Since May, it has fallen against the trend by 14%! With the handover approaching, Berkshire's "Buffett premium" is disappearing

Since the "handover" in early May this year, Berkshire Hathaway's Class A shares have fallen by a cumulative 14%, marking one of the worst relative performances against the market in decades, as investors reassess the investment value of this financial giant following Buffett's retirement transition.

Since Buffett announced in early May that he would hand over control of the company to executive Greg Abel, Berkshire's Class A shares have dropped a cumulative 14%. In contrast, the S&P 500 index has risen by 11% during the same period.

Statistics show that this is one of the worst relative performances of Berkshire against the S&P 500 index in any three-month period since 1990. CFRA analyst Cathy Seifert stated that this reflects the possibility that the long-standing "Buffett premium" associated with Berkshire stock may not be immediately transferred to its successor.

Historic Underperformance Highlights Succession Challenges

Berkshire's recent relative underperformance against the market has set a historic record. Historically, Berkshire has only performed worse at the onset of the pandemic, when investors sold off stocks en masse, particularly impacting insurance and financial services companies, which are core holdings of Berkshire.

Since taking over Berkshire in 1965, Buffett has created immense wealth through a buy-and-hold value investment strategy. Berkshire's cumulative return has reached an astonishing 55,000 times, 140 times that of the S&P 500 during the same period. This long-term exceptional performance has created a unique "Buffett premium" for Berkshire stock.

It remains unclear who is selling Berkshire's Class A shares. For a long time, these Class A shares have primarily been held and passed down by the families of early investors in Buffett. Quarterly reports from large institutional investors and hedge funds will not be disclosed until later this month.

Strong Fundamentals Struggle Against Market Sentiment Shift

Despite the poor stock performance, Berkshire's operational performance remains robust. The company's BNSF Railway, utilities, and manufacturing, service, and retail sectors all achieved profit growth in the second quarter.

Excluding the impact of exchange rate fluctuations, Berkshire's operating profit in the second quarter increased by 8% compared to the same period last year. However, this positive fundamental data has not stopped investors from selling.

Berkshire investor Glenview Trust Chief Investment Officer Bill Stone stated that earlier this year, when the market was shaken by President Trump's tariff war, investors viewed Berkshire as a safe haven. But as concerns about an economic recession eased, funds have flowed back into rapidly growing tech stocks.

The rise in Berkshire's stock price earlier this year pushed its valuation to a rare high since the global financial crisis of 2008. The company's price-to-book ratio once climbed to nearly 1.8 times, the highest level since October 2008

Valuation pullback may create a re-buy opportunity

Buffett stopped the stock buyback program in May 2024. According to company documents, he will only repurchase shares when he "believes the buyback price is below Berkshire's intrinsic value."

Berkshire shareholder Semper Augustus Investments President Christopher Bloomstran believes that the stock price was previously overvalued, and the recent pullback may prompt Buffett to resume buying soon