Warren Buffett often says that share buybacks can benefit shareholders - but only if they are done at the right price. In recent months, Buffett has significantly reduced his holdings of various stocks and now he doesn't even want his own stocks anymore. "Buffett seems to believe that the best investments at the moment are cash and government bonds".
Berkshire Hathaway has reduced its share buybacks and has accumulated a large amount of cash and government bonds.
Warren Buffett's investment company, Berkshire Hathaway, disclosed in August that share buybacks have slowed significantly after a large number of buybacks in previous quarters. According to documents, Berkshire Hathaway repurchased approximately $0.345 billion worth of stocks in the second quarter, the smallest quarterly buyback since 2018. In the second half of 2020, the company repurchased approximately $9 billion worth of stocks each quarter.
Warren Buffett's right-hand man is also selling stocks. On Thursday, September 12th, Ajit Jain, Vice Chairman of Berkshire Hathaway's insurance business, sold Berkshire Hathaway Class A shares worth $0.139 billion, reducing his holdings by more than half.
Do they all think Berkshire Hathaway is too expensive?
On August 28th, Berkshire Hathaway's market cap surpassed $1 trillion for the first time, becoming the first non-technology industry company in the USA to join the 'Trillion Dollar Club'. However, joining this group does not mean it is guaranteed forever. Tesla's market cap has now fallen to $736 billion, while Berkshire Hathaway's current market cap is $965.9 billion.
While Buffett has sold off a large number of stocks and slowed down the share buyback of his own company, Berkshire Hathaway has accumulated nearly $277 billion in cash.
Buffett: Berkshire Hathaway 'cannot have astonishing 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, sees Berkshire Hathaway as a 'rock-solid stock' with a solid balance sheet, trusted leadership, and a wide range of diverse businesses. However, he advised clients to wait for a pullback in Berkshire Hathaway's stock price before adding to their positions. Stone said,
"Now is not an attractive buying opportunity, to be frank, we are not in a hurry to significantly increase our holdings."
In his letter to shareholders in February of this year, Buffett warned that Berkshire Hathaway is of a massive scale and currently lacks attractively priced acquisition targets, so the company 'cannot have astonishing performance.'
Buffett often says that share buybacks can benefit shareholders, but only if they are done at the right price. Repurchasing at a premium is foolish. In August, Berkshire Hathaway also stated in its quarterly report,
"The company will only carry out share buybacks when Buffett believes that the price is lower than Berkshire Hathaway's conservative estimate of its value."
However, a high market cap does not necessarily mean that the upward trend of Berkshire Hathaway or the entire market will end.
As investors continue to pour money into the market and avoid or ignore bad news, the stock of Berkshire Hathaway may continue to rise. However, for cautious investors, a high market cap may cause them to stop. Some investors have said, "If Buffett doesn't buy his own stock, why should we?"
What does Buffett like now?
In recent months, Buffett has significantly reduced his holdings of various stocks. According to reports, Berkshire Hathaway reduced its holdings of Apple by over 0.389 billion shares in the second quarter, with a market cap of about 82 billion US dollars. The number of shares held decreased by 49.3% compared to the first quarter, and the proportion in the investment portfolio decreased by more than 10 percentage points.
Berkshire Hathaway also cleared its positions of 6.12 million shares (0.84 billion US dollars) of cloud computing star Snowflake; reduced its holdings of 4.37 million shares (0.68 billion US dollars) of Chevron; and reduced its holdings of 2.65 million shares (0.367 billion US dollars) of financial holding company COF...
Now, Buffett doesn't even want his own stocks. What does he like?
Berkshire Hathaway stated that if a share buyback would reduce the company's cash and Treasury holdings to below 30 billion US dollars, the company would not engage in the buyback. However, this situation is highly unlikely to occur.
As of the end of June, Berkshire Hathaway's cash reserves were close to 277 billion US dollars, which primarily came from selling a large amount of stocks, especially Apple stocks. Aash Shah, the Investment Director and Senior Portfolio Manager at Summit Global Investments, said:
In short, Buffett seems to believe that the best investments at the moment are cash and government bonds.
Editor/Lambor