Directors of listed Hong Kong companies have been increasing the purchases of their own shares after a lull in this kind of activity earlier in the year. Also, rather intriguingly, Berkshire Hathaway has made a US$1.2 billion buy-back of company shares. The purchase defies US investment guru (and Berkshire head) Warren Buffett's own maxims.
Buffett is famous for criticising directors for overpaying for shares in their own companies, which he says is done to pump up the share price.
However, earlier in the month Berkshire stepped in to buy 9,200 class A shares at US$131,000 per share, this being Berkshire's relatively illiquid share class. The firm did so at a slight premium to the closing price on the day before the purchase was made. It was speculated he wanted to prevent the release of these shares on the market, which could have caused a fall in his company's share price.
But if Buffett expected a price drop, why not buy the shares on the open market following the decline? The direct buy-back from the selling shareholder seemed to run contrary to Buffett's mantra of taking advantage of price falls.
The name of the seller has not been disclosed but Berkshire said the shares came from "a long-time shareholder". It is not known whether Buffett had a connection with this shareholder, nor has he given a reason for the purchase.
Having preached the virtues of maximum transparency in companies that Buffett regards as good investments he might wish to practise more of what he preaches.
However, and quite predictably, it had a positive effect on the price of Berkshire shares. The logic is that company directors know best how much their companies are worth and that, when insiders see buying opportunities, this is a signal for outsiders to join in.