Buffett shows growing appetite for equities in Q3.

The world’s most famous stock-picker showed a growing appetite for equities in the third quarter — including a rare move to buy his own firm’s shares. Now, October’s market slide opens the door for Warren Buffett to finally make a dent in his giant pile of cash. Berkshire Hathaway Inc.’s chairman poured more money into stock purchases last quarter than he has in more than four years. Buffett also spent US$928 million on share buybacks during a few weeks in August, a move he’s typically spurned. While the repurchases amounted to less than one per cent of the company’s cash, they set a new precedent.

“It’s really important in terms of a signalling effect,” Jim Shanahan, an analyst at Edward Jones, said in a phone interview. “What they’ve demonstrated is a willingness to use cash to buy back the stock if it reaches a value that they believe is less than intrinsic value.”

Berkshire’s Class A shares jumped five per cent at 9:49 a.m. in New York, the biggest increase in more than three months.

Buffett, 88, has been facing a conundrum. He’s long preferred to use Berkshire’s cash to hunt for large deals or snap up stocks in companies such as Apple and Coca-Cola. While it’s still a goal to have “one or more huge acquisitions,” he’s bemoaned that prices for many businesses have reached “alltime highs.” That’s left him struggling to put to work a cash pile that’s topped US$100 billion in the past five quarters.

“Berkshire was a go-to entity” for deals in many years, said Cathy Seifert at CFRA Research. “But now there’s a lot of competition in the M&A marketplace.”

But sitting on such a large stack of cash has led to pressure from investors to use it or give it back to shareholders through buybacks and dividends.

“If this were any company that he owned, he wouldn’t be able to understand why they aren’t buying a ton of stock back,” Bill Smead, whose Smead Capital Management oversees US$2.2 billion including Berkshire shares, said in a phone interview.

Berkshire’s board acknowledged that pressure in July with a loosened repurchase policy, allowing Buffett and vice-chair Charlie Munger to buy back stock whenever they felt the shares were below intrinsic value. The previous policy limited them to purchasing stock only when the price was below a 20-per-cent premium to book value.

Buffett repurchased US$1.2 billion from the estate of a longtime shareholder in 2012, but he’s detailed to shareholders how he prefers to find other uses for that money unless prices make sense. During his annual meeting in May, Buffett said he would prefer share buybacks to a special dividend.

Now, the worst month for U.S. stocks in seven years has made several of his favourite companies significantly cheaper. Shares of Apple, Berkshire’s top holding, have dropped 8.1 per cent since the end of September, while Bank of America has slumped 5.3 per cent.

Fear in the market “creates prices that make me want to shovel out the money as fast as I can,” Buffett said in August in an interview with Bloomberg Television’s David Westin. “But we’ve been shovelling out money anyway.”

He was able to chip away slightly at his cash pile during the third quarter, whittling it to about US$104 billion from US$111 billion at the end of June.

Despite prices that have thwarted any major deals, Buffett has found stocks he likes. He purchased US$12.6 billion of equity securities on a net basis during the third quarter, the most in more than four years.The market declines have also left Berkshire’s shares below the price where Buffett bought them back, leading some investors to think he could dwarf the third quarter’s total in the final three months of the year — despite his feelings on buybacks.

“It’s close to one of the last things he wants to be doing,” said Steven Check of Check Capital Management, which oversees US$1.5 billion including investments in Berkshire. “He’s avoided it pretty well for 50-plus years.”