As Berkshire Hathaway Chief Executive Officer (CEO) Warren Buffett heads toward retirement at the end of the year, investors are already moving to price in his absence. In recent months, Berkshire shares have trended lower, and some even say the "Buffett premium" is fading.
According to the Wall Street Journal (WSJ) on the 30th (local time), Buffett, 95 this year, officially said at the shareholders meeting in May that he would step down as CEO at the end of the year and hand the role to Vice Chairman Greg Abel. As a result, Abel will write the annual shareholder letter starting next year and preside over the regular shareholders meeting held in Omaha. Buffett will remain chairman but step back from day-to-day management.
The market reaction was immediate after Buffett announced his retirement. Berkshire's Class B shares (BRK.B) have fallen about 11% since May, while the Standard & Poor's (S&P) 500 index has risen more than 20% over the same period. Berkshire's share-price gain this year is the weakest relative to the benchmark since 2020. Some Wall Street analysts said concern about Berkshire without Buffett has weighed on investor sentiment.
According to financial data firm FactSet, investment bank Keefe, Bruyette & Woods (KBW) recently downgraded Berkshire's investment rating to "underperform." That assessment is rare outside the period around the financial crisis. KBW cited a mix of risks, including weaker reinsurance revenue, reduced railroad business revenue due to U.S.-China trade tensions, and lower cash revenue from interest-rate cuts.
Until now, unlike most listed companies, Berkshire has not provided quarterly earnings forecasts or guidance and has stuck to nonstandard financial disclosures involving accounting estimates. If Buffett steps down as CEO, questions remain about whether this management approach will continue.
Even so, some long-term investors see the share decline as a buying opportunity. Chris Bloomstran, head of asset manager Semper Augustus Investment Group, said, "The share-price drop is more a correction from prior overvaluation than the result of Buffett's retirement announcement," adding, "Berkshire's long-term fundamentals are unchanged." He said he recently increased his equity stake in Berkshire.
Another long-term investor, Henry Asher, chairman of asset manager North Star Group, also said, "Just because the CEO changes doesn't mean the Burlington Northern railroad business disappears," emphasizing, "With or without Buffett, Berkshire's business model will generate steady cash flow."
Buffett will remain CEO for the next two months and continue communicating with investors and the public. His secretary said the annual letter sent to shareholders and his children for Thanksgiving this year is set to be released on Dec. 10. In his shareholder letter in March, Buffett also noted, "Greg Abel will soon become CEO and the day is not far off when he will write reports to shareholders."
An expert who requested anonymity said, "Buffett's retirement is an inevitable generational shift, and if Berkshire maintains the independence of its investment philosophy and asset management, it could become an even more transparent corporation."