Chart: Berkshire Hathaway's New Price Floor


Warren Buffett is in the news again.

Yesterday, it was announced (link opens PDF) that his company, Berkshire Hathaway , will repurchase $1.2 billion of Berkshire stock from the "estate of a longtime shareholder." Going forward, moreover, the company said that it will now repurchase shares anytime they trade for less than 120% of book value, up from its previously announced price floor of 110%.

For those of you wondering how effective the new policy will be, check out the chart below. After Berkshire announced the original 110% price floor in September of last year, shares never once traded below that level. And this is despite the fact that Berkshire spent only $67.5 million on share buybacks, a rounding error for a company of Berkshire's size.


Sources: Yahoo! Finance and Berkshire Hathaway's Investor Relations. The inspiration for the chart came from Bloomberg's Chart of the Day.

Misgivings aside, it should be no surprise that investors are thrilled at the decision. According to Whitney Tilson, a co-founder and managing director of T2 Partners: "Needless to say, I'm even happier having this as my largest position -- and added to it this morning the moment I saw the announcement." For at least the foreseeable future, in turn, I think it seems safe to assume that the current, albeit higher, floor can expect to hold.

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