Warren Buffett announced he will step down as CEO of Berkshire Hathaway by the end of the year. He will remain chairman of the company. The stock has fallen 10% since the announcement, while the S&P 500 gained 9.1% in the same period.
This underperformance is unusual for Berkshire. The company’s stock has historically outpaced the S&P 500. From 1965 to 2024, Berkshire delivered a 19.9% compounded annual gain, compared to the index’s 10.4%.
The recent decline can be attributed to shifting investment sentiments. Despite market volatility, Berkshire Hathaway is considered an ultra-safe stock. This is due to its diverse portfolio, which includes insurance businesses, the BNSF railroad, utility giant Berkshire Hathaway Energy, manufacturing assets, retail businesses, and significant positions in public companies.
Berkshire has also been notably cautious recently. First-quarter 2025 filings revealed a record amount of cash equivalents and short-term Treasury bills. Buffett said during the shareholder meeting that while holding such amounts of Treasury bills is not ideal, it is crucial for securing excellent investment opportunities.
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The news of Buffett stepping down combined with a market shift towards riskier, higher-reward stocks may explain Berkshire’s recent underperformance compared to the S&P 500. Despite this, long-term investors should focus on the company’s robust operational earnings and potential for growth.
Earlier this year, Berkshire’s stock benefited from a rotation out of mega-cap growth stocks into value stocks. However, as market dynamics shifted again, stocks like Berkshire saw declines while mega-caps like Nvidia and Microsoft surged. Instead of getting caught up in these market trends, investors should focus on Berkshire’s consistent performance and operational strengths.
Buffett values Berkshire by its operating earnings, which represent the performance of its owned businesses rather than fluctuating market values. The company’s operating earnings have grown over time through savvy acquisitions and strategic investments. Berkshire’s sizable cash reserve also positions it well for future strategic moves.
Looking forward, Berkshire’s new CEO, Greg Abel, may bring changes, including the possibility of dividends. Buffett has historically opposed dividends, preferring to reinvest profits for better returns. However, with a substantial cash position, dividends may become a viable option under new leadership.
In conclusion, Berkshire Hathaway remains a compelling long-term investment due to its diversified assets, strong cash position, and competitive advantages. Investors should consider these factors rather than relying solely on market trends or stock-picking capabilities.
