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This is the Value Investor Podcast with Tracy Reinek, all things Value, all the time.
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Welcome back, value Investors. So I'm sure you clicked on this podcast due to the title. As we're going to talk about the end of the cult of Berkshire Hathaway. We've talked about Berkshire Hathaway and Warren Buffett so many times on this podcast, as we should, as as he's the greatest living value investor and basically the greatest value investor ever and maybe basically the all time best investor ever. But that is now coming to an end. And we've been wondering what is going to happen at Berkshire Hathaway now that he's moved off the stage as CEO. He is still a director, he's still on the board, and he was still at the annual meeting. But it's clear that Greg Abel is now in charge and there's been other changes as well, as one of the lieutenants has now left, Todd Combs, and that leads just Ted Weschler behind. And it's kind of unclear what his role is still at Berkshire Hathaway. So there's still a lot of uncertainty. But the recent 13F filings for Berkshire Hathaway that showed the changes in the portfolio basically put a exclamation point, I guess we could say, on the era of Warren Buffett. And it's clear someone else is now in charge. And for the rest of us value investors, it was kind of a shock to see what they were buying and selling in the first quarter. Some of those names were sold off the, the sales because Todd had left at the end of 2025. He left in 2025. So they were clearing out his trades, so to speak. But I have something to say about why they did that as well and how that upset a lot of value investors as well. So without further ado, let's talk about why this is the end of the cult of Berkshire Hathaway. Obviously, without Buffett, there really kind of is no cult. And Greg Abel is a great operator. He's been in charge of the various companies behind the scenes. And Buffett has a lot of faith in him that he can run Berkshire Hathaway as a conglomerate, but they're also asking him to run the equity portfolio. And so when we look back at why people were buying Berkshire, Berkshire Hathaway, why they loved it, why there was a cult, and it was because of the talents of Warren Buffett. Now nobody believes that you can replace Warren Buffett with another Warren Buffett. Right. It took him over 60 years to gain the trust of investors. And some years he lost that trust, including at the late 1990s when the DOT com boom was going on. They turned against Buffett because he didn't own Microsoft or Cisco, and he was mostly on the sidelines. Of course, he had his revenge against all of the growth investors in the next decade, as he was able to get a lot of bargains that were out there. He had cash on hand when the financial crisis hit, and we all know the story behind that. And then he still had cash on hand and was able to enter to Apple in about 10 years ago, in 2016. And that stock pick became one of his biggest legacies. But this all played out over a long period of time. And for those of us looking in from the outside, we just don't have that kind of connection or trust or belief in Greg Abel like we did in Buffett. But again, Buffett had to gain that trust over many decades, and Abel is new and not with the trust right now. So that's why some of the changes he made in the equity portfolio became a bit of a shock to those of us who were, you know, the followers of the Buffett mantras. The things like, you know, when is the best time to sell? It's never when you should be buying at the lowest possible valuations as long as you're still getting that earnings growth. His desire to not own any airline stocks after he got burned a couple decades ago when he bought U.S. air, and then he vowed never to buy another one. Now, Berkshire Hathaway has owned other airline stocks over the years, and they owned three or four of them, actually, at the start of the pandemic. But those were from the lieutenants who owned those, and they were cheap at the time, and Buffett made them sell them as the pandemic hit because he simply didn't want to own a business that was shut down for all intents and purposes and going to lose quite a bit of money. So they sold for a loss. They didn't get back in while he was in there, but now they are back in. So with him removed out of the, out of the equation, there are going to be different choices made. But that doesn't mean everybody else is going to like it. So the end of the cult of Berkshire Hathaway has been the result of we're not really going to care what's happening with those 13 Fs anymore. Sure, we're going to check in, because Berkshire Hathaway is one of the largest companies in the world and it has a massive equity portfolio And a ton of cash sitting there. So we are still going to check in for those reasons. But checking in to perhaps buy whatever has been added to the portfolio is probably not going to happen going forward. And I know many of you have been mirroring Buffett's moves in his portfolio for maybe the last 20, 20 to 30 years. In fact, some of you have been. And so instead of just buying Berkshire Hathaway outright, you picked and choose like, oh, he's buying Taiwan semi. I'm gonna go buy that