Berkshire Hathaway shares drop 14% as S&P 500 gains 11%

Berkshire Hathaway's Class A shares have fallen 14% since May 2, marking the worst underperformance in over 50 years relative to the broader market [1]. During the same period, the S&P 500, including dividends, gained 11%, widening the gap between Berkshire and the index to 25 percentage points—the largest underperformance in more than three decades [1]. The market's reaction follows the announcement that Greg Abel would succeed Warren Buffett as CEO, signaling a potential transition in the company's leadership [1].

Warren Buffett, widely regarded as one of the greatest investors in modern history, spent nearly six decades transforming Berkshire from a struggling textile company into a multinational conglomerate. However, as the company moves closer to a leadership shift, long-term investors appear to be reevaluating their positions [1]. The stock dropped nearly 5% on the Monday after Buffett’s retirement plan was revealed [1]. This kind of sell-off hasn’t been seen since the height of the pandemic, when financial stocks—still a significant part of Berkshire’s portfolio—were hit hard [1].

Berkshire’s Class A shares were trading at a record high of $812,855 in May when the selloff began. These shares are often held by multi-generational families who have inherited them. While it’s unclear who is selling, public filings from major institutional shareholders are due later this month [1]. Despite the stock’s decline, Berkshire’s underlying operations remain strong. Operating earnings for the second quarter rose 8% year-over-year, excluding currency changes, driven by gains in the BNSF railroad, utility businesses, manufacturing, and retail [1]. However, these solid results have not been enough to attract new buyers.

The company’s stock had been a popular haven for investors during a period of rising market volatility, particularly linked to trade tensions under Donald Trump [1]. But as fears subsided and investor sentiment shifted, many moved back into fast-growing tech stocks, leaving value names like Berkshire behind. “What is really moving in this market is technology, and we know that’s not really his thing,” said Bill Stone, chief investment officer at Glenview Trust [1].

Buffett has also stopped repurchasing shares of Berkshire, a move that coincided with the company’s price-to-book ratio rising to 1.8 times—its highest level since October 2008 [1]. Buffett typically buys shares only when he believes they trade below their intrinsic value, which he did not see in May. “The stock was overvalued,” said Christopher Bloomstran, president of Semper Augustus Investments, who also noted he expects buybacks to resume now that the stock has declined [1].

Instead of buying back shares, Buffett has been selling. Over the past 11 quarters, Berkshire has been a net seller of equities, and by the end of June, cash and Treasury investments accounted for 30% of the company’s total assets [1]. This defensive posture is not unusual for Buffett, who famously avoided the dotcom boom in 1999. At the time, Berkshire lagged the Nasdaq Composite significantly, but that decision ultimately proved to be prudent when the bubble burst [1].

Cathy Seifert, analyst at CFRA, noted that Berkshire has historically carried a “Warren premium” in the market. However, she warned that this advantage may not continue under Greg Abel, whose leadership style and investment strategy remain to be tested [1].

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[1] title: Berkshire Hathaway shares have dropped 14% since May 2, while the S&P 500 gained 11%

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