Berkshire Hathaway (BRKB 0.38%)(BRKA 0.46%) shares slipped about 5% following the company's fourth-quarter and full-year 2025 earnings report released over the weekend. The company's sharp year-over-year decrease in operating earnings was likely the primary factor that spooked investors.
Is the stock's decline an overreaction or a buying opportunity?
After all, the recent dip in Berkshire's operating earnings was largely due to the normal volatility inherent in Berkshire's massive insurance operations.
Image source: Getty Images.
Understanding the insurance volatility
The recent earnings decline looks worse than it actually is because it is measured against a remarkably tough comparison.
For instance, Berkshire's fourth-quarter operating earnings dropped 29.8% year over year. The drop was heavily impacted by a sharp decline in the company's insurance-underwriting operating earnings, which fell 54% year over year to $1.56 billion. But this performance is measured against the fourth quarter of 2024, when the company's insurance-underwriting operating earnings surged 302% year over year to $3.41 billion.
In addition, insurance profit volatility is particularly high for Berkshire because the company is uniquely willing to cut net premiums written when the broader market becomes more competitive. Berkshire is relentlessly focused on its float (the net policyholder funds generated from underwriting that are held for investment) as much as on net premium growth -- and it approaches both with shrewd discipline. To this end, Berkshire's underwriting profits may have declined, but its float increased year over year. Float climbed to $176 billion at the end of 2025, up from $171 billion in the year-ago quarter.
Zooming out for a better view
A better way to evaluate Berkshire is to zoom out and look at the broader trajectory of its operating businesses.
In Berkshire's latest annual report, CEO Greg Abel did exactly this by comparing current metrics to the company's five-year averages.
For instance, the company's 2025 operating earnings of $44.5 billion may have been down from $47.4 billion in 2024, but they were meaningfully ahead of the $37.5 billion it averaged over the past five years.
It similarly broke down its growing stream of operating cash flow, noting that it generated $46 billion in 2025 -- up from its five-year average of $40 billion.
A growing war chest of dry powder
Additionally, investors should note that Berkshire ended 2025 with a staggering $373.3 billion war chest of cash and cash equivalents, of which Abel made it clear in Berkshire's annual update that a large portion of this capital represents dry powder, ready to be deployed when attractive opportunities present themselves. Additionally, Abel made it clear that management would rather have this capital invested in productive assets, noting that the company is actively looking for ways to deploy it.
Of course, Berkshire will not rush into deals just to put cash to work.
The leadership team will always adhere to disciplined patience, waiting for the right opportunity to deploy this massive $373.3 billion stockpile. But this patient discipline is part of what makes the stock attractive in a richly valued market like the one we find ourselves in; the company will have significant optionality during any major market setbacks.
NYSE: BRKB
Key Data Points
At its current price, the stock arguably looks attractive. Price-to-book value is generally the best measure for evaluating Berkshire Hathaway, rather than a traditional price-to-earnings multiple, and shares currently trade at a price-to-book multiple of about 1.5. This is arguably a reasonable premium to pay considering the unmatched quality of the underlying assets.
Additionally, while price-to-book is probably the most useful way to look at Berkshire stock's valuation, it's not as useful as it used to be, given the company's growing operating earnings from non-insurance segments over the last decade. Investors should also look at Berkshire's price-to-earnings ratio for added context. The stock trades at roughly 23 times its 2025 operating earnings of $44.49 billion, which confirms the valuation is not overly expensive relative to the regular operating income its wholly owned businesses generate -- and this business comes with a war chest of cash and an equity portfolio valued at more than $300 billion. This isn't a bad setup for a company with a market capitalization of $1.04 trillion as of this writing.
With the S&P 500 not too far off of its all-time highs and given the high degree of uncertainty that AI (artificial intelligence) introduces to the global economy, I want a fortress balance sheet and a resilient business in my portfolio. Berkshire fits the bill perfectly.
Sure, there are risks -- mainly that Berkshire fails to deploy its cash and cash equivalents in something that can lead to meaningful intrinsic value growth over the long haul. But I think Berkshire's strong culture of capital allocation, patience, and discipline will eventually lead to solid investments that will add to the company's already powerful earnings engine.
