Berkshire Hathaway After Buffett: A Value Investor's Assessment of the Moat and the Manager

The transition from Warren Buffett to Greg Abel is the most critical test of Berkshire Hathaway's enduring value. For decades, the company's wide moat and compounding engine have been inseparable from its founder's disciplined philosophy. Now, the question is whether that culture can be sustained without him. The current price of Berkshire stock is a function of the quality of future capital allocation, not the past performance that made it legendary.

Buffett announced Abel as his successor in May 2025, with Abel taking the helm in January 2026. The process was deliberate, a hallmark of Buffett's own long-term thinking. Abel, who joined the company when it invested in MidAmerican Energy in 1999, had been groomed for years, elevated to vice chairman in 2018. Yet, as one observer noted, the challenge is whether anyone can fill the "biggest pair of shoes in the history of capitalism." The core of that philosophy is a strict circle of competence, where investment decisions are based on understanding a business's economics and management, not chasing trends. This discipline has been central to Berkshire's long-term success.

The primary risk is a potential shift in capital allocation philosophy or a dilution of the company's unique culture. While Abel's background in energy and utilities aligns with Berkshire's non-insurance operations, the true test lies in how he applies the Buffett-Munger playbook to the entire conglomerate. The market is paying for a future where capital is deployed with the same patience and margin of safety that defined the past. Any deviation from that standard would threaten the intrinsic value the stock is built upon. The succession is a test of whether the moat is protected by people or by process.

The Moat: Assessing the Durability of Berkshire's Competitive Advantages

Berkshire Hathaway's enduring value rests on a foundation of exceptionally durable competitive advantages. According to GuruFocus, the company holds a Moat Score of 10, which implies a "Wide Moat – Exceptionally dominant and durable wide moat." This rating is not a guess but a synthesis of the company's market leadership, pricing power, and the vast scale of its operations. The moat is built on a unique combination of factors: Berkshire's diverse portfolio of subsidiaries operates with significant economies of scale, benefits from a superior distribution network, and possesses the pricing power that comes from owning market-leading brands and essential infrastructure.

The insurance segment is the cornerstone of this moat, representing the largest source of operating earnings. Its strength lies in two critical, interlocking elements: the massive scale of its float and a rare history of underwriting profit. Berkshire's float, which stood at $176 billion at the end of the third quarter, is a direct result of its insurance operations. This is not a cost; it is a source of capital that can be invested for years. The company's ability to earn underwriting profits-where premiums collected exceed claims and expenses-means this float effectively costs nothing and generates income. This discipline, exemplified by GEICO's combined ratio of 84.3%, is a rare and powerful competitive advantage that funds the entire conglomerate's capital allocation engine.

Beyond insurance, the moat is reinforced by Berkshire's ownership of essential, capital-intensive assets. The Burlington Northern Santa Fe (BNSF) railroad is a prime example, providing a critical, regulated network for freight that is difficult and expensive to replicate. Similarly, the utilities and energy segment, while facing headwinds like higher interest expense and specific accruals, provides steady, long-term cash flows from regulated operations. These businesses are not just profitable; they are structural advantages that generate predictable earnings and compound value over decades.

The bottom line is that Berkshire's moat is not a single asset but a system. It is a network of market-leading businesses, each with its own durable advantages, all unified by a capital allocation philosophy that prioritizes long-term value over short-term noise. This system, built on scale, pricing power, and a unique financial engine, is what allows the company to compound value. For a value investor, the question now is whether the next generation of managers can continue to nurture and deploy this moat with the same discipline that built it.

Financial Health and Valuation: The Book Value Engine

Berkshire Hathaway's financial engine runs on the steady compounding of its tangible book value. Over the past five years, the company's book value per share grew at an average rate of 10.8% annually, a testament to its durable earnings power and disciplined capital allocation. This is the core metric for a value investor: the accumulation of intrinsic value per share. The company's ability to compound at this pace, even through market cycles, is a direct result of its wide moat and the powerful financial engine it creates.

The current valuation presents a balanced picture. Berkshire trades at a price-to-book ratio of 1.54. This is above its historical median of 1.41, suggesting the market is paying a slight premium for the quality of its earnings and the stability of its future cash flows. Yet it remains well below its 10-year high of 1.78, indicating the stock is not priced at an extreme speculative level. For a company with Berkshire's track record, a P/B near 1.5 often signals a reasonable entry point where the market is acknowledging the business's strength without demanding a premium for future growth that may not materialize.

The underlying earnings power is robust. In the third quarter of 2025, operating earnings rose 34% year-over-year, driven by strong performance across insurance, railroads, and manufacturing. This growth highlights the resilience of the underlying businesses. However, a key detail for shareholders is that per-share operating income decreased by 34% for the quarter. The reason is clear: the company did not repurchase any shares over the past year. This dilution of earnings per share is a direct consequence of capital being deployed elsewhere, likely into acquisitions or other investments, rather than returning cash to owners. It's a reminder that book value growth and per-share value are not always perfectly aligned in the short term.

The bottom line is that Berkshire offers a margin of safety rooted in its financial engine. The stock trades at a reasonable multiple relative to its historical range, and its book value continues to grow at a solid double-digit clip. The challenge for the new management team is to maintain this compounding rate while navigating the post-Buffett era. For now, the financial health is sound, and the valuation provides a buffer. The true test will be whether the next generation can continue to grow book value per share at a pace that justifies the current price.

Catalysts, Risks, and What to Watch

The investment thesis for Berkshire Hathaway now hinges on a few key watchpoints. The succession is complete, but the real test is in the execution. The market will be watching for signals on capital allocation philosophy and the integrity of the wide moat, starting with the first full year under Greg Abel's leadership.

The most important near-term catalyst is Abel's first annual letter to shareholders. This document will be a primary signal of his capital allocation philosophy. Does he emphasize the same patience and margin of safety that defined Buffett's era? Will he articulate a clear vision for deploying the company's massive float and retained earnings? The letter will set the tone for the year and provide early clues about whether the culture of disciplined investing is being preserved. Investors should look for his comments on the company's circle of competence and his approach to acquisitions, which are the lifeblood of Berkshire's compounding engine.

Equally critical is the performance of the core businesses that form the moat. The insurance segment, with its $176 billion float and history of underwriting profit, must continue to generate earnings at a high level. Any erosion in GEICO's combined ratio or a decline in the quality of new insurance underwriting would signal a weakening of this foundational advantage. Similarly, the performance of the energy and utility operations, which provide steady cash flows, will be monitored for any signs of regulatory or cost pressures undermining their long-term earnings power.

The primary risk remains a decline in the quality of capital allocation. Even if the moat itself holds, a shift toward riskier or less efficient investments would undermine the compounding engine. The market is paying for a future where capital is deployed with the same discipline that built Berkshire's legacy. Any deviation from that standard-whether through overpaying for acquisitions, entering unfamiliar industries, or failing to repurchase shares when they trade significantly below intrinsic value-would threaten the intrinsic value the stock is built upon. The recent quarter's 34% year-over-year rise in operating earnings is a positive sign, but it must be sustained and driven by the same disciplined process.

For now, the transition appears to be on track. The process was deliberate, and Abel has deep operational experience. Yet, as the saying goes, the best succession plan is the one that works. The coming year will provide the first real-world test of whether the moat can be protected and the engine kept running without its legendary pilot.