Ajit Jain, Berkshire Hathaway’s insurance chief, recently sold more than half of his shares in the company for $139 million. This marked Jain’s biggest stock sale since he joined Berkshire in 1986. Even after the sale, Jain still holds $112 million in shares through his personal holdings, trusts, and a nonprofit foundation.
The sale happened when Berkshire’s Class A shares reached a new high of $715,910 on September 3. This pushed the company’s market cap past $1 trillion for the first time ever. Jain did not say why he decided to sell his shares.
At 73, he might be getting ready for retirement. He was once thought to be a possible successor to Warren Buffett. However, Buffett plans to pass on the leadership to Greg Abel, who currently heads Berkshire’s energy and non-insurance businesses.
Jain may also think Berkshire’s stock and the broader market are overvalued.
Jain’s significant stock sale
Over the past five years, Berkshire’s stock price has more than doubled.
It is trading at 26 times last year’s operating earnings, compared to 21 times five years ago. The S&P 500 is also historically expensive, trading at 22 times forward earnings. Berkshire Hathaway gets 40% of its operating profits from its insurance underwriting and investment subsidiaries.
The other 60% comes from other subsidiaries in the railroad, utility, energy, and consumer staples sectors. The company’s main strategy is to use its core businesses to generate cash for its investment portfolio. This has worked well because of the cash-rich nature of its subsidiaries and Buffett’s skill in picking long-term investments.
While Ajit Jain’s stock sale might suggest the stock is nearing a short-term high, Berkshire is built for long-term gains. Investors should focus on the company’s diversification, flexibility, and growth potential. With a strong foundation and a record $276.9 billion in cash at the end of the second quarter of 2024, Berkshire Hathaway can take advantage of future investment opportunities.
