Warren Buffett is in his final 2 months as CEO. He’s leaving at a tricky time for Berkshire Hathaway.
Warren Buffett’s impending departure has fueled a 12% plunge in Berkshire Hathaway stock since May.
Buffett has built a record cash pile as he’s pared Apple and struggled to find bargains.
Successor Greg Abel could have close to $400 billion in dry powder when he takes over.
Warren Buffett is finding out just how much he’s worth to Berkshire Hathaway shareholders.
The investing icon sent shockwaves through the business world in May when he revealed he would step down as Berkshire’s CEO at the end of this year, after nearly six decades in charge.
Berkshire’s Class B shares had closed at a record $540 going into the company’s annual shareholder meeting. They’ve plunged 12% to below $480 since Buffett broke the bad news, while the benchmark S&P 500 stock index has risen 20% to record levels of above 6,800 points over the same period.
David Kass, a finance professor at the University of Maryland and longtime Buffett blogger, told Business Insider that the underperformance reflected not just the “evaporation” of what’s often called the “Buffett premium” — the extra value placed on the stock to reflect Buffett’s unique contributions — but also the stock getting ahead of itself before the meeting, and the boom in AI stocks such as Nvidia and Microsoft driving the S&P to fresh highs.
Buffett’s departure shouldn’t be that surprising, given he’s now 95 and has been planning a smooth transition for years. However, he has become synonymous with Berkshire to the point where it’s hard to imagine the company without him at the helm.
Greg Abel, will succeed Warren Buffett as Berkshire Hathaway CEO in January.Kevork Djansezian/Getty Images
Berkshire was a failing New England textile mill when Buffett acquired it in 1965. Over the next 60 years, he transformed it into one of the world’s biggest companies with roughly $400 billion in annual revenue, 400,000 employees, and a $1 trillion market value. Today, Berkshire is the largest shareholder of massive companies such as Coca-Cola and American Express, and fully owns scores of businesses, including Geico, Fruit of the Loom, and the BNSF Railway.
Buffett’s chosen successor, who will take the reins as CEO in the new year, is Greg Abel, Berkshire’s head of non-insurance operations. Buffett will stay on as chairman, but Abel will take over many of his signature duties, such as writing an annual letter and hosting Berkshire’s yearly shareholder gathering.
Berkshire’s legendary CEO is leaving at a tricky time for the company. Its third-quarter earnings on Saturday showed a 34% year-on-year surge in operating income to $13.5 billion, fueled by insurance underwriting income nearly tripling to $2.4 billion as well as foreign-currency gains.
But Buffett and his team sold more stocks than they bought, making Berkshire a net seller for a 12th consecutive quarter, and refrained from repurchasing any shares, marking a fifth straight quarter without buybacks. The upshot was Berkshire’s cash pile hit yet another record, $358 billion, after subtracting Treasury payables.
The simple reason for Berkshire’s cash buildup is that Buffett is a bargain hunter, and bargains are few and far between when stocks are at record highs, private equity firms are driving up the cost of acquisitions, and Berkshire stock is still trading near all-time highs despite its recent slump.
Apple is set to report its earnings for the fourth quarter on Thursday.Justin Sullivan/Getty Images
Buffett may be struggling to find compelling purchases, but he’s found lots of things to sell. He’s now pared two-thirds of Berkshire’s biggest stock position, Apple, since 2023.
Berkshire roughly quadrupled its money on paper between 2018 and 2023, as it paid around $36 billion for a roughly 5% stake that was worth over $170 billion by early 2023 as Apple stock boomed.
But if Buffett and his colleagues hadn’t sold, their Apple holding would be worth over $240 billion today, or more than six times what they paid. Apple shares have spiked by a third in just the past three months, reaching fresh highs thanks to renewed iPhone and AI optimism.
Berkshire clearly “left a lot of money on the table,” Kass said. But it pocketed a large return, and the disposals could still “prove to be prescient” if there’s an AI bubble and tech stocks crash, he added.
Berkshire has managed to strike a deal during Buffett’s final months in charge. In early October, it agreed to acquire OxyChem, Occidental Petroleum’s chemicals business, for $9.7 billion in cash. Berkshire is Occidental’s largest shareholder with a more than 25% stake.
Darren Pollock, a portfolio manager at Cheviot Value Management, told Business Insider that shareholders love to see Berkshire putting its cash to work. But he said a $10 billion deal is a “drop in the bucket” that will barely put a dent in Berkshire’s war chest, as the company generates that much cash in a quarter or two.
It’s worth noting that cash has been less of a headache for Berkshire since the Federal Reserve hiked interest rates following the pandemic. The company earned over $17 billion of interest, dividend, and other investment income during the first nine months of this year — a big jump from the $7.5 billion it earned over the whole of 2021 when rates were close to zero.
Berkshire’s lagging stock price, ballooning cash pile, questionable Apple sales, and a prolonged bargain drought make it a challenging time for Buffett to leave the stage.
But leaving Abel with almost $400 billion in dry powder could be the ultimate gift. Kass told Business Insider that eventually a recession will strike, stocks will tumble, and the trio of Abel and Berkshire’s two investment managers, Todd Combs and Ted Weschler, will be “well positioned to invest Berkshire’s ever-growing cash pile at very attractive prices.”
He added that Berkshire’s outlook appears “extremely bright,” its operating businesses are “very close to firing on all cylinders,” and its balance sheet is “second to none.”
“Greg is the right person at the right time to lead Berkshire forward,” Kass said.
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