Even Warren Buffett Thinks His Stock is Too Expensive

Warren Buffett’s Berkshire Hathaway has raised eyebrows by halting its stock buybacks for the first time in six years, despite having more than $325 billion in cash on hand. The company did not repurchase any of its own shares during the third quarter, as disclosed in recent Securities and Exchange Commission filings.

This marks a significant shift for Berkshire Hathaway, which had previously been buying back shares consistently. However, the company became a net seller of stocks during the quarter, further increasing its cash reserves to a record high.

Cathy Seifert, an analyst at CFRA Research, suggests that Berkshire Hathaway’s actions could indicate that the company’s stock is currently overvalued. “If they’re not buying back their stock, why should anyone else?” she remarked, highlighting the implications for investors.

Berkshire Hathaway’s policy, as outlined in its filings, is to repurchase shares only when the price is deemed to be below the company’s intrinsic value. The company is now refraining from buybacks, as its stock is trading at around 1.6 times its book value—higher than the 1.2 times book value it once considered a threshold for buybacks.

Shares of Berkshire Hathaway’s Class A stock closed at $664,750 on Monday, having risen approximately 21% this year, slightly outperforming the S&P 500 index.

Buffett has long made it clear that he would avoid repurchasing shares if he felt the stock was overpriced, and this decision aligns with that philosophy. Robert Korajczyk, a professor of finance at Northwestern University, pointed out that the lack of buybacks could signal Buffett’s caution about the company’s valuation.

In addition, financial experts suggest that the decision may also reflect broader market concerns. Aswath Damodaran, a finance professor at NYU Stern School of Business, speculates that the company’s cautious stance could be a sign of unease about the overall market’s pricing.

Analysts like Russ Mould from AJ Bell interpret the lack of buybacks as a reflection of Buffett’s risk-averse strategy. With Berkshire Hathaway’s cash reserves continuing to grow, the company appears to be waiting for more attractive investment opportunities in a potentially overvalued market.