Warren Buffett Sends a $334 Billion Warning to Berkshire Stock Investors

Warren Buffett is commonly regarded as the one of the greatest investors in American history. That's because Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) stock has returned 19.9% annually since he took control six decades ago. Comparatively, the S&P 500 (SNPINDEX: ^GSPC) has returned 10.4% annually during the same period.

After repurchasing Berkshire stock in 24 consecutive quarters, Buffett did not to buy back stock in the third and fourth quarters of 2024. That is a particularly urgent warning for prospective investors because Berkshire had a record $334 billion in cash and equivalents on its balance sheet in the fourth quarter.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Here's what investors should know.

Berkshire Hathaway looked strong in the fourth quarter

Berkshire Hathaway is a holding company with a diverse group of subsidiaries, including businesses engaged in freight rail transportation, utilities distribution, and manufacturing. But the most important subsidiaries are the insurance businesses because they generate float, a term referring to insurance premiums collected from policyholders that have not been paid out in claims.

Berkshire is the world leader in float, meaning it has more capital available for investment than other insurers. CEO Warren Buffett has invested that money with great results over the years. Berkshire's book value per share (a good measure for changes in the intrinsic value of a company) increased 57.3% the last four years, which is roughly in line with the 56.6% return in the S&P 500 during the same period.

Berkshire reported solid financial results in the fourth quarter. Operating earnings, which exclude unrealized gains and losses on stocks, increased 71% to $14.5 billion. The main contributor was the insurance segment, where income more than doubled. The aggregate earnings in railroad and utilities also improved, though Buffett says businesses in both segments "have much left to accomplish."

Catherine Seifert at CFRA expects operating earnings to increase at 4% annually through 2026, and that is one of the most bullish estimates on Wall Street. Comparatively, the current price-to-earnings (PE) ratio of 22.5 looks expensive. And the current price-to-book (PB) ratio of 1.64 is near the highest reading in the last decade and well above the 10-year average of 1.39.

Here is the bottom line: Berkshire is a strong company with excellent management, but the stock does not look particularly attractive at its current price. And Warren Buffett's recent capital allocation decisions suggest that he has a similar take on the situation.

Image source: Getty Images.

Warren Buffett's $334 billion warning to Berkshire stock investors

Berkshire amended its share prepurchase program in the third quarter of 2018, such that Warren Buffett is permitted to repurchase stock whenever he "believes the repurchase price is below Berkshire's intrinsic value, conservatively determined."

Buffett exercised his right to repurchase shares in 24 straight quarters until the streak ended last year. He did not buy back stock in the third or fourth quarters, meaning it was not attractively priced in his estimation. And Berkshire shares have advanced 9% year to date, so it is unlikely Buffett feels different today.

That amounts to a warning for prospective investors and current shareholders. Berkshire had a record $334 billion in cash and equivalents on its balance sheet in December 2024. Yet, Buffett chose not to repurchase stock for two consecutive quarters, something that has not happened in six years.

From that we can infer Buffett believes Berkshire stock is less attractive today than at any point since the third quarter of 2018. Consequently, investors waiting for a good entry point should probably keep the stock on their watchlists until it trades at a more reasonable valuation. And current shareholders should brace themselves for the possibility of below average returns in the coming months.

Importantly, nothing I've said means Berkshire stock is at risk of a big drawdown. While that is possible, the stock may also trade sideways for a period while earnings catch up to the share price. Investors should pay attention to whether Buffett starts repurchasing stock again in the coming quarters. I'd be comfortable buying the stock once that happens.

Should you invest $1,000 in Berkshire Hathaway right now?

Before you buy stock in Berkshire Hathaway, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $710,848!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of March 3, 2025

Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.