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- Earlier this year, Warren Buffett, president of Berkshire Hathaway, spoke of his nightmare scenario. In short, this situation would occur when stock markets appear to be inflated and Berkshire Hathaway's shares are also valued at fair value.
- Berkshire Hathaway's buying activity has been relatively moderate over the last three quarters. The Company's share buybacks in the second quarter were also very weak.
Warren Buffett
Berkshire Hathaway President (BRK-B) (BRK.B), Warren Buffett, is famous for his witty and insightful quotes. Earlier this year, in an interview with the Financial TimesThe interviewer asked Buffett, "What happens when Berkshire shares are traded at a fair price, and that companies and stocks seem expensive too?" In his typically spiritual style, Buffett responded that Such a scenario would be his "nightmare."
Berkshire Hathaway Money
Berkshire Hathaway's cash flow has increased steadily. At the end of the second quarter, the company had more than $ 122 billion in cash and cash equivalents. Berkshire Hathaway has invested most of this cash in short-term Treasury securities.
Buffett has notably corrected the lack of value of listed securities. Despite the sharp fall in equity markets, he did not open the Berkshire Hathaway coffers in the fourth quarter. It also did not add Apple stock (AAPL) despite the 30% drop in the fourth quarter. On the contrary, Berkshire Hathaway sold shares of Apple. However, it was not Buffett, but a different investment manager who sold those shares of Apple.
Earlier this year, Buffett revealed that Berkshire Hathaway had taken a stake in Amazon (AMZN). Again, it's not Buffett but another investment manager who bought Amazon shares. For his part, he admitted to missing companies like Amazon and Alphabet.
Opportunities for acquisition
Buffett said earlier this year that he was considering a great acquisition opportunity. However, he also spoke of the lack of such opportunities at a reasonable price. As a value-oriented investor, he does not see many exciting opportunities in today's markets.
Berkshire Hathaway's wholly owned companies generate a lot of money and the company receives dividends on its portfolio investments. Due to lack of investment opportunities, Berkshire Hathaway's cash flow continued to grow.
redemptions
The repurchase of shares could be an interesting avenue for Buffett and Berkshire Hathaway. Last year, the company revised its buyback policy to give Buffett and Vice President Charlie Munger more room to maneuver.
However, Berkshire Hathaway's redemptions were modest. In the second quarter, Berkshire Hathaway bought back only $ 442 million of its shares, compared to $ 1.7 billion in the first quarter.
Berkshire Hathaway underperformed the S & P 500 by a large margin this year. Bill Ackman of Pershing Square Holdings has revealed a new stake in Berkshire Hathaway. Ackman said Berkshire Hathaway "is negotiating one of the biggest discounts on its intrinsic value for many years."
Thoughts of Buffett
If Ackman considers that Berkshire Hathaway is significantly undervalued, Buffett does not seem to agree, as indicated by his modest redemption. According to Buffett's interview, the current scenario looks like a "nightmare". Equity markets appear to be inflated from a value investor's point of view, but Buffett does not seem to believe that Berkshire Hathaway is undervalued.
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