Warren Buffett’s track record at Berkshire Hathaway has earned him a huge following on Wall Street. Buffett recognizes that periods of economic growth and bull markets typically last longer than recessions and bear markets. However, his long-term vision and desire to get a good deal as a value investor don’t always align.
In his latest annual letter to shareholders, Buffett wrote, “Often, nothing looks compelling.” In each of the last 10 quarters, he has been a net-seller of stocks, overseeing the sale of $174.4 billion more in stocks than have been purchased from Oct. 1, 2022, to March 31, 2025. The more likely reason behind this selling activity and Berkshire’s record cash pile of nearly $348 billion is that stocks are pricey and finding a good deal is becoming difficult.
The “Buffett Indicator,” which aggregates the value of all U.S. publicly traded companies and divides that figure by U.S. gross domestic product, is approaching 200%. The S&P 500’s Shiller price-to-earnings ratio is hovering at a multiple of around 36, up from its historical average of just over 17. Valuation is so important to Buffett that he’s stopped buying back shares of Berkshire Hathaway for three straight quarters.
Navigating market dislocations
Over the last three quarters, Berkshire’s stock has traded at a 60% to 80% premium to book value, up from a range of 30% to 60% above book from mid-2018 to mid-2024. Buffett has made a living by pouncing on inevitable price dislocations.
One famous example is Bank of America. Following the Great Recession, Buffett viewed BofA’s weakness as a buying opportunity. In August 2011, he infused BofA with $5 billion in capital in exchange for preferred stock and warrants.
By mid-2017, Berkshire had banked a significant profit. Inclusive of U.S. Treasuries, Buffett’s company had $347.7 billion at its disposal as of March 31. When price dislocations emerge, there will be more than enough capital for Buffett, or his successor Greg Abel, to strike with confidence.
It’s a strategy that’s worked exceptionally well for decades.
