In general, I’ve always found it better to follow someone’s actions than their words, and the same holds true with investing. Interestingly, this rule can now be applied to legendary investor Warren Buffett and Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB).
In an early-May interview with CNBC, when asked whether stock prices were too high, Buffett responded, “Yeah.” He said prices for a “lot of things will look very silly,” and that he’s never seen more people in a gambling mood than now.
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Fast forward five and a half months later, and the S&P 500 index (SNPINDEX: ^GSPC) is up 7% between May 1 (7,230.12) and Oct. 15 (7,744.06) since Buffett’s interview. However, during that time, despite Buffett’s call that the market was overvalued and risk levels were elevated, Berkshire has become more aggressive.
Berkshire and Buffett in a buying mood
In Q2, Berkshire became a net buyer of stocks for the first time in three and a half years. The insurance conglomerate bought roughly $23.5 billion in stocks while selling only around $3.7 billion. Prior to that, the company had been aggressively pairing down several of its top holdings, including Apple and Bank of America.
At the same time, Berkshire bought back $4.5 billion worth of its own stock in the quarter. Prior to a modest $235 million share repurchase in Q1, it was the first time Berkshire had bought back any stock since 2024.
Berkshire has traditionally only bought back stock when it believes its assets are trading below their intrinsic value. In the past, it used price-to-book (P/B) ratios of 1.1x and 1.2x as guidelines for repurchasing shares, but it eliminated those thresholds in 2018. Berkshire stock currently has a P/B ratio over 1.5x, although it dipped below 1.4x in Q2 when it was buying shares.
Meanwhile, some of the stocks that Berkshire has been buying are also interesting. As of early October, over a quarter of the stocks in the S&P 500 were 40% or more off their highs. However, instead of hunting for bargains among these names, Berkshire has made investments in Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and the recent IPO Bending Spoons (NASDAQ: BSP). Under Buffett, Berkshire took a position in Alphabet toward the end of last year and then added to it significantly in a private placement this year to help fund the company’s artificial intelligence (AI) infrastructure investments. Alphabet is now Berkshire’s third-largest holding, representing nearly 13% of its equity portfolio.
