Buffett buyback

Warren Buffett cast his eye across the investment landscape yesterday and found no better use of Berkshire Hathaway’s $48 billion cash than buying his own shares.

So for the first time in 40 years, Buffett, long a critic of companies using cash to buy their own stock, did just that — saying it would purchase “an indefinite” number of A and B shares.

Buffett, 81, said he was making the move to purchase the shares, at no greater than 10 percent over book value, because the underlying businesses are “worth considerably more.”

Still, the move left many investors scratching their heads. These people say they worry that the unusual move suggests the Oracle of Omaha thinks the investment landscape has dried up and that he sees no better way to use his excess cash.

Meyer Shields, an analyst at Stifel Nicolaus & Co., said he doubts Buffett will actually follow through on his buyback plan in any significant way, but said that if he does pull the trigger, “that will be a bad sign.”

“If you actually see that happen, that is a confirmation that there is nothing better to do with the capital,” Shields said.

Traditionally, stock buybacks are viewed as a vote of confidence in the underlying company. But Buffett is known for pooh-poohing such tactics as a waste of money.

In his 2010 letter to investors, for example, he bragged about successfully avoiding traditional ways to throw off excess cash, such as stock buybacks and dividends.

“Not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years,” he boasted. “Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month.”

And at the annual shareholder meeting last spring, Buffett went so far as to warn shareholders clamoring for a dividend that such a move would suggest he had run out of good investment ideas.

“It’s very hard to read,” said one hedge-fund trader of yesterday’s announcement, saying he hasn’t discounted some of the more “cynical” interpretations, including the possibility that Buffett fears a blow-up in Europe.

To be sure, Buffett has said he’s not totally opposed to buybacks, and the renowned investor once told investors he wished he bought the stock during the dot-com bust. But he’s also said that even when a stock is “significantly undervalued,” buybacks are merely “an alternative to every other activity.”

The stock repurchase plan also comes at a time when the Oracle has taken to warning investors that the days of outsize returns are over.

“The bountiful years, we want to emphasize, will never return,” he said in the 2010 letter to investors.

If Buffett was looking to draw attention to Berkshire shares, he certainly succeeded.

Shares of the Omaha, Neb., company, which were down as much as 17 percent this year, soared on the announcement, with the Class A stock rising as much as 8 percent to $108,449.