Charles Rotblut, Contributor 
Warren Buffett published his annual letter toBerkshire Hathaway shareholders last Saturday. I always enjoy reading these, not only because I am a Berkshire shareholder, but also because intermixed with Buffett’s discussion of how the company has performed are words of investing wisdom.This year’s letter was no different. Buffett devoted many paragraphs to the subject of share buybacks, a topic he has opined on before. This year, he focused specifically on valuation and price performance.
Regarding valuation, here is what the Oracle of Omaha wrote:
Charlie [Warren Buffett's partner] and I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company’s intrinsic business value, conservatively calculated.
We have witnessed many bouts of repurchasing that failed our second test. Sometimes, of course, infractions—even serious ones—are innocent; many CEOs never stop believing their stock is cheap. In other instances, a less benign conclusion seems warranted. It doesn’t suffice to say that repurchases are being made to offset the dilution from stock issuances or simply because a company has excess ... read more.
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