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Monday, August 9, 2021

Berkshire Hathaway's own shares were Berkshire's big buy in the second quarter

Berkshire Hathaway (BRK-A, BRK-B) released its quarterly results on Saturday morning. 

Total revenue for the conglomerate hit $69.1 billion in the second quarter while earnings per share came in at $18,488 per Class A share. 

But as has been the case for several years now, one of the biggest headlines to emerge from Berkshire's results is the growing cash pile Warren Buffett's company is sitting on. At the end of the quarter, Berkshire's insurance and other businesses held cash, cash equivalents and Treasury Bills worth $140.7 billion. This is up from $138.1 billion at the end of the first quarter.

The primary use of Berkshire's cash in recent years been to purchase equity securities and, specifically, repurchase shares of Berkshire Hathaway. 

In the second quarter, the company spent $6 billion buying back its own stock after spending $6.6 billion on repurchases in the first quarter. As Bloomberg's Katherine Chiglinsky notes, this most recent repurchase is the 4th-largest since Berkshire embarked on repurchases of its stock in 2018, after taking almost six years off from the practice. 

In his most recent annual letter to Berkshire Hathaway shareholders, Buffett talked at length about share buybacks and the benefits this practice can confer on shareholders, using Berkshire's stake in Apple (AAPL) and Apple's own repurchase plan as an illustration of this dynamic. 

"The math of repurchases grinds away slowly, but can be powerful over time," Buffett wrote. "The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses. And as a sultry Mae West assured us: 'Too much of a good thing can be … wonderful.'"

Story continues

Against this backdrop, then, it comes as little surprise that Buffett continues to see share repurchases as an attractive — if not the single best — use of Berkshire's cash. But given the company's substantial (and growing) cash ready for use, there has been little let up in idle speculation on where Berkshire's next sizable acquisition might come from. 

This month marks the six-year anniversary of Berkshire's last substantial acquisition: the company's $37 billion purchase of airplane parts maker Precision Castparts. But the challenges for Berkshire in the wake of this deal perhaps explain why repurchases remain Buffett's preferred method of cash deployment. Last year, Berkshire took an $11 billion write-down on Precision Castparts, with Buffett writing, "I paid too much for the company." 

He added: "I believe I was right in concluding that [Precision Castparts] would, over time, earn good returns on the net tangible assets deployed in its operations. I was wrong, however, in judging the average amount of future earnings and, consequently, wrong in my calculation of the proper price to pay for the business. PCC is far from my first error of that sort. But it’s a big one."

A reminder that the challenge for investors of any experience, size, or style is less about figuring out what works and more about avoiding what doesn't. A lesson that for the last several years has kept Warren Buffett buying local.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland

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