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Warren Buffett sends a $1 billion signal to the market

CNBC logo CNBC 11/5/2018

Billionaire investor Warren Buffett was putting money to work in stocks this summer, including Berkshire Hathaway's own shares.

The Omaha conglomerate bought nearly $1 billion of its own shares in August, the company disclosed in a securities filing on Monday after releasing its third quarter earnings on Saturday.

Berkshire's B shares jumped nearly 5 percent on Monday, leading the financial sector higher, on expectations that the buying may have continued into the final three months of the year. During October, Berkshire hit a high of $223 before falling to $198 and then rebounding to its current $216 level.

The buying "sends a really strong signal to the market," says Edward D. Jones analyst Jim Shanahan.

Details from its filing show Berkshire was active buying other stocks between July and September as well. Net purchases of stocks through the first nine months of the year were $24.4 billion, nearly double the $11.8 billion net purchases reported through June. That means net purchases in the third quarter were about $12.5 billion.

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Berkshire has been a big buyer of Apple over the last two years, though its purchases slowed more recently as the stock rose. It will report its investment activities for the third quarter later this month. As of the end of June, Berkshire was Apple's second biggest holder, with 5.22 percent.

The fair value of its investments as of Sept. 30 was $207 billion, up from $179 billion at the end of June and $170 billion as of the end of last year. Its portfolio is concentrated in five companies, including Apple, American Express, Bank of America, Coca-Cola and Wells Fargo. Apple is up nearly 20 percent this year, while the banks have lost ground. Wells Fargo is down nearly 11 percent.

Berkshire signaled it was prepared to buy back its own stock in July, when it loosened the rules Buffett and his long-time lieutenant Charlie Munger use to decide whether to buy them. With a cash pile of more than $100 billion and few opportunities to buy companies at a price Buffett is willing to pay, buying back the company's own stock was seen as a good option.

"Better late than never," said David Rolfe, the chief investment officer of St. Louis-based Wedgewood Partners, a long-time owner of Berkshire B shares. Now that Berkshire is willing to buy its own shares, it might be less tempted to make a big acquisition with its cash that doesn't pan out, he said. "It speaks to me of a significantly derisked position," Rolfe said.

"If Plan b is to buy back our own shares, shareholders should feel very comfortable."

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