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Warren Buffett's decision to release nearly $ 1 billion from Berkshire Hathaway's handover in his own shares has highlighted the lack of attractive deals available to long-term investors, while the fragile markets suggest that the valuations of companies have overheated.
The buyout, its first purchase in six years, represents a tiny fraction of the conglomerate's $ 104 billion in cash and comes as the drought of the Berkshire takeovers spans almost a full third year.
Other companies and repurchase companies pushed the negotiations to exhilarating levels. About $ 3.5 billion of acquisitions were agreed this year, an increase of more than 30 percent from the previous year, according to Refinitiv data. But Buffett, chief executive of the $ 509 billion conglomerate, said he never sought to time the market and only invested in companies with a strong management team and from an economic model that he understands well. When he buys a business, he demands to pay a fair price.
"Maybe very few companies are willing to sell their business at a fair price," said James Shanahan, an analyst at Edward Jones. For Berkshire, redemptions constitute "another clear and defensible use of cash".
"It's probably a less risky investment because they know their business better than a publicly traded company they would like to invest in."
The Omaha sage usually refuses to engage in bidding wars for companies. His debt aversion, an essential component of the gigantic leveraged acquisition set won this year as stock market valuations set new records, means that it is unlikely that he will do so. the highest bid at an auction. Private redemption opportunities that suit him, Berkshire has also injected more of its cash into the stock market, taking shares of companies such as the iPhone maker, Apple.
The pace of this year's transactions has hit the nerves of many investors, who have warned that corporate creditworthiness is deteriorating as central banks around the world begin to dampen post-crisis stimulus measures. Recent auctions in the markets have helped to tighten financial conditions quickly.
More and more Wall Street analysts have expressed concern over the sustainability of the current global economic expansion. And while US companies have experienced strong earnings growth, stock prices have weakened. This has raised concerns about a deeper and deeper decline in markets and corporate valuations.
"We believe that the US economy will slow down earlier than expected by investors, perhaps by the middle of 2019," said Oliver Jones, economist at Capital Economics. "This underlies our forecast of an even bigger stock market crash by the end of next year.
advisable
The recent market correction may, however, be beneficial for Buffett and Berkshire, especially if the barrier to trading remains the price. Goldman analysts have described the recent deceleration of growth as "necessary to avoid more serious overheating".
Nothing less, the value at which Berkshire repurchased his shares indicates what Mr Buffett and vice-chairman Charlie Munger value, believe that the company's shares are worth. In the third quarter, the average price it paid for its Class A shares was $ 312,807, higher than Friday's closing price, suggesting that more share buybacks could be considered. .
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