Berkshire's Abel Buys $23.5B in Stocks as Buffett Warns on Valuations

Berkshire Hathaway bought $23.5 billion of stocks in the second quarter, ending 14 straight quarters of net selling under new chief executive Greg Abel.

"It's tough to find value when everybody is preferring gambling," Buffett told CNBC's Becky Quick in July, a warning that equities are expensive.

The buying was concentrated in Alphabet, where Abel spent about $17 billion, and the company also repurchased $4.5 billion of its own shares. Berkshire's cash pile shrank to $365.5 billion on June 30 from a record $397.4 billion three months earlier.

The shift reflects institutional confidence in equities even as valuation gauges hit records. The Buffett indicator — total stock market value to GDP — reached 240.32% on Aug. 12, an all-time high, while the S&P 500's Shiller CAPE ratio topped 41, a level last seen before the dot-com bust.

The quarter marks a break with the era in which Berkshire shed longtime positions. Since October 2022, the company sold roughly $175 billion more in equities than it bought, according to The Motley Fool, with net sales peaking at $75.54 billion in the second quarter of 2024. Abel's buying, concentrated in a single stock, does not necessarily mean he sees the broader market as cheap.

Alphabet trades at about 16.8 times forward earnings, the lowest multiple among the so-called Magnificent Seven and below the S&P 500's 19.9 times. The purchase made Alphabet one of Berkshire's five largest equity holdings, alongside American Express, Apple, Bank of America and Coca-Cola.

Buffett, who remains chairman after stepping down as chief executive on Jan. 1, said the Alphabet purchases were his idea, telling Quick he works alongside Abel and "I am not doing anything that he doesn't approve of."

What the Buying Means

The divergence between the two men's public posture and Berkshire's buying highlights a broader tension in capital allocation. With short-term Treasury securities yielding around 4 percent, holding cash is no longer costly, giving management teams a credible alternative to deploying capital. Berkshire's own repurchases — it bought Class B stock at an average of $476.01 in May and $487.98 in June — indicate Abel's view that the company traded below intrinsic value in the high $480s. BRK.B closed Aug. 7 at $521.80.

The standing repurchase program permits buybacks "any time that Berkshire's chief executive officer, after consultation with the chairman of the board, believes that the repurchase price is below Berkshire's intrinsic value, conservatively determined," according to the Q2 10-Q. The filing vests the decision in the CEO, making the buyback the first loud call Abel has made since taking over.

For investors, the lesson is that finding bargains is harder than at almost any point in the last 50 years. Berkshire, with its analytical resources and patience, spent four years struggling to find stocks worth buying at current prices. One quarter of buying Alphabet does not undo that record, and it does not mean the market is cheap. The company can wait in a way most investors cannot, holding more than $360 billion in cash and Treasury bills that generate income while it searches for opportunities.

History offers a cautionary note. The Buffett indicator approached 200 percent in late 1999 and early 2000, just before the dot-com bubble burst, and again in November 2021, weeks before a bear market began. Today's market differs — the largest companies carry real revenue and cash flow — but expensive stocks can still deliver disappointing returns when the price paid is too high.

This article is for informational purposes only and does not constitute investment advice.