now. Oh, he is in bank of America and he's still in that position. So I'm gonna be in it. Oh, he's in MasterCard and Visa. He is not added to those positions, but he's been holding for many, many years. They're outstanding companies. I'm going to buy those. So that era of following along with what Berkshire Hathaway does is kind of gone now, unless you want to follow along what Greg Abel is doing. But I do believe it's going to take him a long time to gain that trust. And by long I mean 10 years. Pl. And we've seen some of that when other famous money managers have retired. The one I can really think of is Peter lynch, who ran the Magellan Fund at Fidelity. He started working there as its manager in May 1977. So even before the big bull market began in stocks in 1981 into 82, so he was already running it. And he stayed on as manager until May 1990. He actually got out pretty early. He's still with us. And that is 36 years ago is when he retired. But he did go out in a blaze of glory during the bull market before stocks slowed in that recession that came right after that. But he returned 29.2% annualized in the Magellan Fund. That's why he's considered a legend. And after that, they did have very able people take over the fund, which was massive at the time, but they could never really return the kind of returns he did. Also because he started with very little assets under management in 1977, I think it was like less than $20 million in there. And he grew it to, you know, over 10 billion by the time he rolled it over. And that was huge for back in the 1990s. So he also suffered from large cap syndrome by the end, or his successors did just too much money coming in, making it difficult to get those kind of hidden gems, small cap companies with which lynch was famous for. So he bought a lot of retailers when they were very small, before they Grew. And that was big gainers for stocks like Home Depot or back in the day, the Limited. He bought one of the hair cutting companies too, I forget which one that was because he went and got a haircut there and he's like, wow, what a bargain, because it was only like $10. But all of these were much smaller companies at that time. And then he grew Magellan along with those companies. His successors, you know, were at the time when the dot com boom was beginning, but they were having a lot more money to invest. So it's a lot harder for them at that point. And the same will be true of Berkshire Hathaway. For years I've talked about how Buffett himself has been limited to large cap stocks in the equity portfolio. For the most part, the lieutenants had less money and they were buying some smaller caps like RH, the furniture retailer, when they bought some shares into that. And they owned a couple of other smaller caps out there, some smaller cap home builders and things. But for the most part, once you have billions of dollars in cash and your equity portfolio is a couple hundred billion dollars, you won't move the needle unless you're buying large positions in these larger cap companies. And really, unless they bought a company outright, the only place they can get, you know, deploy 10 billion or $20 billion into a stock is in these larger cap companies because otherwise they're just buying the company at that point. So we have all of these issues going on at Berkshire Hathaway and which we did see at Magellan. Magellan underperformed after Peter lynch left or just performed at the market and none of those managers became legends like Peter Lynch. Magellan is still with us, by the way. It still exists and it's still out there at Fidelity. So I'm not calling for the end of Berkshire Hathaway by any means. Just the end of the cult of it that we tune in every quarter to find out what they own and we go to or listen in on the annual meeting. I think once Buffett is no longer longer with us, they will wind down having those very public annual meetings. That's just my guess because just the desire to go is going to diminish over the years. So let's talk a little bit about what happened in this quarter and why people are so upset and why it really is the end of the call to Berkshire Hathaway. So they did get rid of Todd Combs, his positions. And two of those are some of my favorite positions in the portfolio. Mastercard Ticker Ma and Visa Ticker V It was Todd Combs who bought Visa initially when he first started at Berkshire Hathaway. So that was 2011. And then they added MasterCard, I believe in 2012. But the visa position, which was never very big in the portfolio, they never sold any of it, but they never added to it either. And that's a shame because the Visa position is up, was up over 1700% from January, the beginning of January 2011 to May 2026. And that was easily beating the S&P 500, which was up a little over 400% in that time period. So neither return was terrible by any means, but Visa has just really crushed it. The same thing with MasterCard, which again they added just a year later. Both of these stocks just, you know, just huge earnings and revenue generating machines and just great positions for anyone who's owned that entire time. Now, neither stock is cheap. Both stocks have been stretched over the years. During the pandemic, both were trading at newer highs on the valuations, like with