Over Buffett’s 59-year tenure, Berkshire stock has delivered a compound annual return of 19.8%, which could have turned an investment of $1,000 into over $42 million. In comparison, a $1,000 investment in the S&P 500 (SNPINDEX: ^GSPC) index over the same period would be worth just $308,115 today.

Berkshire has delivered the operating results to support the incredible gains in its stock. The conglomerate generated $49 million in revenue during 1965, and that number is on track to come in at $368 billion in 2024. Today, Berkshire generates revenue from insurance premiums, its interests in energy and utilities businesses, and sales and services from its various consumer subsidiaries like Dairy Queen and Duracell.

Stock buybacks are Buffett’s preferred way to return money to shareholders. Every time Berkshire buys its own shares on the open market, it reduces the company’s available float, which organically boosts its stock price.

Buffett has authorized a whopping $77.8 billion worth of repurchases since 2018, which is twice as much as Berkshire spent building its stake in Apple. Berkshire has become so large that it’s struggling to find new investments that can really move the needle, so rewarding loyal shareholders is a good alternative to sitting on piles of idle cash.

Plus, considering Berkshire’s performance relative to the S&P 500, few people will argue that buybacks are a bad use of the conglomerate’s money.

Berkshire can continue buying its own stock at management’s discretion for as long as its cash, equivalents, and holdings in U.S. Treasury bills remain above $30 billion. Since the company is sitting on an eye-popping $277 billion in liquidity right now, buybacks probably won’t stop in the foreseeable future.

As I mentioned earlier, Berkshire sold more than half of its stake in Apple during the first half of 2024. Based on Apple’s average stock price during the first and second quarter, that translated to around $100 billion worth of sales.

But that’s not all. The conglomerate also trimmed its positions in Capital One Financial, Chevron, and T-Mobile (to name a few), while selling its entire stakes in Snowflake, Paramount Global, and HP Inc.

Plus, Buffett only authorized $345 million worth of buybacks during Q2, which is the least money Berkshire has spent acquiring its own shares since 2018.

What does all that mean? It’s possible Buffett thinks the stock market is expensive, so he’s cashing in some of Berkshire’s gains to prepare the company for a potential correction. If a correction happens, Buffett can swoop in and put the conglomerate’s cash pile to work.

That strategy makes sense, because the S&P 500 currently trades at a price-to-earnings (P/E) ratio of 27.8. That’s a whopping 53% more expensive than its long-term average of 18.1 going back to the 1950s.

A high valuation alone isn’t a sign of an imminent correction, because the S&P 500 can remain expensive for years. Buffett himself would tell you he has no idea where the market is going in the short term, but he’s a professional who is required to make decisions that he feels will benefit Berkshire’s shareholders. Occasionally, that means selling large quantities of stock.

Everyday investors shouldn’t take his recent moves as a signal to sell their own stocks. Instead, history suggests the best move is to consistently buy stocks over time, and hold on to them for as long as possible to benefit from the magic of compounding.

After all, you don’t see Buffett selling his cash-generating powerhouses like Coca-Cola right now.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Chevron, HP, Meta Platforms, Microsoft, Moody’s, Nvidia, Snowflake, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends T-Mobile US and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Meet America’s Newest $1 Trillion Company. Warren Buffett Has Spent $77.8 Billion Buying Its Stock Since 2018 was originally published by The Motley Fool