, you'd rather buy the stock. Lucas: Exactly. And the earnings yield on Berkshire's stock is probably higher than 6 percent when you account for the growth in operating earnings. So it's a clear arbitrage. Luna: Let me ask you this: do you think the buyback pace will continue at this rate for the rest of 2026? Lucas: I think it depends on the stock price. If Berkshire's stock continues to rally, the buyback might slow down because it becomes less attractive. But if it stays around 490 or goes lower, I expect them to remain aggressive. Luna: So in a way, the buyback acts as a floor under the stock. If it drops, Berkshire steps in and buys. Lucas: That's the theory. And historically, it has worked that way. During the 2020 selloff, Berkshire bought back a lot of stock at lower prices. It's a value-conscious program. Luna: One last thing: how does this compare to what other large companies are doing? I know Apple and Meta have huge buyback programs too. Lucas: Apple is actually the king of buybacks – they've repurchased over 700 billion dollars worth of stock in the past decade. But the difference is that Apple's buyback is more formulaic, tied to cash flow. Berkshire's is more opportunistic. And Berkshire's buyback is also a much larger percentage of the company's market cap, because Berkshire is smaller than Apple. Luna: Right. Berkshire's market cap is about 720 billion, so a 12 billion quarterly buyback is about 1.7 percent of the company per quarter. Apple's buyback rate is smaller relative to its market cap. Lucas: So Berkshire is shrinking its share count at a faster pace. That's powerful for long-term compounding. If you own Berkshire shares, your ownership stake in the entire business grows automatically. Luna: That's the beauty of buybacks when done right. It's like a hidden dividend that increases your claim on future earnings. Lucas: Exactly. And I think as long as Buffett remains at the helm, the buyback will continue to be a central part of the value proposition. It's one of the reasons I'm comfortable holding Berkshire in a concentrated portfolio. Luna: I think that's a great note to end on. Thanks, Lucas. Lucas: Thanks, Luna. Next time we'll look at another company that's making big capital allocation moves.