Multibillionaire and investing legend Warren Buffett has guided Berkshire Hathaway (BRK.B +2.44%) (BRK.A +2.49%) as CEO for decades. It has become one of the world's largest companies, worth a staggering $1 trillion today.
Earlier this year, Buffett, currently 94, announced that he will step down from his CEO position at Berkshire Hathaway at year's end, formally handing over the reins to Greg Abel, the successor he previously named. Given the countless shareholders Berkshire Hathaway has enriched, it's safe to say that Buffett has earned his flowers.
Share prices of Berkshire Hathaway have declined nearly 10% from their high following the announcement of Buffett's decision, reflecting understandable concerns about whether the stock will continue to perform well in the post-Buffett era.
Is Berkshire Hathaway stock a buy now? Here is what you need to know.
Image source: The Motley Fool.
Berkshire Hathaway is built to last
If you can count on one thing, it's that Berkshire Hathaway will not shrivel up once Buffett steps aside.
In what is essentially his life's work, Buffett has constructed a financial and economic juggernaut, arguably built to last forever. Berkshire Hathaway isn't a single business; it's not even two or three. It's a holding company with several subsidiaries, totaling dozens of individual businesses and assets.
Berkshire Hathaway owns, manages, or operates businesses across seemingly every industry, including (but not limited to) insurance, utilities, railroads, real estate, oil and gas pipelines, industrial manufacturing, retail, and restaurants. It also owns a massive $286 billion portfolio of investments in publicly traded companies, with top holdings including Apple, American Express, Bank of America, and Coca-Cola.
And, if all those businesses somehow stumble at once, Berkshire Hathaway has a fortress-like balance sheet with a staggering $347 billion in cash, primarily invested in Treasury bills to generate interest income for the company.
Berkshire Hathaway has become a broad play on the U.S. economy, so barring some truly dire scenarios, you can confidently hold the stock -- with or without Warren Buffett in charge.
The stock's returns may slow, but not for the reason you'd guess
You must zoom quite a ways out to fully appreciate Berkshire Hathaway's past success. The stock returned 5,502,284% from 1964 to 2024, outperforming the S&P 500's 39,054% gain during that period.
But what about the future? Unfortunately, Berkshire Hathaway probably won't repeat these returns, but it's not simply because Buffett won't be leading the charge.
Instead, blame the law of large numbers, the concept that it eventually becomes harder to move the needle once you grow large enough.
One of the reasons Berkshire Hathaway has continued to grow is Buffett's highly successful investment in Apple back in 2016. The stock grew several times its initial size, to become worth over $150 billion at its peak. Without taking more big swings and hitting them out of the park, it's going to be difficult for Berkshire Hathaway to grow that fast.
However, home runs like that don't happen frequently, even for a Wall Street legend like Buffett. Therefore, Berkshire Hathaway's most exciting years are likely behind it.
NYSE: BRK.B
Key Data Points
Is Berkshire Hathaway a buy now?
Don't be too discouraged -- Berkshire Hathaway could still build wealth for you in a long-term portfolio, even if the gains aren't what they once were.
The trick is to buy the stock at a reasonable price. Buffett is famous for his dedication to value and would be the first to tell you not to overpay for Berkshire Hathaway. Overpaying often weighs on a stock's returns, especially for a mature company like Berkshire Hathaway.
Berkshire Hathaway stock has traded at an average of 1.4 times its book value over the past 10 years. Not only is it currently trading above that at 1.6, but it's also near its decade high. Additionally, Buffett's retirement means the market may hesitate to pay as high a valuation for Berkshire Hathaway, at least until incoming CEO Greg Abel proves himself.
Put it all together, and investors should probably wait for better opportunities to buy Berkshire Hathaway stock.
