Berkshire Hathaway (BRK.B) After Buffett: Can Its Capital Allocation Machine Keep Compounding?

Berkshire Hathaway Inc. (NYSE:BRK.B) returned 10.56% during the last six months, as of October 15. This compares to a 21.5% return for the Insider Monkey Billionaire Index and 15.74% for the State Street SPDR S&P 500 ETF Trust.

Berkshire Hathaway was never just Warren Buffett’s investment portfolio. It was a collection of businesses that generated cash, an insurance operation that provided investable funds, and a headquarters that could move capital wherever it saw the best opportunity. That distinction matters now that Greg Abel has taken over as CEO.

Abel has already started putting Berkshire’s enormous cash reserves to work. The company invested about $10 billion in Alphabet during the second quarter of 2026 and repurchased roughly $4.5 billion of its own shares. It also acquired homebuilder Taylor Morrison for approximately $6.8 billion. These are meaningful moves, but the harder task is ensuring that Berkshire continues to allocate capital well over the next decade.

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Berkshire’s advantage goes beyond picking stocks

One of the less appreciated parts of Berkshire’s model is that it does not have to rely on the stock market to generate investable cash. Its operating businesses produce cash, while its insurance operations collect premiums before paying claims. That insurance float, which stood at approximately $177.5 billion at the end of June, gives Berkshire a substantial pool of money to invest. The float is not free of risk because claims must eventually be paid, but it provides a source of capital that many investment firms simply do not have.

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Berkshire also benefits from its decentralized structure. Its businesses can operate without every decision going through Omaha, while headquarters decides how to allocate the cash they generate. That creates a different kind of advantage from running a conventional conglomerate. Berkshire does not need every subsidiary to grow at the same rate. It needs the overall collection of businesses to generate cash that management can put to increasingly productive use.

The challenge is that this model becomes harder to operate as the company grows. A $1 billion investment can transform a smaller business, but it barely moves the needle at Berkshire. Its capital allocation decisions must be large enough to affect the whole company, which rules out many otherwise attractive opportunities.

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What changes after Buffett?

Abel’s early moves suggest that Berkshire may be more willing to deploy capital than it was during Buffett’s final years as CEO. The company was a net seller of stocks for 14 consecutive quarters through the first quarter of 2026. The second quarter marked a reversal, with Berkshire buying more equities than it sold and resuming substantial share repurchases.

That shift does not automatically mean Abel is a better or more aggressive investor. Buffett’s reluctance to buy was partly a consequence of Berkshire’s size and the prices available in the market. Holding cash can be frustrating when markets rise, but paying too much for an acquisition can damage returns for years. Abel’s job is not to spend money simply because Berkshire has plenty of it.

The recent investment in Bending Spoons is worth watching for another reason. Berkshire invested $600 million in the company’s July IPO and added another $330 million in October, bringing its stake to 4%. The Italian company acquires and develops digital businesses, a model that has some similarities to Berkshire’s own approach to owning businesses for the long term. It is an unusual investment for Berkshire, but it may also show that the company is willing to look beyond its traditional hunting grounds.

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Is BRK.B priced for continued compounding?

Berkshire Hathaway Inc. (NYSE:BRK.B)’s trailing P/E of 12.75x looks inexpensive, but its forward P/E of 22.73x tells a very different story. Investors should be careful about drawing conclusions from either number in isolation.

Part of the reason for the gap is how Berkshire accounts for its investments. When the value of its stock portfolio rises or falls, those changes show up in reported earnings even if Berkshire hasn’t sold a single share. This can make earnings look much stronger or weaker than they really are, depending on what the market is doing. It also helps explain why the trailing P/E can look unusually low while the forward P/E tells a very different story.

Berkshire’s P/E ratio doesn’t give you the full picture. Because reported earnings tend to ride the stock market roller coaster, you’ll get a much clearer view of the business by looking at its operating earnings and investment portfolio instead. Take Q2 2026: net earnings jumped to $25.7 billion—more than double last year’s $12.4 billion. But don’t let that huge leap fool you; much of that boost came from market gains rather than core business growth.

Berkshire’s cash pile adds another layer to the valuation. At the end of June, it held roughly $359.2 billion in cash, cash equivalents, and Treasury bills. That gives the company plenty of firepower when attractive opportunities come along, but holding cash has a cost, too. It generally won’t generate the same returns as a good long-term investment. Finding deals large enough to make a difference to Berkshire, without overpaying for them, is becoming an increasingly difficult part of the job.

At 22.73x forward earnings, investors are paying for that security and the capital allocation ability the company boasts. Seen that way, that valuation does not seem steep at all.

The premium is even easier to justify if Abel can deploy capital at attractive rates, maintain the discipline that made Berkshire successful, and keep growing per-share intrinsic value. If the cash remains underused or acquisitions are made at excessive prices, Berkshire’s financial strength could protect the business without delivering especially strong shareholder returns.

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Conclusion

Berkshire does not need another Warren Buffett to succeed, but it does need the capital allocation system he built to keep working. Abel’s first moves suggest that the machine is active again. Whether it can keep compounding will depend less on the size of the next deal than on the returns Berkshire earns after making it.

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Market Sentiment

Hedge fund sentiment toward Berkshire Hathaway strengthened in Q2 2026. The number of hedge funds holding BRK.B increased to 135 from 126 in Q1, while the combined value of their positions rose to approximately $22.73 billion from $21.63 billion. Both measures increased, indicating stronger hedge fund interest during the quarter.

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