Stock Overvaluation Signal?… Berkshire Halts Share Buybacks This Year

Stock Price Fell 12% in Six Months, No Purchases… Cash Reaches Record High of $546 Trillion,
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Warren Buffett, Chairman of Berkshire Hathaway (2018)
[AP Yonhap News File Photo. No Resale or Database Use],
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“(New York = Yonhap News) Correspondent Lee Ji-heon reports that Berkshire Hathaway (hereafter Berkshire), led by the ‘Investment Guru’ Warren Buffett (95), was confirmed not to have repurchased any of its own shares despite recent poor stock performance, CNBC reported on the 2nd (local time).”,
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“According to CNBC reports and Berkshire’s performance report, Berkshire did not conduct any share buybacks from the beginning of this year until September.”,
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“In May, during the annual shareholders meeting, Chairman Buffett shocked investors by announcing plans to retire at the end of 2025.”,
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“Berkshire’s stock price has dropped about 12% over the past six months following Buffett’s retirement announcement. Compared to the Standard & Poor’s (S&P) 500 index, a representative index of the New York Stock Exchange, which rose about 20% over the same period, Berkshire’s stock slump is even more noticeable.”,
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“Despite the poor stock performance, no share buybacks were conducted. Meanwhile, the cash holding reached $381.7 billion (approximately 546 trillion won) by the end of the third quarter, marking a record high, bewildering investors further.”,
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“Berkshire is known for its shareholder return policy of buying back and then canceling shares instead of paying cash dividends.”,
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“Considering Buffett’s famous ‘value investment’ strategy, investors tend to interpret Berkshire’s halt on share buybacks and cash accumulation as a signal that the US stock market is overvalued.”,
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“In a 2018 letter to shareholders, Buffett stated the principle of conducting share buybacks only when Berkshire’s stock is below its intrinsic value or when the company retains sufficient cash after a buyback.”,
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“The intrinsic value of a company is usually estimated reflecting future profits, and is generally best understood by those within management who have access to internal information.”,
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“In light of this buyback principle, despite the drop in stock price, Buffett and his successor, Vice Chairman Greg Abel, may believe that Berkshire’s stock is still not sufficiently undervalued or find the company’s cash reserves inadequate for responding to potential future crises.”,
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“UBS suggests that it’s common for Berkshire to buy back shares when the market price is more than 15% below intrinsic value, and analyzed that despite the recent price drop, Berkshire’s stock is trading at its intrinsic value level; hence, there is no incentive for share buybacks. It also forecasted that buybacks may not occur until next year.”,
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“pan@yna.co.kr”,
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