What Do Berkshire Hathaway’s Buyback and Stock Purchases Mean for Small Cap Investors?

The Oracle of Omaha’s Berkshire Hathaway announced third quarter numbers on Saturday.

In its filings with the SEC on Monday, the Omaha, Nebraska, conglomerate disclosed it bought nearly $1 billion of its own shares in August and nearly doubled its year-to-date net purchases of equities in the third quarter, adding $12.5 billion in the period.

While some financial pundits viewed the stock buyback to mean there was a lack of opportunities to buy companies at good prices, its important to note that the $1 billion represents just 1% of Berkshire’s current cash position.

Quite the contrary, the fact that Berkshire’s net purchases of equities in the period accounts for more than half of its year-to-date total of $24.4 billion indicates Berkshire was increasing its appetite for equities.

This falls in line with our view last week that the current market turmoil at worst is likely to lead to an extended and broad trading range, a range where we are much closer to the bottom than the top.

Small-cap indices have fared the worst during the October correction, but were the leaders at their peak in the summer.

While indices may only bounce back to their recent highs in the coming months, as we’ve noted in the past, individual small-cap stocks often trade very independent of their benchmark indices.

With likely positive tailwinds ahead, which Berkshire’s activity seems to confirm, owning a basket of the right small-cap stocks could produce solid gains for you leading into year-end and through 2019.

Be sure to read this newsletter each week for the latest developments on some of the top names in the small-cap space.