With a market value exceeding $1 trillion, does Buffett think Berkshire Hathaway is also expensive?
Warren Buffett often says that stock buybacks can benefit shareholders, but only when buybacks are done at the right price, it is beneficial to existing shareholders. In recent months, Buffett has significantly reduced holdings of various stocks, and now he doesn't even want his own stocks. "Buffett seems to think that the best investment at the moment is cash and government bonds"
Berkshire Hathaway reduces buybacks, holds large amounts of cash and treasuries.
Buffett's investment company Berkshire Hathaway disclosed in August that after making large buybacks in multiple quarters before, recent stock buybacks have slowed significantly. According to documents, Berkshire Hathaway repurchased approximately $345 million worth of stocks in the second quarter, the smallest quarterly buyback since 2018. In the second half of 2020, the company repurchased about $9 billion worth of stocks each quarter.
Buffett's right-hand man is also selling stocks—on Thursday, September 12, Ajit Jain, vice chairman of Berkshire Hathaway's insurance business, sold Berkshire Class A shares worth $139 million, reducing his holdings by more than half.
Do they both think Berkshire Hathaway is too expensive?
On August 28, Berkshire Hathaway's market value surpassed $1 trillion for the first time, becoming the first non-tech industry U.S. company to join the "trillion-dollar club." However, joining this group does not mean it's a one-time achievement. Tesla's market value has now shrunk to $736 billion, while Berkshire Hathaway's current market value is $965.9 billion.
Despite Buffett selling a large amount of various stocks and slowing down the repurchase of its own stocks, Berkshire Hathaway has reserved nearly $277 billion in cash.
Buffett: Berkshire Hathaway "cannot have amazing performance"
Many analysts believe that Berkshire Hathaway's stock price is overvalued, and Buffett seems to think so too.
Bill Stone, chief investment officer of Glenview Trust, considers Berkshire Hathaway as the "ultimate stable stock"—with a rock-solid balance sheet, trusted leadership, and a wide range of diversified business. However, he advised clients this week to wait for a pullback in Berkshire Hathaway's stock price before increasing their positions. Stone said:
"It's not an attractive buying opportunity right now, frankly, we're not in a hurry to significantly increase our holdings."
In a letter to shareholders in February this year, Buffett warned that Berkshire Hathaway, being of massive scale, currently lacks attractively priced acquisition targets, so the company "cannot have amazing performance."
Buffett often emphasizes that stock buybacks can benefit shareholders—but only when done at the right price, it is advantageous to existing shareholders, "buying back at a premium is foolish." In August, Berkshire Hathaway also stated in its quarterly report:
"Only when Buffett believes that the repurchase price is below Berkshire's conservative estimate of value, will the company proceed with the buyback."
However, high valuations do not necessarily mean that Berkshire Hathaway or the entire market's uptrend will end.
As investors continue to pour money into the market and avoid or ignore bad news, Berkshire Hathaway's stock may continue to rise. But for those cautious investors, high valuations may cause them to pause Some investors have expressed, "If Buffett doesn't buy his own stock, why should we?"
What does Buffett like now?
In recent months, Buffett has significantly reduced holdings of various stocks. According to reports, Berkshire Hathaway reduced its Apple holdings by over 389 million shares in the second quarter, with a market value of about $82 billion. The number of shares held decreased by 49.3% compared to the first quarter, with the proportion in the investment portfolio dropping by over 10 percentage points.
Berkshire also liquidated 6.12 million shares ($840 million) of cloud computing star Snowflake; reduced holdings of 4.37 million shares ($680 million) of Chevron; and reduced holdings of 2.65 million shares ($367 million) of financial holding company COF...
Now, Buffett doesn't even want his own stock, what does he like?
Berkshire Hathaway stated that if share repurchases would reduce the company's cash and Treasury holdings to below $30 billion, the company will not repurchase shares, but this scenario is highly unlikely to occur.
As of the end of June, Berkshire Hathaway's cash reserves were close to $277 billion, with this huge cash mainly coming from the sale of stocks, especially Apple stock. Aash Shah, Chief Investment Officer and Senior Portfolio Manager at Summit Global Investments, stated:
"In summary, Buffett seems to believe that the best investment at the moment is cash and Treasury bonds."