Warren Buffett, the CEO of Berkshire Hathaway, has ended a six-year streak of stock buybacks for the company. He said the stock is too expensive. Berkshire Hathaway did not buy back any shares during the third quarter, according to filings with the Securities and Exchange Commission.
This is despite the company holding over $325 billion in cash reserves. Buffett only buys back shares when he thinks they are a “bargain.” His decision suggests he believes Berkshire’s stock is currently overvalued. Berkshire’s Class A shares are trading around 1.6 times their book value.
Buffett halts buybacks amid overvaluation
This is higher than the historical guideline of 1.2 times book value that the company followed before 2018. Robert Korajczyk, a finance professor at Northwestern’s Kellogg School of Management, said, “He’s been very clear that they would never buy back shares if they thought that the firm was overvalued.”
Berkshire’s increased cash holdings from selling stocks in the third quarter is a cautionary response to current market conditions, according to some analysts.
Aswath Damodaran, a professor at NYU Stern School of Business, noted, “It’s a signal that they feel cautious about where the market is. They’ve become cautious because they think the market is richly priced.”
Buffett often reminds investors to wait for opportunities that align with their long-term goals. He famously advises to “be fearful when others are greedy and greedy only when others are fearful.”
For investors following Buffett’s lead, his recent actions show the importance of valuation and the benefit of holding cash when the market feels overvalued.
His strategies prioritize value and conservative growth.
