Berkshire Hathaway's (BRK.A -1.27%) (BRK.B 0.18%) long-term performance is nothing short of incredible. Indeed, Chief Executive Officer Warren Buffett's guidance has resulted in shocking outperformance of the S&P 500 index (^GSPC -1.60%). Buffett is the reason that most investors look to buy Berkshire Hathaway stock. And it's now one of several issues that need close watching if you are looking at Berkshire Hathaway today.
1. Warren Buffett is a great investor
There is absolutely no question that Warren Buffett's investment approach has resulted in eye-popping financial results for Berkshire Hathaway. Although the company generally gets lumped in with the financial sector, it is really a widely diversified conglomerate. In fact, the company is best viewed as Buffett's investment vehicle. Buying Berkshire Hathaway is simply a way to invest alongside Warren Buffett.
Image source: The Motley Fool.
Or at least it will be until the end of 2025. That's when Buffett is stepping down as the CEO, handing the company's reins to Greg Abel. Investors need to watch how this power transition goes if they own or are considering buying Berkshire Hathaway. To be fair, Abel is a longtime employee, so he has been trained by Buffett. And Buffett is still going to be Abel's boss, since Buffett will remain the board chairman. There are reasons to have a positive outlook. But Abel is not Buffett and never will be. So, there's also reason to keep a close watch on his decisions.
2. Buffett is leaving Abel a huge problem
One of the big news-grabbing facts about Berkshire Hathaway in recent years is not what it has been buying, but what has been happening because of stock sales. The big story you need to watch is the enormous $347 billion of cash and equivalents on the company's balance sheet at the end of the first quarter of 2025. That figure could be even larger when it reports second-quarter results.
Cash isn't a bad thing, per se. It can help a company weather hard economic times. But the amount of cash Buffett is handing off to Abel is shockingly large. So large that it will likely be a drag on the company's financial results. Sure, it earns interest. But the company could probably get better returns if that cash were invested in some way. And it brings up a big question about what Abel will do with that cash once he's the CEO.
3. The market could be the answer for Abel and Berkshire Hathaway
Berkshire Hathaway is a huge business, and it is hard to move the needle on the top and bottom lines. While it has the cash it needs to make a big deal, there's the small problem of finding a deal worth making. With the stock market near all-time highs, the options are very limited.
Which is why, as an investor, you need to watch both Berkshire Hathaway and the broader market. The seemingly ever-increasing cash hoard could turn into a huge advantage if there's a deep bear market. Given the broad diversification in Berkshire Hathaway's portfolio of stocks and owned investments, there is no way to know what it might buy. But it is almost certain that a bear market, when one comes along, will be a buying opportunity you will want to monitor as you watch the stock. That's especially true since the next bear market could be the first real test of Abel's investment acumen.
Changes are happening at Berkshire
For the first time in a very long time, investors have to worry about how Berkshire Hathaway is being run. You will need to watch the transition of power from Buffett to Abel. You will want to keep tabs on the cash Abel inherits. And you will want to watch what happens when an investment opportunity opens up in the market, which could quickly make Berkshire a very exciting investment again.