forward PEs in the 40s. Those have come down a bit and now they're in the 20s. So I see MasterCard has a forward P of 25 right now, but it's still expected to grow. Earnings at 15.2% this year, another 15.6 next year. It's more of the same every year with Visa and MasterCard. Every time everybody thinks, oh, something else is going to trip them up, you know, the PayPal or Google Pay or Apple Pay or just, just about anything. There's been fears about, you know, credit cards and their fees for years and years. But here we are in 2026 and they're still crushing it. Now everything else is very expensive with these stocks. Price to sales is at 13 times now. Price to book is at. None of that is cheap. But nothing in the business says if you've been a long term shareholder, even a value shareholder, nothing says you must sell this right now. So for Visa, it's similar. Forward PE of 25 as well. 2026 earnings up 14.1. So a little slower. The MasterCard in 2027 up 13.1. Price of sales around the same 13. Price to book is lower on this one at 16 times. So Visa is a little more attractive on the price to book side. But Visa has the perfect track record since its IPO on earnings surprises, no earnings misses since its IPO in 2008. It's the only company in the S&P 500 with this kind of record. Even MasterCard has missed at least once since its IPO but it too has an amazing track record. So, again, there's nothing really in this story to tell you like you must sell now, other than they decided to sell all of Todd's positions, so they're cashing in these gains. They are a small position overall in the Berkshire Hathaway portfolio. And that's a real shame. I've always said, you know, they've only had a billion or 2 billion in each of these. And comparatively to bank of America or even American Express or obviously Apple, it was a drop in the bucket. And even though it got these 1700% returns, it was such a small position, it didn't really move the needle overall in the portfolio. So, you know, I get it. I get why they're selling it. I. I get why they never added more to it. Even though Buffett had said over the years that Visa is the type of company he likes to buy with that cash flow generation, the steady earnings, the moat that they have, or at least had, but they still seem to have it, obviously, given these numbers. And then American Express already in the portfolio. So maybe that's why Buffett as well was like, you know, no reason to add more cash. And the stocks did get more expensive, so they weren't exactly values either. But it's a disappointment to see both of those move out of the portfolio. They still do own American Express in the portfolio. Nothing has gone on with that. It has similar earnings growth trajectory, 14.4% expected for this year, 14.3 for next year. And it is cheaper on a PE basis at 17.6 times. It's off of its highs a little bit here, so that's helped. It's also much cheaper on a price sales basis at 2.9. Price to book is at 6.2. So all of this is cheaper. So if you're looking for a credit card, you know, a big brand, then American Express is the cheaper one that value investors should be eyeing here. Not Visa or MasterCard, but still disappointing to see both of those rotate out. And then it's disappointing what rotated in. Right. So I've already given. Gave it away. They did buy another airline, Delta, which is considered to be the premier airline, with United actually coming up pretty quickly right behind it now. Yes, I know many of you are not United fans, but they've really changed a lot with the business of United now. And so it's not just Delta kind of in a class of its own on the business side. So Delta expected to see earnings decline 9.6% this year, but really rebound 43.4% next year. And the decline this year is because those jet fuel prices are skyrocketing. So that's a huge cost. It's going to eat into earnings. And we are seeing that now Forward p is at 12.8. PEG ratio is just about 1. So it's pretty cheap. The airlines have always been cheap. Price to sales is 0.7. But you're never really in a moat, really. You never know what is going to be thrown at you in your business. Nobody could have guessed that the Strait of Hormuz would be closed for months and jet fuel prices would go to $200. Nobody could have guessed that you'd have a pandemic and that air travel would basically be shut as borders were closed. And then even when it reopened, it was very tentative and businesses weighed down. Nobody would have guessed 9, 11, which also shut the airlines for a considerable amount of time. So that we could go on and on about what nobody would have guessed with the airlines. It's just a very difficult business. And there's a reason that the stocks are always cheap. I'm not saying these are bad companies whatsoever, but Buffett did kind of learn his lesson from back in the day and while the lieutenants didn't really learn their lesson and and had bought them and now we're back to buying them again. And maybe this is. Maybe this is Ted. Maybe this is Ted who bought Delta again because now he's free to do so and get back in it. But still, out of all the value stocks, I like the bank trade much better than what is going on with the airlines. But I even like the energy trade much better. And they actually sold some of their