Berkshire Hathaway CEO warren buffett recently ended the company’s six-year streak of stock buybacks. The company regularly participates in share buybacks, but did not conduct any share buybacks in the third quarter, according to a filing with the Securities and Exchange Commission.
Despite having more than $325 billion in cash reserves, Buffett has chosen not to use that cash for stock buybacks, suggesting he believes stock prices are too high. .
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Buffett’s approach to stock buybacks is straightforward: he only buys back stock when he thinks it’s a good deal. According to Berkshire Hathaway’s regulatory filings, he is seeking a stock price below the company’s intrinsic value, a conservative move that considers the long-term value of Berkshire’s assets. Analysts believe the lack of buybacks sends a clear message to the market that Berkshire’s stock is overvalued at its current price.
Berkshire Hathaway‘s Class A shares trade at about 1.6 times book value, which is equivalent to the company’s assets net of debt. Berkshire had previously avoided stock buybacks if the stock traded at more than 1.2 times book value, but that guideline was lifted in 2018.
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Buffett’s conservative investment philosophy remains steadfast, even with more flexible policies. “He has made it clear that he will never buy back stock if he thinks the company is overvalued,” Robert Korajik, a finance professor at Northwestern University’s Kellogg School of Management, told CNN.
Berkshire halted a series of stock buybacks and sold stock in the third quarter to add to its already large cash holdings. Some analysts saw this as a cautious move due to concerns about the current market environment.
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Aswath Damodaran, a professor at New York University’s Stern School of Business, told CNN that Buffett’s decision to hold cash suggests Berkshire is taking a conservative stance, perhaps due to high stock prices. He said he was doing it. “This shows that they are cautious about the market situation,” Damodaran said. “They’re being cautious because they think the market is overpriced.”
