The investing world received a historic announcement over the weekend as Warren Buffett, the 94-year-old "Oracle of Omaha," revealed his plans to step down as CEO of Berkshire Hathaway after more than six decades at the helm. He talked about his plans at the Berkshire Annual Shareholder Meeting. Greg Abel himself didn’t know about his plans, and Buffett said that only his two children (who are directors at Berkshire) knew.
The company's board has unanimously approved vice chairman Greg Abel as Buffett's successor, effective January 1, 2026. The stock declined 5.12% on Monday. I personally thought the decline would be much sharper, since Berkshire Hathaway has basically become interchangeable with Buffett. And without him, it’ll feel like a different company altogether.
Monday’s decline wiped out $59 billion from the company's market value, and this isn’t unexpected either. Steve Jobs left Apple (NASDAQ:AAPL), and Bill Gates stepped down from Microsoft (NASDAQ:MSFT), both companies took pretty big hits.
In the meeting, Buffett said that Tim Cook made Berkshire more money than he himself made and said he was a worthy successor to Steve Jobs. A questioner later talked about how Greg Abel could turn out to be Buffett’s Tim Cook, which is possible, considering both AAPL and MSFT stock went on to outperform the broader market significantly.
Still, the market shouldn’t be expected not to react. There’s a "Buffett premium" value investors assign to Berkshire due to Buffett's legendary investment prowess. Is that premium just 5%? I don’t think so.
As Cathy Siefert, a director at CFRA Research, noted, "I think the bigger issue is the Buffett premium being extracted from the stock". Berkshire also reported first-quarter earnings that fell short of analyst expectations.
Investors are also questioning whether Abel can replicate Buffett's remarkable capital allocation skills. Buffett has generated a 5,500,000% return for shareholders throughout his career. And at Berkshire’s current size, that’s impossible to replicate. Plus, Abel remains somewhat untested in the public eye.
You should recognize that while Abel may not possess Buffett's investment mystique, his operational expertise may be exactly what Berkshire needs in the current economic environment.
Buffett can definitely choose the right people for the job. The company wouldn’t have done so well if that weren’t the case. Berkshire Hathaway has several independent businesses alongside the investment arm, and they’ve done well with executives hand-picked by Warren Buffett.
Also, Warren Buffett will remain as chairman to guide the company and maintain continuity at the board level. I wouldn’t sell or buy any BRK now. The company's fundamental strengths remain intact.
