The midfielder, who had a year left on his contract, was placed on a transfer list after he criticised the North East club’s transfer policy via his Twitter account.
Despite the 28-year-old’s comments, Shepherd believes that Magpies owner Mike Ashley has made a big mistake.
“It’s a shame Newcastle can’t keep hold of him,” Shepherd told talkSPORT. “It’s sad for the team. The problem here is personalities. When you’ve got as much money as Mike Ashley has, he can afford to do what he’s doing.
“They should have just swallowed [the Twitter criticism] and given him a clip.
“I can't understand why they haven’t given him a new contract or tried to do a deal with him. It's a different thing if you can't do a deal. Common sense should have prevailed in this situation.”
Barton was earlier linked with a move away from St James’s Park despite claiming that he wanted to stay at Tyneside.
“I think he would have settled for a new contract because he likes it up here,” Shepherd added. “He likes the crowd, the crowd like him and it’s sad to see him leave. But he will go to a top club, definitely. Somebody’s getting a great bargain when they sign him."
Barton was forced to train alone today and blasted the decision as “predictable” on his Twitter page.