The inevitable is finally upon Berkshire Hathaway shareholders — Warren Buffett, arguably the greatest investor in modern times, is handing over his reins after an unmatched 60-year run . What does it mean for the conglomerate and its stock that has just reached new heights? Shareholders and Wall Street analysts generally believe Berkshire shares could experience some short-term volatility, especially after a record-setting rally elevated valuations. Even though the 94-year-old “Oracle of Omaha” is irreplaceable in so many ways — his exceptional capital allocation skills, unrivaled persona and generosity in sharing his wisdom on business and life — most are confident in Greg Abel’s ability to carry on Berkshire’s culture that Buffett built so meticulously. “In the short term, the shares are likely to remain under pressure,” Catherine Seifert, Berkshire analyst at CFRA, said on CNBC’s ” Squawk Box ” Monday. “There’s a Buffett premium in the stock that I think is likely to be extracted, or at least partially extracted.” Berkshire Class A shares dropped nearly 4% Monday after closing at a record high at $809,350 apiece Friday. Class B shares started the week with a similar decline after ending Friday’s session at a record of $539.80. The stock is also reacting to Berkshire’s first-quarter results that showed a 14% decline in operating earnings , driven by a 48.6% plunge in insurance underwriting profit. BRK.A YTD mountain Berkshire Hathaway Class A shares Carry on the culture Investors take solace in the fact that Buffett is staying on as chairman of its board of directors. Meanwhile, Buffett reiterated he would not sell any of his Berkshire shares. At the 2023 meeting, Buffett had shared that he structured the distribution of his Berkshire ownership so that it will take 10 to 15 years for it to be fully distributed to the market. “As much as the transition saddens many of us as the Buffett era ends, it is the correct long-term change to give Greg Abel time in the role while Buffett is still around,” said Bill Stone, CIO at the Glenview Trust Company and a Berkshire shareholder. “There will not be another Warren Buffett in my lifetime, but Greg Abel doesn’t need to be Warren Buffett or Charlie Munger. He inherits a Berkshire Hathaway, which owns some outstanding businesses and a Fort Knox balance sheet.” Abel told some 40,000 shareholders in Omaha that he will continue Buffett’s patient value investing style and he stands ready to deploy Berkshire’s monstrous $347 billion cash fortress whenever a good opportunity presents itself. Buffett said Abel’s more hands-on managerial style is working better for Berkshire’s hundreds of subsidiaries. The Canadian executive said he views Berkshire’s “fortress of a balance sheet” as strategic, and vowed that the conglomerate will never be dependent on a bank or other parties to be successful. “Abel’s approach to capital allocation will continue to mirror Berkshire Hathaway’s longstanding philosophy as well, focusing on maintaining a fortress balance sheet and deploying capital wisely,” Brian Meredith, UBS’ Berkshire analyst, said in a note. “He stressed the importance of managing risk while consistently improving existing operations before pursuing new acquisitions.” Some questions remain Still, there are a few questions left unanswered after Buffett’s head-turning succession announcement. First of all, will Buffett’s two investment managers, Ted Weschler and Todd Combs, increase their responsibility in running Berkshire’s equity portfolio? Secondly, how will Berkshire deploy its mountain of cash on the balance sheet? Pershing Square CEO Bill Ackman speculated that Berkshire will start returning capital to shareholders via a potential dividend and “being a little bit more aggressive” in buying back stock. Berkshire hasn’t paid a dividend in nearly 60 years. Buffett has long said he would prefer stock buybacks to dividends as a way to return capital to shareholders, as scheduled cash payments have the implicit promise that they won’t ever be reduced, let alone halted. Separately, KBW’s Berkshire analyst Meyer Shields urged Berkshire to improve its “unimpressive disclosure practices” post-Buffett. For example, Berkshire stopped quantifying auto insurer Geico’s voluntary policies-in-force growth. He said he expects the stock to be under pressure for the time being, which Berkshire could use as an opportunity to buy back more shares.
