Berkshire Hathaway (BRK.B) Lagging S&P 500 in Buffett's Final CEO Year - Analysis

This analysis is based on a Reddit discussion [5] about Berkshire Hathaway (BRK.B) lagging the S&P 500 in 2025, combined with Q3 2025 earnings data and market trends.

BRK.B’s performance trajectory shifted significantly after Warren Buffett’s May CEO resignation announcement: it had outperformed the S&P 500 by over 22pp earlier in 2025, then slid ~11% post-announcement by August [1], rebounding ~10% to ~$504 (11.26% YTD as of Dec 5, 2025) [3]. In contrast, the S&P 500 (VOO) gained ~15.62% YTD, driven disproportionately by the Magnificent Seven (Mag7) AI stocks, which are expected to grow Q3 2025 earnings by 14.9% vs 6.7% for the S&P 493 [2]. BRK.B’s YTD return aligns closely with the XMAG ETF (S&P 493 proxy), which returned 13.54% YTD [4].

Q3 2025 earnings revealed strong operating performance (up 34% YoY) [8], with insurance float at $176B and cash reserves ~$381.7B [8]. BRK’s conservative value investing strategy limits exposure to momentum stocks like the Mag7 [5], consistent with historical patterns of underperforming in bull markets and outperforming in bear markets [6]. Leadership transition to Greg Abel is underway, with Abel focusing on the $9.7B OxyChem acquisition [8]. BRK has suspended share repurchases due to an elevated P/B ratio (~1.5–1.64x Q3 2025) [8].

1. Mag7 Concentration Distorts BRK-S&P 500 Comparison
   : The S&P 500’s YTD outperformance is dominated by seven AI stocks, making BRK’s performance relative to the S&P 493 a more meaningful benchmark.
2. Fundamental Strength Remains
   : Q3 operating earnings growth of 34% YoY and ~$381.7B in cash reserves provide a strong foundation, with historical bear market outperformance suggesting resilience in market downturns.
3. Leadership Transition Uncertainty
   : Greg Abel’s capital allocation strategy (e.g., OxyChem acquisition) may deviate from Buffett’s, introducing a variable for long-term performance.

• Leadership Uncertainty: Abel’s ability to maintain Buffett’s capital allocation discipline.
• Mag7 Dependency: The S&P 500’s concentration risk if Mag7 valuations correct (Michael Burry warns of an AI bubble [4]).
• Interest Rate Sensitivity: BRK’s large cash position may face pressure if rates decline further.
• Energy Segment Challenges: BHE’s wildfire accruals and declining earnings [8].

• Potential Mag7 Correction: BRK’s value orientation may position it to outperform if the Mag7 experiences a pullback.
• Share Repurchase Restart: If BRK’s P/B ratio declines, repurchases may resume, supporting stock value.
• Bear Market Outperformance: Historical trends suggest BRK may outperform in market downturns.

BRK.B is lagging the S&P 500 YTD in 2025 due to Mag7-driven index gains, but its performance is comparable to the S&P 493. Fundamental strengths include strong Q3 earnings growth and significant cash reserves. Leadership transition and market concentration risks are key factors to monitor, alongside potential opportunities from Mag7 correction and share repurchases.