What The Failure Of Warren Buffett’s Latest Deal Says About The Stock Market

Topline: Billionaire investor Warren Buffett’s latest dealmaking efforts suggest that the stock market is overvalued (as noted in this CNBC analysis), as the Oracle of Omaha recently lost to a private equity firm in his latest takeover bid—despite having a record $128 billion in cash on the sidelines, which he is finding increasingly difficult to spend on acquisitions.

  • Buffett’s Berkshire Hathaway recently offered $5 billion to buy technology distributor Tech Data Corp. but was outbid by private equity firm Apollo Global Management, which put up around $6 billion, according to CNBC.
  • Tech Data brings products to market for companies like Apple, which is Berkshire’s largest investment, with a roughly $56 billion stake.
  • Despite having a record $128 billion in cash to burn, the notoriously frugal Buffett bowed out of the deal, raising questions that the overall market might be overvalued.
  • With the stock market hitting all-time highs in 2019, Buffett has repeatedly lamented that the premium for buying businesses outright has gotten too high—in part due to competition from private-equity firms like Apollo.
  • Berkshire has subsequently struggled to make new acquisitions and spend its growing cash pile in recent years, with Buffett viewing bidding wars as a waste of time and money.
  • In his most recent annual letter to shareholders, the Berkshire Hathaway chairman admitted that “prices are sky-high for businesses possessing decent long-term prospects.”

Big numbers: Berkshire Hathaway shares are lagging the broader S&P 500 index by more than 15% this year. The stock is on track for its worst underperformance since 2009, according to Bloomberg.

Key background: 89-year-old Warren Buffett is continuing his search for an “elephant-sized acquisition,” although so far in vain. Berkshire Hathaway has had trouble spending its huge cash pile in recent years, adding to the pressure on Buffett to keep up the high stock returns that made him famous as an investor. His company’s last big acquisition was in 2016, when Berkshire bought aerospace company Precision Castparts for around $32 billion.

Buffett’s Omaha, Nebraska-based investing conglomerate is known for its portfolio of family-built businesses, sporting a mix of primarily retail, insurance and energy companies. Berkshire’s top holdings include the likes of Coca-Cola, Bank of America, Wells Fargo, American Express and Kraft Heinz. 

Tangent: Buffett has a net worth of $87 billion, according to Forbes’ estimates.

Surprising fact: Buffett still lives in the same Omaha, Nebraska home he purchased for $31,500  in 1958.