By Katherine Chiglinsky
The worlds most famous value investor isnt seeing much value in stocks at record highs.
Warren Buffetts Berkshire Hathaway Inc. sold $1 billion more worth of stocks than it bought last quarter, its biggest net selling since the end of 2017. Buffett had been an active buyer of equities every quarter last year, including almost $13 billion in the third quarter alone.
Buffett hasnt had a major acquisition in several years and has even pulled back on one of his newer ways to deploy cash, slowing down repurchases of Berkshires own stock in the second quarter. The result was that the companys cash pile — a major focus for investors in recent years — surged to a record $122 billion.
“It would be hard to look at the cash balance and their uses of cash in recent quarters and not be disappointed that they havent bought any companies, they havent bought much stock, and they havent bought back a lot of their own stock,” Jim Shanahan, an analyst at Edward Jones, said in a phone interview Saturday.
The growing cash pile is a reflection of the strength of the operating businesses that Buffett has assembled under one roof, and allows the investor flexibility to move quickly when big deals emerge. But Buffett has acknowledged that having more than $100 billion earn little return for several years weighs on the companys growth.
Buffett, 88, earned his legendary status by consistently outperforming the broader market, but Berkshires total return has trailed the S&P 500 over the last five, 10 and 15 years. Thats raised questions of whether Berkshire has grown too large to generate excess returns, and whether the cash would be better off returned to shareholders than left for his eventual successor to pursue a major deal.
Buffett has tried to get ahead of those concerns, spending his last few annual meetings and letters to shareholders extolling the value of keeping Berkshire together as a conglomerate and maintaining the companys status as the first call for unique opportunities.
Some of the cash pile is set to be put to work soon. Berkshire agreed to inject $10 billion of preferred equity in Occidental Petroleum Corp. to help finance an acquisition of Anadarko Petroleum Corp., a deal that will be completed if Anadarko shareholders approve the merger later this month.
Last year, Buffett said prices for deals were too high for his liking, so he turned to building a huge stake in Apple Inc., spending more than $15 billion on the tech giants shares. He also bulked up on banks and airlines, but the stakes in many of those companies are now near the 10 per cent ownership threshold that hes said he prefers not to cross.
Berkshires $400 million of buybacks in the quarter was down from $1.7 billion in the first three months of the year. That total fell short of the $1.5 billion expected by Barclays Plc analysts. Berkshires board changed its buyback policy last year as another way to deploy the mammoth cash pile, but Buffett has kept buybacks relatively limited, only repurchasing a total of $3.4 billion since the policy tweak. JPMorgan Chase & Co., the closest financial firm to Berkshire in market value, has bought back about $20 billion in that time.
The stock markets march higher is limiting Buffetts opportunities, but it has pushed his stock portfolio above $200 billion in value and driven higher earnings. New accounting rules cause unrealized gains to be included in profit, so the companys $7.9 billion in investment gains drove net income to a 17 per cent jump.
There are other tangible benefits to the company of higher markets, bRead More – Source