Investors typically own stock in Berkshire Hathaway(NYSE: BRK.B)(NYSE: BRK.A) to invest alongside Warren Buffett, Berkshire's CEO, who is considered one of the world's best investors. However, Buffett spent much of 2024 selling stocks, not buying stocks. In addition, he also decided once again not to repurchase any Berkshire stock last quarter despite his cash stockpile continuing to grow.
With Berkshire's stock hitting an all-time high after its earnings report, let's take a closer look at Berkshire's results and Buffett's commentary to determine what to do with the stock.
Buffett still loves stock
In 2024, Berkshire sold more than $143 billion in stock while only purchasing $9 billion in stock. That left the company with a record $334 billion of cash on its balance sheet at year-end.
In his annual letter to investors, Buffett acknowledged Berkshire's growing cash stockpile. However, he said the majority of investors' money remains in equities and that this will not change. He added that he prefers to own good businesses, whether directly controlled or partially owned through stocks, over owning cash or holding fixed-income bonds, which he said provide no protection against runaway currency.
While Buffett didn't give an explanation as to why he has been hoarding cash, he did give a hint when he said that oftentimes nothing will look compelling, indicating that he may feel the stock market is currently overvalued. He also sold off all his stakes in ETFs (exchange-traded funds) that track the S&P 500, which is another good clue about how he feels about overall stock valuations.
Notably, Buffett pointed out to investors that Berkshire is not able to act swiftly with large investments, so it needs to get them right. He noted it can sometimes take a year or more to establish a position in a company or to divest its shares. Meanwhile, Berkshire has even less flexibility when buying an entire controlling interest in a company, although it then has a greater ability to make changes.
Buffett noted that, overall, Berkshire outperformed his expectations in 2024. Its core personal and casualty (P&C) insurance business was a standout, with it having no exposure to any major disasters in 2024. Its insurance underwriting operating profit for 2024 climbed 31% to $8 billion, while its insurance investment income jumped 43%. Its power business, Berkshire Hathaway Energy, was another strong performer, with its 2024 operating income soaring 60% to $3.7 billion. Overall operating income for Berkshire rose 27% to $47.4 billion.
However, Berkshire's strong 2024 performance was not enough for Buffett to buy back shares of his own company's stock. He halted buybacks in Q3, which was the first time the company didn't repurchase its own stock since 2018.
Image source: Getty Images.
An overvalued stock and an overvalued market
Buffett's actions speak louder than his words, and his decision to sell stocks, hoard cash, and stop repurchasing shares of Berkshire seems to indicate that he thinks both the stock market and Berkshire are overvalued.
From a valuation standpoint, Berkshire trades at about 1.7 times price-to-book (P/B) and has a forward price-to-earnings (P/E) ratio of 25 times 2025 analyst estimates.
In the past, Buffett has used the P/B metric to determine whether or not he should repurchase Berkshire shares. He originally had a P/B threshold of 1.1 times before later moving it to 1.2 times and then eliminating it altogether. Buffett hasn't been afraid to buy back Berkshire stock at higher P/B multiples in recent years, but his decision to halt buybacks, sell off stock holdings, and pile into cash certainly seems to indicate that he thinks both Berkshire stock and the market are trading at less appealing levels.
I also don't think he would do this if he thought the market and his stock were just a little overvalued. Buffett continues to extol holding equities over the long term, so his conviction that the market is overvalued must be pretty high. He was particularly aggressive about selling down his banking stakes in Q4, lowering his position in Bank of America and Citigroup. Meanwhile, his biggest addition was in the spirits maker Constellation Brands, which would be considered a company in a very defensive industry.
As such, I think it would be wise to follow Buffett and look to reduce some exposure to Berkshire stock while building up some cash on the sidelines to be ready to buy on a market dip.
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Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Berkshire Hathaway. The Motley Fool recommends Constellation Brands. The Motley Fool has a disclosure policy.
