Ajit Jain Sells Half His Berkshire Hathaway Shares Igniting Debate Over Valuation

Ajit Jain who is the vice chairman of Berkshire Hathaway’s insurance operation and at one point was touted as a successor to Warren Buffett has disclosed that he has sold nearly half his Class A shares. His stock sales coupled with Buffett’s subdued repurchases in Q2 have ignited a debate on Berkshire Hathaway’s valuation at a time when it became the first non-tech US company to command a market cap of over $1 trillion.

Jain sold 200 Class A shares of Berkshire at an average price of $695,418 per share, netting $139 million from the transaction. After the stock sale, he holds only 61 shares in his personal capacity while a family trust owns 55 shares. His Jain Foundation owns another 50 shares. The nonprofit is researching a cure for a rare form of muscular dystrophy from which Jain’s son suffers.

Ajit Jain Sells Half Of His Berkshire Shares

Notably, Jain earned $19 million from Berkshire last year making him one of the highest-paid executives of the conglomerate. Buffett has been all praise for him and in his annual letter in 2017 he said. “If there were ever to be another Ajit and you could swap me for him, don’t hesitate. Make the trade!”

“We won’t have the same business if Ajit isn’t running it,” said Buffett about the India-born executive.

Commenting on Jain’s stock sales, David Kass, a finance professor at the University of Maryland’s Robert H. Smith School of Business said, “This appears to be a signal that Ajit views Berkshire as being fully valued,”

Meanwhile, while Jain selling his Berkshire shares wouldn’t have created so much noise, it came at a time when Buffett repurchased a mere $345 million worth of Berkshire shares in Q2 – the lowest in six years.

It is not that the conglomerate is short of cash as it was sitting on a cash pile of $277 million at the end of June. However, many see Buffett toning down repurchases as a sign that the nonagenarian does not find the stock’s valuation very attractive.

Buffett Scaled Down Repurchases in Q2

Notably, until 2018, Berkshire had a rigid buyback policy and repurchased the shares only until they traded at 1.2x the book value. That year, the conglomerate relaxed its buyback policy giving more discretion to Buffett. Since then, Berkshire has repurchased $80 billion worth of its shares – of which over $50 billion came between 2020 and 2021.

While Buffett scaled back repurchases in 2022 and instead went on a shopping spree and among others acquired Alleghany Technologies, the Q2 2024 buybacks were quite low and a tiny fraction of its record cash pile.

Does Buffett Finds Berkshire Shares Overvalued?

Most analysts infer that Buffett finds Berkshire shares overvalued given the fact that it is trading at around 1.6x the book value. Bill Stone, who is a Berkshire shareholder and CIO at Glenview Trust Co. said, “I think at best it is a sign that the stock is not cheap.” He added, “At over 1.6 times book value, it is probably around Buffett’s conservative estimate of intrinsic value. I don’t expect many, if any, stock repurchases from Berkshire around these levels.”

Buffett Has Been On a Stock Selling Spree

Notably, Buffett has been on a selling spree and net sold around $75 billion of shares in Q2. Importantly, he sold nearly half of Apple shares in the quarter – a company he has praised many times and even termed his previous round of selling as a “mistake.”

At Berkshire Hathaway’s annual meeting in May, Buffett said that he was selling Apple shares over tax considerations. “It doesn’t bother me in the least to write that check and I would really hope with all that America’s done for all of you, it shouldn’t bother you that we do it and if I’m doing it at 21% this year and we’re doing it a little higher percentage later on, I don’t think you’ll actually mind the fact that we sold a little Apple this year,” said Buffett at this year’s shareholder meeting.

Notably, most economists agree that the US fiscal position is unsustainable and the country would need to cut down on the burgeoning debt which surpassed its GDP long back. Also, the annual interest payments on the debt topped $1 trillion last year. Even Fed chair Jerome Powell has called for an “adult discussion” among lawmakers on the soaring fiscal deficit.

Berkshire Has Been Selling Bank of America Shares

Berkshire has also been gradually selling Bank of America shares. Notably, while Warren Buffett has a flair for banking and financial companies, and the secret company where he was building a stake turned out to be Zurich-based insurer Chubb, the Oracle of Omaha has sold stakes in many banks over the last couple of years.

These include Wells Fargo where Berkshire once held a nearly 10% stake. Buffett also exited names like JPMorgan Chase and Goldman Sachs. Incidentally, while Buffett has held fat stakes in leading banks, he ensured that Berkshire’s stake remained below 10% to escape regulatory scrutiny.

He however made an exception for Bank of America and increased Berkshire’s stake in the second-largest US bank beyond 10% after getting regulatory approval.

While we still don’t know the reasons Buffett has trimmed his stake in Bank of America, the legendary investor might be worried about broader market valuations.

All said, Berkshire shares have corrected from their all-time highs even as the S&P 500 is nearing its record highs.