To The Moon

Current Situation: Trailing the S&P by Over 6 Percentage Points

Year-to-date 2026, $Berkshire Hathaway(BRK.B)$ have declined 5%, while the $S&P 500(.SPX)$ has gained approximately 1.78%—a gap of over 6 percentage points. This is Greg Abel's first "report card" since officially taking the CEO reins—and the market seems to be voting with its feet, questioning whether the "Oracle of Omaha" can still deliver the magic.

But as Buffett himself once said: "We will underperform in bull markets because we hold a lot of non-public subsidiaries and cash." This current headwind is precisely the crucible testing whether Berkshire's "institutional transformation" can maintain its luster.

I. Four Structural Reasons Behind the Underperformance

A. The "Buffett Premium" Has Officially Dissipated, Succession Risk Weighs on Valuation

Since Buffett announced his retirement in May 2025, Berkshire shares have consistently lagged the market. Research firm KBW made the rare move of downgrading the stock to "Underperform," citing "succession risk unique to Berkshire's history"—investors have grown accustomed to relying on Buffett's presence and credibility, and the transition to Abel will take time.

B. Core Businesses Under Pressure, GEICO's Moat Under Siege 🏰

Nearly all of Berkshire's major business segments face headwinds:

• GEICO: Aggressive pricing to regain market share has likely peaked underwriting margins, while its AI/tech adoption lags behind competitor Progressive

• BNSF Railway: Tariff policy pressures constrain freight volumes

• Reinsurance: Declining rates compress profitability

• Energy: Phase-out of clean energy tax credits and falling short-term interest rates squeeze returns

C. $334 Billion Cash: Defensive Shield or Growth Drag? 💰

Berkshire holds a record $334 billion in cash (roughly 35% of market cap)—equivalent to an "ATM" generating risk-free interest income daily. But in the AI supercycle, this cash hoard represents massive opportunity cost—while Nvidia and Microsoft lead the market, Berkshire refuses to pay premiums for "cash-burning" businesses, choosing to watch from the sidelines.

D. Severe Style Mismatch

The 2026 market is dominated by AI/tech stocks, while Berkshire's portfolio remains anchored in traditional sectors (insurance, railroads, consumer staples). The S&P 500 trades at ~24x P/E; Berkshire at ~15x. Despite the valuation discount, capital prefers chasing high-multiple growth names.

II. Why This Could Be a Long-Term Opportunity 🎯

History proves Berkshire's "underperformance" often signals contrarian entry points:

• During the 2000 dot-com bubble and 2008 financial crisis, Berkshire lagged temporarily before creating outsized returns through crisis-driven bottom-fishing

• Cash reserves as strategic weapon: If a "hard landing" materializes, this $334 billion becomes the "lender of last resort," enabling bargain acquisitions while stabilizing markets

• Valuation discount: Current shares trade ~12% below 52-week highs, offering margin of safety for value investors

As Abel emphasized in his letter: "Cultural preservation precedes business metrics"—the core ethos of "buy and hold forever when you see value" remains unchanged.

III. May 2 AGM: Nine Critical Themes 📅

The Omaha annual meeting on May 2 will be the ultimate window to answer all questions. Greg Abel will independently lead the Q&A session for the first time. Investors should focus on:

⚠️ Special Reminder: Beyond the formal agenda, the interaction dynamic between Buffett and Abel during Q&A (full delegation vs. behind-the-scenes coaching) will be the most visceral signal of "succession quality."

IV. Investment Implications: Survival Rules for the Institutional Era

Berkshire has transcended ordinary stock status—its scale and influence rival sovereign wealth funds. In 2026, a year of AI disruption and geopolitical conflict, "patience, cash, and cultural stability" are being tested as the ultimate secrets to crossing cycles.

Discussion Question: As Berkshire hoards Treasuries like a "cash monster" and temporarily trails the market, will you follow its lead and stay on the sidelines, or continue chasing the AI rally? The Omaha gathering on May 2 may provide the final answer.

💡 Retail Investor Cheat Sheet:

• Institutional Fortress 🏰: No longer reliant on individual heroics, but on robust systems to generate returns

• Hard Landing 🛬: A sudden economic crash—the exact "hunting season" for Berkshire's cash reserves

• Key-Person Risk Premium Dissipation: As Abel proves institutional management capabilities, this valuation overhang should gradually lift