What goes around comes around, and then some. At the start of this week, Warren Buffett gave away $3.4bn to charity. Today, his paper net worth jumped by $4.2bn after Berkshire Hathaway’s decision to loosen its policy on buybacks pushed shares in the company up by the most in nearly seven years.

The amendment could pave the way for a new share buyback, which could help soak up some of the $100bn-plus cash pile that Berkshire is sitting on.

Berkshire said in a statement after market close on Tuesday its board of directors had adopted an amendment that would allow share repurchases to be made at any time Mr Buffett and Charlie Munger, the company’s vice-chairman, “believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.”

The previous share buyback programme said the price paid for repurchased shares would not exceed 1.2 times the book value of shares at the time.

Berkshire had long preferred book value as a measure of performance because it invested in marketable securities that, if they were “winners”, could be marked to market, thereby boosting the company’s balance sheet. But this did not work so well as Berkshire shifted strategy in the 1990s to owning businesses outright because accounting rules mean the carrying value of such winners is never revalued higher.

Under the terms of the amendment announced on Tuesday, Berkshire will keep in place a policy whereby buybacks would not be made if they reduced the value of the company’s consolidated cash, cash equivalents and Treasury bills below $20bn.

Commenting on a cash pile that stood at $116bn at the end of 2017, Mr Buffett said in his most recent letter to shareholders in February that his and Mr Munger’s smiles “will broaden when we have redeployed Berkshire’s excess funds into more productive assets.” The cashpile has come down slightly since then, standing at $108.6bn at the end of March.

Analysts at UBS said in a note that “finding a use for some of its cash to improve returns is a potential catalyst for the stock” but added that “using the cash for meaningful acquisitions appears to be challening currently.”

Berkshire’s most recent public effort to land a transformative acquisition fell apart in 2017 when the well-known value investor and Brazilian private equity group 3G Capital failed to secure a $143bn agreement with Unilever. And at its annual meeting in May, Mr Buffett opted not to pay a special dividend to shareholders.

Berkshire A shares were up 5 per cent at $302,790, and on track for its biggest one-day jump since late September 2011. The stock had been up as much as 5.4 per cent.

On Monday, Mr Buffett donated $3.4bn of Class B shares to a number of charities, including the Bill & Melinda Gates Foundation.

Photo: Getty

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