Buffett’s Buyback says about the Stock Market

Most of you have probably heard that Warren Buffett's has decided that Berkshire Hathaway Inc. (BRK/A) shares are cheap enough to buy back; that may mean the S&P 500 Index is also a bargain.

Buffett’s authorized to repurchase stock for the first time in 40 yrs as long as its price is less than 1.1x book value, or assets minus liabilities. The level is 30% below Berkshire's average of 1.55 since 2000, almost the same discount investors are getting in the S&P 500, according to data compiled by Bloomberg.

An article in Investment News (HERE) has experts who pontificate what that means for the Stock market. I’ll summarize below: 

• “If he thought the possibilities of a recession were on the horizon, then he'd wait to do this,” James Dunigan, PNC Wealth Management. “You can make a number of arguments that on some traditional measures, the market is undervalued.”
• Repurchasing Berkshire stock is a bet that market valuations are too low partly because so many of its investments are public, stated Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC. Berkshire owns stakes in 27 companies.
• “This announcement is a bit out of character and for that reason is seen as very constructive both in terms what he sees as an opportunity to buy a great asset, namely Berkshire stock, trading at a discount to historical book value as well as the portfolio of companies within Berkshire that he thinks is undervalued,” Luschini said.
• “He has a lot of investments in the largest companies in the market, so putting his money in Berkshire is another way of being bullish on the market,” said Eric Green, of Penn Capital Management. “If the stock market is going down, then his stock will go down, and he's certainly smart enough to know that and he thinks the market is undervalued.”

Buffett is considered by many to be one of the wisest investors out there. So, the “Oracle of Omaha” is buying back his own stock, which many are interpreting as being bullish on the US Stock Market.