By Ian Wyatt, 100K Portfolio

Earlier this month, Warren Buffett announced an "open-ended" share-buyback program for Berkshire Hathaway (BRK-B), which allows it to repurchase its buy stock at a price not to exceed 10% above book value.

The program is a huge positive for Berkshire shareholders and effectively puts a floor on Berkshire's share price.

The program was initiated immediately and has no expiration date. Additionally, the program allows Berkshire to repurchase an unlimited number of shares, so long as the company has at least $20 billion in cash and equivalents on its balance sheet.

Berkshire Hathaway has never repurchased shares. Nor has the company ever paid a dividend to its shareholders.

In 1999, when Berkshire shares were in the toilet during the technology and dot-com boom, Buffett made an open offer to buy Berkshire shares at the current price.

Within one week, Berkshire shares had risen 24%. And one year later the stock had soared 72%, compared with an 11% decline for the S&P 500 index. As a result, Buffett never had the opportunity to buy back shares.

The Oracle of Omaha is known to be a straight shooter who puts his shareholders first. If there is a single corporate executive I trust, it's Buffett. I suspect I'm not alone in this view.

And it's fair to assume that the announcement of the repurchase program isn't designed simply to boost Berkshire's share price in the short term.

After all, Buffett has made it clear through his past actions that he doesn't really care what happens in the near term for the price of Berkshire shares or his other investors.

This announcement tells me that Buffett believes Berkshire shares are considerably undervalued.

Today, Berkshire is sitting on piles of cash. At the end of the second quarter, cash and short-term bonds totaled $77 billion. The total value of the cash equals one-third of the company's current market cap.

In addition to its huge war chest of cash, Berkshire has amazing cash flow from its operations. In the first six months of this year, cash from operations was $6.5 billion. This means that every month more than $1 billion in cash is pouring into the company's coffers!

Simply put, Berkshire is a cash-generating machine that's seeking to maximize shareholder value.

Based on our assessment, we believe Berkshire shares would need to rise 35% in order to reach their intrinsic value today.

With Berkshire shares trading at 65 cents on the dollar based on my estimates, I'm buying more Berkshire Hathaway B shares and consider this a core holding in our model portfolio.

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