The "stock god" is two months away from "retirement," and the "stock god premium" of Berkshire Hathaway is already gone

Buffett will officially step down as CEO in two months, but Berkshire Hathaway's stock seems to have already sensed his departure.

In May of this year, Wall Street Journal mentioned that the 95-year-old Buffett announced at this year's shareholder meeting that he would hand over the CEO position to his personally selected successor, Greg Abel, by the end of the year, shocking investors.

Since then, Berkshire's Class B shares have fallen 11%, while the S&P 500 index has risen 20% during the same period. Some analysts believe this partly reflects market concerns about how Berkshire will operate without Buffett.

(Since the shareholder meeting, the blue line representing Berkshire's Class B shares has fallen 11%, while the orange line representing the S&P index has risen 20%.)

This power transition will also change several traditions at Berkshire. According to reports, Abel will take over writing the annual letter to shareholders and preside over the Omaha annual shareholder meeting. Starting next year, Buffett will still serve as chairman but will sit alongside other directors.

Wall Street Begins to Downgrade Ratings

Berkshire's stock performance this year has lagged behind the benchmark index by the largest margin since 2020.

Analysts at Keefe, Bruyette & Woods recently downgraded Berkshire's rating to "underperform," marking one of the few times in the company's history to receive such a rating, with the last major focus being in the years leading up to the 2008 financial crisis.

The investment bank analysts noted in their report that the decline in property catastrophe reinsurance pricing is expected to weigh on its insurance business, global trade frictions may impact railway revenue, and declining interest rates could reduce the returns on Berkshire's massive cash reserves. Additionally, Buffett no longer serving as CEO is also a potential drag on the stock price.

Meyer Shields, who co-authored the report, stated:

Some people have built tremendous confidence in Warren Buffett, and for them, the investment logic begins and ends there.

Berkshire will announce its third-quarter financial results on Saturday, U.S. time.

Unique Operating Method Faces Test

Buffett's exceptional stock-picking record has built such deep trust among investors that this corporate group has been able to operate at its own pace with little resistance.

In a time when AI stocks are experiencing dazzling surges and there are almost no cheap targets in the market, Berkshire continues to seek value investments. While other investors are heavily buying tech giant stocks, Berkshire has reduced its Apple holdings and increased its cash reserves to a record $344 billion as of the end of June.

Unlike most publicly traded companies, Berkshire does not hold quarterly conference calls or provide financial guidance, and its financial statements are sometimes based on estimates and subjective judgments that can be somewhat opaque to investors.Some analysts have stated that once Buffett steps down, investors may not be as tolerant of these special practices, but whether Berkshire will provide more transparency is another question.

Buffett will remain CEO for two more months and will continue to share his thoughts with the investment community. According to media reports citing Buffett's assistant, a Thanksgiving letter addressed to his three children and shareholders will be released on November 10.

Careful readers of Berkshire will remember that Buffett has already outlined his plans in the 2024 shareholder letter:

At 94 years old, shortly thereafter, Greg Abel will succeed me as CEO and write the annual letter. Greg shares Berkshire's creed that 'reporting' is what the Berkshire CEO owes shareholders every year. If you start deceiving shareholders, you will soon believe your own lies and deceive yourself as well.

Some Wall Street professionals remain confident

The day before Buffett announced his resignation, Berkshire's price-to-book ratio reached a multi-year peak of 1.7 times, higher than its 10-year historical average of 1.3 times.

Chris Bloomstran, president of Semper Augustus Investment Group, stated that Berkshire's 6% stock increase this year is still better than property and casualty insurance companies like Progressive, which have fallen 14% this year.

Bloomstran, who has attended the company's annual shareholder meeting since 2000, has increased his Berkshire position in recent months, stating:

I believe the (Berkshire stock) decline is not at all due to Buffett's announcement of stepping down; the people I know in the Berkshire circle have only good things to say about Greg.

Henry Asher, president of Northstar Group, who has held Berkshire stock since 1988, stated that he retained his Berkshire shares during the recent decline. Regardless of whether Abel can match Buffett's stock-picking record, Berkshire's business will remain unchanged.

Asher said:

You won't stop freight operations at Burlington Northern just because Buffett isn't there. Whether or not Buffett is present, these businesses will continue to generate substantial cash flow