Berkshire's 6% Drop Doesn't Make It a 'Great Buy': Whitney Tilson

Berkshire Hathaway’s stock fell nearly 6% in early 2025 following Warren Buffett’s announcement that he would step down as CEO by year-end, sparking speculation about whether the decline marked a buying opportunity. Whitney Tilson, a long-time Berkshire analyst, argues that while the selloff may have been overdone, the stock’s valuation remains too rich to call it a “great buy” at current levels. His analysis, rooted in intrinsic value calculations and operational realities, suggests investors should temper expectations.

Intrinsic Value: A Modest Discount, Not a Bargain

Tilson’s intrinsic value estimate for Berkshire’s Class A shares stands at $743,000 per share, calculated by combining its cash reserves and conservative valuations of its operating businesses. As of early 2025, Berkshire’s shares traded at roughly $768,000, a 3% premium to this benchmark. This narrow margin implies the stock is fairly priced to match the S&P 500’s projected 5% annualized returns over the next five years, rather than outperforming significantly.

The 6% drop, while sharp, has narrowed the gap between market price and Tilson’s intrinsic value but hasn’t created a compelling discount. He notes that investors seeking a “great buy” typically look for 20-30% discounts to intrinsic value—a threshold Berkshire hasn’t reached.

Cash Mountain vs. Investment Opportunities

Berkshire’s cash reserves, now exceeding $348 billion, are a double-edged sword. While this liquidity provides a buffer against economic shocks and a war chest for acquisitions, it also highlights Buffett’s struggle to deploy capital effectively. The firm’s net sales of stocks in early 2025 underscore the lack of attractive investment opportunities, a trend that could persist as markets remain elevated.

Tilson speculates that Berkshire might adopt a dividend-like payout structure, akin to Costco’s model, to return capital to shareholders. However, this shift would mark a significant departure from Buffett’s historical reluctance to pay dividends, raising questions about its feasibility under Greg Abel’s leadership.

Operational Resilience, But Room for Improvement

Berkshire’s operating businesses, including railroad giant BNSF and utility firm Berkshire Hathaway Energy (BHE), remain cash generators. Despite a 14% drop in Q1 2025 pretax operating earnings to $9.6 billion, core divisions like BHE posted strong gains. BNSF, however, faces headwinds, including rising crime targeting trains and inefficiencies compared to peers. Tilson acknowledges Abel’s potential to improve BNSF’s operations through cost-cutting but warns that such changes may take years to materialize.

Leadership Transition and the Buffett Premium

The market’s 6% selloff reflects skepticism about Berkshire’s post-Buffett future. Tilson argues that Buffett’s “halo effect”—his reputation as an investing legend—still anchors investor confidence, even as he steps back. Greg Abel, the designated CEO, brings deep operational expertise but lacks Buffett’s public profile. Tilson expects Abel to focus on optimizing Berkshire’s subsidiaries, which could boost efficiency but may not spark the same enthusiasm as Buffett’s stock-picking prowess.

Valuation Considerations: Why It’s Not a "Great Buy"

While Berkshire’s intrinsic value grows steadily, its valuation relative to peers and its own history remains a hurdle. Tilson’s analysis shows that Berkshire’s operating businesses are valued at an 11x pretax multiple, a conservative figure compared to historical highs. However, the stock’s premium to this intrinsic value leaves little room for error.

Moreover, Berkshire’s market cap of $1.16 trillion now places greater emphasis on its controlled businesses, valued at $538 billion, versus its equity portfolio. This shift reduces reliance on volatile stock markets but also limits upside potential unless Abel can unlock growth in lagging divisions like BNSF.

Conclusion: A Solid Holding, Not a Spectacular Deal

Whitney Tilson’s analysis paints Berkshire Hathaway as a defensive, long-term holding rather than a bargain. While the 6% drop may have been overdone—driven by leadership fears—the stock’s narrow discount to intrinsic value doesn’t justify aggressive buying. Key factors to watch include:
- Abel’s ability to improve underperforming subsidiaries, particularly BNSF.
- Capital allocation decisions, including whether dividends or buybacks become a reality.
- Market conditions, as Berkshire’s equity portfolio will remain sensitive to broader market movements.

With Berkshire’s intrinsic value growing steadily and its balance sheet as strong as ever, patient investors can remain confident in its ability to compound wealth. However, the stock’s valuation suggests it’s best held as a foundation for retirement portfolios, not a speculative bet for outsized gains. As Tilson reminds us: “Berkshire is a ‘stay rich’ stock, not a ‘get rich’ stock.”

In the end, the 6% drop may have been a correction to overbought shares, but it doesn’t erase the math: at current prices, Berkshire offers steady growth—not a steal.