Warren Buffett could keep investors waiting for his long game to work out—but can Greg Abel?

The only living exception is Warren Buffett. And Greg Abel, Buffett’s successor as Berkshire Hathaway’s new CEO, is already having to come to terms with that reality.

At his first annual meeting as CEO, Abel preached the gospel of investing discipline against a backdrop of the worst stretch of underperformance for Berkshire’s stock in a quarter century. The shares have lost 10.8% in the past 12 months, a 40.4 percentage point underperformance to the S&P 500 Index—the worst, that is, since March 2000.

And one needn’t look far for an explanation: Berkshire reduced its stock holdings by a net $8.1 billion in the first quarter, leaving its cash position at $397 billion, or about 32% of total assets. That’s even higher than the pile Buffett accumulated prior to the financial crisis. The conglomerate’s main exposure to the buzzy artificial intelligence (AI) theme was Apple, a once massive position that’s been swiftly downsized since 2024.

Now, Berkshire is effectively clipping coupons while index investors elsewhere profit from a bonanza.

Here’s how Abel described the situation (emphasis mine): “One of our greatest strengths at Berkshire is patience and being disciplined when it comes to allocating our capital. There will be opportunities that come over time... and it doesn’t mean there’s not opportunities now, but it doesn’t mean you need to deploy all your capital or spend all your money right now. And that’s really our approach.”

Among its core principles, Berkshire aims to buy companies that are reasonably valued; that its analysts actually understand; and for which they can assess the longer-term economic prospects. Every element of the Berkshire process faces obstacles in the age of AI.

The technology is an enigma to much of the investing public, as is its scope for rapid improvement, prospects for monetization and the ways it will change the broader economy.

What’s more, by any standard valuation multiple, the market and many of its constituents look extremely rich. If Abel and his Berkshire peers are implying (however subtly) that a correction is coming, and they intend to wait for it, the real question is how long their investors will be willing to wait along with them.

In its earlier days, Berkshire was a natural vehicle for individual investors trying to gain access to a diversified portfolio of equities and throw their lot in with a legend. Today, Berkshire shares compete with ultra-low-cost S&P 500 exchange-traded funds and the legend is stepping back, replaced with Abel, whose expertise is really in business operations rather than investing.

The stock was already underperforming when Abel took the reins on 1 January and the famous ‘Buffett premium’ could durably become an ‘Abel discount’ if he can’t catch up to the market soon.

Although Berkshire has long enjoyed low turnover among investors, I am sceptical it could prevent an exodus without the returns to sustain enthusiasm. Lengthy periods of major underperformance have been extremely rare in Berkshire’s history.

The dotcom era underperformance was really only a 1999 and early 2000 phenomenon. In the mid-2000s, Berkshire had a stretch of lacklustre performance from 2003 to 2005. And it happened again in 2019 and 2020.

For the Berkshire faithful, the pre-dotcom and pre-financial crisis examples, in particular, have become part of the Buffett lore: They showed why the Oracle of Omaha is the greatest investor ever, and why it’s worth giving him the benefit of doubt even when it seems like he’s lost a step. But those episodes happened when Buffett was in his prime and faith in his process was near an all-time high.

It’s hard to imagine investors having the same patience with an untested CEO who has succeeded him.

To be clear, I’m not saying Abel is wrong to exercise caution in this still-frothy market. If the stock market crashes and Berkshire swoops in to buy up the gems in the rubble, Abel will be set up to enjoy a long and prosperous career—maybe becoming a legend himself.

Ultimately, he’s following Buffett’s guiding principles—the ones that made Berkshire one of the world’s greatest engines of wealth creation. But no one can know whether a crash is coming, with markets quick to recoup losses these days. And investors aren’t going to stand by an unproven operator forever to find out if he’ll be vindicated. ©Bloomberg

The author is a columnist focused on US markets and economics.