Warren Buffett, the CEO of Berkshire Hathaway, announced his plans to step down by the end of the year. Since the announcement, the company’s stock has seen a 10% decline, compared to a 9.1% gain in the S&P 500 over the same period. This underperformance is unusual for Berkshire, known for its long-term stability and growth.
The company has delivered a compounded annual gain of 19.9% between 1965 and 2024, outperforming the S&P 500’s 10.4% annual gain with dividends reinvested. Changing market sentiment and investors leaning towards growth stocks have contributed to the decline. However, Berkshire remains a secure long-term investment due to its diverse portfolio of controlled assets, including insurance businesses, the BNSF railroad, Berkshire Hathaway Energy, and multiple manufacturing, services, and retailing businesses.
Buffett emphasized the importance of being prepared for excellent investment opportunities during the shareholder meeting, even if it means holding more Treasury bills than usual.
Buffett announces retirement plans
The company’s cash reserves provide opportunities for strategic acquisitions, growth acceleration in its controlled businesses, or investing in stocks at attractive prices.
The potential for new CEO Greg Abel to introduce dividends, a practice Buffett has traditionally opposed, could attract more investors. Berkshire’s operating earnings have consistently grown, driven by its robust insurance underwriting and investment income. Buffett’s investment decisions like acquiring Geico, Coca-Cola, and American Express have historically driven growth.
Today, the company’s sheer size means that impactful investments are more visible, such as its significant stake in Apple. Berkshire Hathaway remains a compelling buy for investors who value its strong asset base, cash reserves, and competitive advantages. With a new leadership transition on the horizon, the company is well-positioned to continue its legacy of long-term growth.
