Down 10%, Is Berkshire Hathaway Without Warren Buffett a Buy?

Warren Buffett’s Legacy at Berkshire Hathaway

For over six decades, Warren Buffett has transformed Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) from a struggling textile company into a global investment powerhouse. 

Known as the “Oracle of Omaha,” Buffett’s value investing philosophy of focusing on undervalued companies with strong fundamentals has delivered annualized returns of approximately 20% since 1965, far outpacing the S&P 500. 

His disciplined approach, emphasizing long-term growth and intrinsic value, has made Berkshire a conglomerate with diverse holdings, from insurance giant Geico to stakes in Apple (NASDAQ:AAPL) and Coca-Cola (NYSE:KO). 

The annual shareholders’ meeting in Omaha has become a pilgrimage for investors worldwide, drawing thousands to hear Buffett’s timeless wisdom on markets, business, and life. These gatherings, often dubbed the “Woodstock for Capitalists,” underscore his cult-like following. 

However, at this year’s meeting, Buffett announced he would step back from daily investment decisions by the end of the year, handing the reins to successor Greg Abel. While Abel is expected to uphold Buffett’s principles, his lack of a proven track record in stock selection has introduced uncertainty, which has contributed to a 10% decline in Berkshire’s stock from its recent high.

Greg Abel’s Leadership: Continuity or Change?

Abel, Berkshire’s vice chairman and Buffett’s designated successor, has been with the company for over two decades, overseeing its non-insurance businesses like energy and railroads. Known for operational expertise, Abel has earned Buffett’s trust, with the latter praising his business acumen and alignment with Berkshire’s culture. 

Analysts expect Abel to maintain Buffett’s value investing framework, focusing on acquiring quality businesses at reasonable prices and holding them for the long term. Berkshire’s diversified portfolio spans insurance, utilities, and consumer goods, providing a stable foundation that generates consistent cash flows for Abel to deploy.

The company’s massive $347.7 billion cash pile offers flexibility for acquisitions or stock buybacks, a strategy Buffett has leaned into recently. However, Abel lacks Buffett’s storied history of market-beating stock picks, such as early investments in American Express (NYSE:AXP) or Coke. 

This gap fuels investor skepticism, as Berkshire’s outperformance has historically relied on Buffett’s uncanny ability to identify winners. The stock’s recent 10% drop reflects this uncertainty, as markets are pricing in the risk of a less charismatic and less proven leader.

Weighing the Risks and Rewards

For investors eyeing Berkshire Hathaway, the transition to Abel presents both opportunity and risk. On one hand, Berkshire’s diversified revenue streams and fortress-like balance sheet make it a resilient investment. Its insurance operations, like Geico, generate float — premiums collected before claims are paid — that Abel can invest. 

The company’s stakes in blue-chip firms like Apple, which is still Berkshire’s largest position accounting for nearly 22% of the portfolio, provide stability. Yet, Abel’s ability to replicate Buffett’s stock-picking prowess remains untested. While he may excel in managing operations, the high-stakes world of capital allocation requires intuition and timing that Buffett mastered over decades. A misstep in a major acquisition or a market misjudgment could damage Berkshire’s reputation for outperformance.

Additionally, the stock’s current valuation, trading at a price-to-book ratio of around 1.5, is not a bargain compared to historical levels, suggesting limited margin of safety for new investors. The market’s cautious outlook, as reflected in the 10% pullback, underscores these concerns.

Key Takeaways

For existing Berkshire Hathaway shareholders, the stock remains a hold. The company’s diversified portfolio, robust cash reserves, and entrenched market positions provide a buffer against leadership transitions. Abel’s operational track record and commitment to Buffett’s philosophy suggest continuity, but his lack of proven stock-picking success introduces risk. 

For new investors, caution is warranted. The stock’s current price doesn’t scream undervaluation, and Abel’s untested investment acumen adds uncertainty. Waiting for clarity on his performance — perhaps through a successful major acquisition or consistent market outperformance — would provide a better entry point. 

Until then, new investors should hold off, while existing shareholders can stay the course and rely on Berkshire’s structural strengths.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.