Warren Buffett Announces Retirement, Berkshire Hathaway Faces Severe Valuation Shock
Warren Buffett announced his retirement just three months ago, and Berkshire Hathaway is now experiencing the most significant valuation shock in nearly 35 years. Has Berkshire, which has lost the aura of the Oracle of Omaha, truly become an unworthy investment?
(Background Summary: Berkshire’s Q1 Holdings Released: Buffett Sells Out Citigroup, Reduces Financial Stocks, and Makes Significant Investment in This Brewery, Mysterious Holdings Draw Attention)
(Background Note: Buffett Has Net Sold Stocks for 11 Consecutive Quarters! Berkshire’s Q2 Financial Report Shows Net Profit Plummeting 59%, Kraft Heinz Faces $3.8 Billion Impairment)
The Aura Fades: Three Months of Evaporated Premium
Over the past few decades, Buffett’s robust value investment philosophy has brought additional valuation to Berkshire Hathaway. However, CFRA analyst Cathy Seifert pointed out that this “Buffett premium” has rapidly contracted following the announcement of his retirement; the gap between Berkshire’s performance and that of the S&P 500 is now second only to the early pandemic period in 2020.
In the past, even during the turmoil caused by the U.S.-China trade war in 2018, Berkshire was still considered a “safe haven.” Now, without the Buffett halo, its safe-haven properties are gradually fading, indicating that Berkshire’s valuation can no longer rely solely on the Oracle’s reputation but must return to fundamentals and the strategies of the new management.
Steady Operations but Vulnerable to Investment Impairments
However, if we look solely at its operations, Berkshire has not actually declined. Public data indicates that in Q2, Berkshire’s railway, utilities, manufacturing, and retail sectors saw operational profit grow by 8% after excluding foreign exchange effects. Nevertheless, due to declining equity investment income and impairments related to Kraft Heinz stock, Berkshire’s operating profit dropped 4% year-over-year to approximately $11.16 billion, while net profit plummeted 59%. This financial report starkly reveals that even the most stable operations cannot fully withstand the impact of a single large investment failure. Additionally, Berkshire currently has a cash position of $344 billion, accounting for about 30% of total assets, and has net sold stocks for 11 consecutive quarters.
Market Winds Shift: Disparity Between Tech Boom and Value Stocks
Another pressure on Berkshire’s stock price comes from a shift in investor preferences. Bill Stone noted that market capital is flowing toward “rapidly growing tech stocks,” rather than the traditional value investment targets that Berkshire excels in. As hot trends focus on AI, cloud computing, and semiconductors, the railroads, insurance, and consumer brands that Berkshire holds may seem to lack greater imaginative potential for investors.
Greg Abel Takes the Helm: Challenges of Capital and Narrative
Buffett’s successor, new Berkshire CEO Greg Abel, faces two daunting tasks: managing the enormous cash flow and rebuilding Berkshire’s market narrative without the “Oracle” aura. In the face of investor skepticism, Abel must prove that Berkshire can still generate excess returns amidst macro headwinds.
Analysts suggest he has three paths ahead: continue seeking targets that meet traditional value criteria; increase allocations to new economy sectors; or adopt a more aggressive capital return strategy. Each step involves the delicate balance of “value investing” and “market growth,” and Abel’s decisions will determine whether Berkshire can write a new legendary story in the post-Buffett era.
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Buffett Admits: I Truly Feel Old, Thinking and Reading Have Become Challenging… His First Comments on the Decision to Step Down as CEO of Berkshire
Farewell to the Oracle! Buffett Announces He Will Step Down as Berkshire CEO by the End of 2025, with Greg Abel Taking Over