Chevron investment in the last quarter, which they might have sold it before the Iran war for all we know. But still, you know, those stocks are cheap. And oil, even without the Iran war was expected to rebound into 2027. So earnings were going to be going up for Chevron as well. So that's another one. People didn't really like the sale of Chevron, I feel, but they do own the big position in Occidental. So it's not like they don't have exposure, but they've got plenty of cash sitting around. I'm not sure really understanding selling Chevron at this point after the last couple of years of sticking in it. Okay. And another one that they've added that really got the ire of many was Macy's ticker M for Macy's. It is his acts number four right now. But they bought it in the first quarter. Remember, I have nothing against the retailers, but the retailers are a lot like the airlines. Very difficult to know who's on the trends, who has the brand recognition, what outside events could crush down on the retailers. There's always going to be a recession. It's inevitable. That hurts the retailers because the consumer pulls back. You can get the retailers very cheap. You can make some money if you're timing it correctly. But it's very difficult to buy an older retailer like a Macy's that has already grown out its footprint. So Peter lynch, who I mentioned earlier, liked to buy the small retailers when they were first branching out. Back then it was before the Internet and selling online. So the only way to grow was to build more stores. But you could be a regional store like Home Depot, which started in Atlanta and the Southeast, and it would take several decades to actually build stores all over the country and reach your maximum market in just the US all across the country. So that's why he liked the retailers, because that growth story could be there for a decade or more with someone like a Home Depot. We can still see that in some retailers today. Like if you had bought Lululemon 10 or 15 years ago, or say you bought Lululemon during the Pand or not the pandemic, the Great Recession, it had only a few stores. And even if it is selling online, the stores are still fundamental drivers and that market growth is still there. So you should still could see big growth in a company like Lululemon. But here we are now, you know, 18 years past the great financial crisis, and it has mostly built out a lot of its stores in the U.S. obviously it's headquartered in Canada, but even in foreign countries like Mexico, it's still opening in China because that's just a massive market. But it' know, in, in Southeast Asia, in Europe, still some growth capacity in some other markets, but we are starting to see the growth trajectory really slow now. And Macy's again, it's already a mature retailer and its problem is nobody wants to go to the big department stores anymore. We've talked about Macy's off and on throughout all of the years. I've done this podcast because it always has been cheap. It's. It has been a value stock. It's shown up in many of my screens. So forward PE right now is at 9. But the earnings picture has just been terrible for the last number of years. So 2024, they had earnings decline of 21.9, 2025, 24.6 decline 2026, 12.2027, that's the fiscal year we're in right now, 9.1 decline. And then maybe the year after that it's supposed to gain 6.2. But this is just not where I want to be. I don't want to continue to see those earnings decline, decline, decline. And I know many people are like, but it's real estate. Yes, it owns many of its stores. They're sitting on very valuable real estate. But years ago, even before the pandemic, it started cashing in on a lot of that. And that really did help get rid of some of their debt and the bottom line. And it helped consolidate the stores so that they were operating, you know, in places they should be operating. They even added office space to say, the Macy's, the massive Macy's in downtown Chicago. So they were able to capitalize on it with still operating the store underneath several floors of now leased office space there. But that's not enough reason for me to buy a Macy's. And so I don't really understand this buy unless it's very short term. But you know, Buffett wasn't a short term buyer, even though towards the end of his career he did do some short term trades like Taiwan Semi, where he bought one quarter and sold it the next. But mostly he's owned American Express for many, many years in Coca Cola, and we do expect him to own at least a year, but he's not there. So what are we going to see from Ted and Greg Abel? We don't know. We do know the lieutenants sold more often. I've talked about it many times on this podcast. That was already a change from old Buffett to, you know, having these other managers buy one quarter and sell the next. It's just really not what value investors do. So this is also why we don't like the Macy's trade, because I have a feeling they might be out of it pretty quickly. Earnings are coming in June 3rd again for Macy's, so we'll see what they say. But it's been a value track gap for many years. I still consider it, even though next fiscal year we are seeing some earnings growth apparently. But there's a lot at at stake, including these higher gasoline prices, including a