Berkshire shares drop double digits as 'Buffett premium' disappears, and some expect more selling
Warren Buffett once predicted that Berkshire Hathaway stock would rise when he eventually steps down. So far, the opposite has happened. Since May 3, when the "Oracle of Omaha" announced his plans to hand over the reins, the stock of his conglomerate has fallen more than 10%, underperforming the S & P 500 by about 15 percentage points. The sell-off partially reflects the so-called Buffett premium, or the extra price investors are willing to pay because of the billionaire's unmatched record and exceptional capital allocation skills. "I am actually surprised at the magnitude of Berkshire's underperformance … especially since Buffett is not stepping down as CEO until Dec. 31," said David Kass, a finance professor at the University of Maryland and a longtime Berkshire shareholder. "This relative decline may approach as much as 20% in the weeks ahead as some shareholders may become discouraged by Berkshire's recent price performance." BRK.A mountain 2025-05-02 Berkshire Hathaway class A shares since Buffett announcement Buffett said he decided to step down as CEO while remaining as chairman of the board after experiencing the physical effects of aging. The investing legend expressed his confidence in his successor Greg Abel's ability to carry on Berkshire's culture , which Buffett built so meticulously. Part of the reason for the poor performance of the stock could be attributed to Berkshire's first-quarter earnings decline. Operating earnings, which include the conglomerate's fully owned insurance and railroad businesses, fell 14% to $9.64 billion during the first three months of the year. "I think the first couple days after the announcement were definitely related to the Buffett premium," said Kevin Heal, a Berkshire analyst at Argus Research. "Also of the mindset that it was heavily algo related. Later moves down I believe were due to the underlying assets both public and private." Meyer Shields, a Berkshire analyst at Keefe, Bruyette & Woods, said his rough guess is that there is still a 5% to 10% Buffett premium in the stock, reflecting some investors' confidence that he'll still be there as chairman. Kass said there may be an additional decline in the shares after Buffett departs at the year's end. Berkshire is falling from a record high on May 2, a day before its latest annual meeting. The company is still worth more than $1 trillion in market cap.
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