Berkshire Hathaway's performance lagging behind the S&P 500 post Buffett's retirement
In a significant shift, Berkshire Hathaway, the iconic conglomerate led by Warren Buffett for many years, has trailed the broader market by nearly 23 percentage points since the legendary investor announced his retirement as CEO, effective at the end of 2025. This divergence, marked by Berkshire's Class A shares falling about 12.66% while the S&P 500 has surged nearly 10%, reflects investor uncertainty or hesitation about Berkshire's prospects without Buffett's direct leadership.
Buffet's decades-long tenure at the helm built a strong "Buffett premium"—a valuation premium tied to his legendary investing skill and leadership. The sell-off indicates a market perception that this premium may be evaporating with his departure, though opinions differ among experts whether this premium will return or permanently recede.
Despite the price decline, Berkshire’s company fundamentals remain solid. Greg Abel, Buffett's long-designated successor, is set to become CEO in 2026. This suggests the underperformance stems more from sentiment and a perceived leadership gap rather than changes in the business's intrinsic value.
Historically, Berkshire Hathaway generated annualized returns of nearly 20% under Buffett, significantly outperforming the S&P 500. The challenge for management going forward will be to sustain this track record without Buffett’s direct involvement.
The recent underperformance of Berkshire is due to a perceived leadership void following Buffett's retirement announcement. Market participants are pricing in the end of Buffett's deal-making aura, expressing concern about future capital deployment lacking the same prescience and outsized returns.
Investors may be hesitating about Berkshire's future under new leadership, potentially contributing to the company's recent underperformance. As of July 16, the chart indicates that Berkshire is no longer keeping pace with the broader market.
However, several key points support the view that the underperformance is largely a short-term market adjustment rather than a definitive structural re-rating. The market seems to be pricing in a transition period rather than fundamental deterioration.
As Berkshire prepares for a new era under Greg Abel's leadership, the question arises whether the current underperformance is a short-term post-Buffett adjustment or a structural re-rating. The market's shift towards high-growth tech and AI-centric plays could put Berkshire at risk of becoming a value trap unless its post-Buffett strategy proves equally visionary.
In summary, current evidence points to a short-term adjustment reflecting investor uncertainty and potential loss of the emotional Buffett premium. It remains to be seen if Berkshire under new leadership will regain that premium or if a more permanent structural re-rating of the stock’s valuation will occur.
- The recent shift in the market has led investors to question Berkshire Hathaway's prospects without Warren Buffett's direct leadership, as his departure as CEO could potentially evaporate the "Buffett premium" associated with his legendary investing skill.
- Despite the current underperformance of Berkshire Hathaway, some experts view the situation as a short-term market adjustment, pricing in a transition period rather than fundamental deterioration, as the company prepares for a new era under Greg Abel's leadership.
