Days before his first annual meeting as the chief executive officer of Berkshire Hathaway Inc., Greg Abel is facing a problem that seldom confronted his legendary predecessor: a floundering stock price.
Market Underperformance
Once synonymous with consistent outperformance, the US$1 trillion conglomerate’s shares have been trounced by the broader market since Warren Buffett announced he was retiring and handing Abel the reins a year ago. As of Wednesday, the Class B shares have lagged the S&P 500 Index by more than 37 percentage points over the past twelve months, the worst one-year stretch since 2000. That’s caused Berkshire’s market capitalization to decline US$139 billion over that span.
Reasons for the Slump
Recent hits related to holdings such as Kraft Heinz Co. can explain some of the doldrums, as can a pricey, AI-obsessed stock market that’s left Berkshire few deep-value opportunities for deploying its US$373 billion cash pile. But while Abel is likely to touch on those subjects during Saturday’s meeting, another reason for the slump may be harder to address: with the Oracle of Omaha gone, some investors are taking a less forgiving view of Berkshire’s flaws — at least until the 63-year old chief executive can earn some of the trust that Buffett and his late business partner Charlie Munger once commanded.
“As investors, we welcome Abel’s ‘stay-the-course’ approach,” said Christopher Davis at Hudson Value Partners, which has held the company’s shares since 2019. However, “it seems the market may be looking to see him execute a classic Berkshire investment as evidence that the machine can run just the same with a new operator.”
The Buffett Premium
Berkshire’s ailing stock price highlights the challenge that Abel — who took over as chief executive in January — faces as he sits at the helm of a company that will long bear the stamp of the 95-year old Buffett, widely considered one of history’s greatest investors. A Berkshire spokesperson declined to comment.
Driven by Buffett’s celebrated stock picking and shrewd capital allocation, the company’s shares routinely beat the S&P 500 over its 61-year history as a conglomerate. Even though the gap has narrowed in recent decades, the performance remains impressive: Berkshire’s Class B shares have notched an average annual gain of 11 per cent since 1997 under Buffett, a full percentage point above the S&P 500’s annualized total return in that time span.
Investors happily paid a so-called Buffett premium as a result, typically valuing the company’s stock above the broader market. But while Abel has pledged to follow Buffett’s approach to investing and managing risk — Saturday’s meeting is branded with the slogan “The Legacy Continues” — it may be years before shareholders are confident that Abel can approximate his predecessor’s investing touch.
Buffett created “a mystique, a psychological kind of aura around the company,” said Lawrence Cunningham, an author of several books about Buffett and longtime Berkshire shareholder. “If he’s not going to be there, you’re going see some erosion of that mystique, and that’s going to show up in the stock price.”
