Berkshire Hathaway is lagging the market worse than it has in half a century, and it’s all happening as Warren Buffett steps closer to retirement.
Since May 2, when Warren announced that Greg Abel would take over as CEO, class A shares have dropped 14%, which for Wall Street, that’s pretty steep.
Meanwhile, the S&P 500 gained 11%, including dividends. The 25 percentage point gap is the widest underperformance in more than three decades.
Warren, who is widely regarded as the greatest investor in modern history, spent nearly 60 years turning Berkshire from a failing textile company into a holding giant. But the investors who built up his reputation are starting to walk.
The Monday after his retirement plan was made public, the stock dropped almost 5%. The last time Berkshire trailed this hard was during the pandemic crash when financial stocks, which still make up a large part of the company’s portfolio, took a hit.
Old money exits as investors ditch value for growth
Berkshire’s class A shares, the company’s original high-vote stock, were trading at a record $812,855 in May. That’s when selling began. These shares are usually held by families who got in decades ago and passed them down through generations. It’s still unknown who exactly is offloading them, but public filings from major institutions are due later this month.
Despite the selloff, Berkshire’s operations aren’t bleeding. The second quarter saw profit growth in the BNSF railroad, utility businesses, manufacturing, and retail. The company’s operating earnings rose 8% from a year ago, excluding currency changes. But even with strong numbers, buyers aren’t biting.
Berkshire’s stock had gained 18.9% in the months leading to its annual meeting in May. That run was driven by fears of market volatility, especially around President Donald Trump’s ongoing trade fights. Investors rushed to what they saw as a safe bet.
“As the worries about tariffs started to build . . . there were people rotating into the safety of Berkshire,” said Bill Stone, chief investment officer at Glenview Trust. But since then, investors have dumped value names and run back to fast-growing tech stocks.
Stone said, “What is really moving in this market is technology, and we know that’s not really his thing.” He also compared Berkshire’s $344 billion in cash and Treasury investments to Fort Knox, but admitted that hasn’t been enough to stop the outflows.
Warren sells stocks, stops buybacks, holds cash
Warren has stopped buying back Berkshire shares too. That decision came as the company’s price-to-book ratio rose to 1.8 times, the highest level since October 2008. Berkshire only repurchases stock when Warren believes it’s trading below its “intrinsic value.”
That wasn’t the case in May. “The stock was overvalued,” said Christopher Bloomstran, president of Semper Augustus Investments. Bloomstran added he expects Warren to return to buybacks now that the stock has dropped again.
Instead of buying, Warren’s been selling. He dumped a large chunk of Apple last year, and for 11 straight quarters, Berkshire has been a net seller of equities. At the end of June, cash made up 30% of Berkshire’s total assets, showing just how defensive the company’s gotten.
This isn’t new behavior from Warren. During the dotcom boom in 1999, he refused to chase hype. Berkshire’s stock trailed badly during that time, especially against the Nasdaq Composite. Critics slammed him for sitting out the tech rally, but when the bubble burst, Berkshire avoided the wreckage.
This time, though, things are different. Cathy Seifert, analyst at CFRA, said Berkshire always had a “Warren premium,” but warned that may not stick under Abel. The next few quarters will show whether that legacy can hold.
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