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Why Warren Buffett's Goldman Sachs Stake May Mirror IBM

Still, like IBM, Goldman Sachs is likely relying on a multi-year share buyback program to help the firm transition to a new regulatory era that promotes higher capital, less leverage and makes risk taking more burdensome.

Goldman Sachs quietly has been among the biggest net share repurchasers in the entire financial sector.

Since the third quarter of 2010, Goldman has plowed over $10 billion into share repurchases, cutting its overall share count by about 15%. The firm escaped the financial crisis with a diluted share count nearing 600 million shares. After $1.65 billion in third quarter share buybacks, that count has fallen to below 500 million shares for the first time since the crisis.

For now, Goldman's share repurchase activity is helping to boost the firm's earnings per share metrics in a flat economy. While revenue for the third quarter and for 2013 has fallen from 2012 levels, the firm's earnings continue to grow. There is reason to expect Goldman will earn over $15 in earnings per share this year, a new record for the firm.

Those earnings per share records may help to mask Goldman's falling revenue and a decidedly weak outlook for year-end, however, they also augur well for the firm in a better economy.

"Goldman Sachs is not drawing its capital down, but what it is doing is using the capital it generates to retire shares until such time that the world's economy has grown to the point where GS can earn a 15-20% return on equity on the ~66B of capital that it has," Chris Kotowski, an Oppenheimer analyst, wrote ahead of the firm's earnings results.

"We have no idea when that point will come, but when it does there will be fewer shares around to share the wealth," he concluded.

Like IBM, Buffett has committed to being a long-term holder of Goldman shares after he converted 43 million stock warrants to an over $2 billion stake in the firm. As with IBM, Buffett stands poised to benefit from Goldman's industry leading share buyback program if his confidence in the firm's management proves to be correct.

"In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham's The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices," wrote Buffett in the 2011 shareholder letter.

"Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life."

Goldman Sachs shares were falling over 3% to $157.29 in early Thursday trading.

-- Written by Antoine Gara in New York.

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