recession, you know, going into next year perhaps. Who knows? Nobody knows. But that's why we don't like the retailers. So if I had the universe to choose from and I'm sitting on cash at Berkshire Hathaway, this is not the one I would have chosen. So it's a disappointment. Macy's ticker M. And then they added the stock that I told them they should have been buying in March 2024. I did a whole podcast on it about why Berkshire Hathaway, or maybe I just even said why Buffett should buy Alphabet ticker G O O G L. And that was now over two years ago. Now again they, they did buy into Alphabet in the fourth quarter of 2025, a smaller position, but now they've really added to it in the first quarter. And so now it's the sixth largest position in the Berkshire Hathaway portfolio. But this tracks into the stocks they can buy. They do need to buy these mega cap stocks because they have so much cash sitting there and the portfolio is so big. They really need some of these big positions to move the needle in the overall portfolio and to get rid of some of their cash. So they went in bigger on Alphabet. Now I, I own Alphabet, my own portfolio. Again I have told told them, I tried to tell them to buy it two years ago, but the shares have really rallied since I was a big proponent of it. They're still trading with the forward PE of 27, which is not that bad for one of these Mag 7 companies and certainly not one that's creating their kind of cash flows and growth on both revenue and earnings side. So this year earnings expected to be up another 32% after gaining 34.5 last year on revenues back above 20% at 23.1%. They were 16.2 last year. Because it's just really hard for a nearly 5 trillion dollar company to be growing. Revenue above 20%, even above 10% is very difficult. So they are expected to be back above that 20% level for this year and next year. We have an estimate of 21% for 27, but earnings growth of just 3.1 right now for next year. So we'll see as we go along what happens with these estimates because they are dramatically higher just in the last 30 days after that last earnings report. But on valuations outside of of the PE at 27, it used to have a PEG ratio under one, which is also why I really liked it. But the stock is hitting new all time highs. So the peg is now 1.7. It's not super extended yet, but it's not as cheap as it used to be. They got in in the first quarter when it was a little bit cheaper. So. Okay, but it still has not been that cheap. Price to sales is at 11 times and when I talked about it in 2024 it was at five or six, if I'm remembering correctly, it definitely was under 10. And so it had. It was much more attractive two years ago. So they're getting in late. And that is also why people don't like this. Would Warren Buffett have been buying in a bigger position this late in the cycle in an Alphabet? We don't know because he's not in charge. But we just don't like as value investors that they're getting in at this price. Maybe. You know, obviously there's a new kind of strategy going on and Alphabet is one of the cheaper of the MAG7 stocks, although Nvidia has a lower PEG ratio than Alphabet does right here. But it is still one of the more attractive of these big mega caps. And everybody should have some exposure to AI and to what's going on in that realm. And Berkshire Hathaway really does not until now with Alphabet. Now it did own a small position in Amazon that was one of the lieutenants that might have been taught as well because they have sold that position, but it was very small and they've been slowly selling it. A couple quarters ago they also sold some of it. So now that has been removed. So now Alphabet the only like pure play exposure to the AI revolution. And that's also kind of a disappointment as well. But some of the AI revolution old economy stocks on the infrastructure side, say like an Eaton or a Caterpillar or those types of companies have gotten away from pure value investors. Now they are much more expensive than just a few years ago. And Buffett didn't see any need to get into Eaton, obviously because he didn't go in there a couple of years ago. So it'll be interesting to see if they add any more of these kind of old economy AI revolution stocks that are usually in the value investor playbook but have gotten more expensive now. So those are the main trades that have upset people. And what we're getting used to by watching Berkshire Hathaway, it change was inevitable. We have a new manager. One of the other managers has also left with Todd leaving. So now we have Ted. We don't know what his full role is. We do have a track record with Ted to some extent, but since they never really made public which were the lieutenant trades and which were not, we don't really know for sure which trades were Ted's. So there isn't as much trust there either. But Ted has managed to grow his own Roth IRA from, what was it, $70,000 in 1990 up to over $260 million as of 2018, I believe was when we had the last and the only total of that Roth ira. And he said he did it by buying publicly traded companies. So no like, like private equity type of buys in there. So something good was going on to grow a portfolio in that magnitude. And that is why he was hired by Warren Buffett all those years ago to work for Berkshire Hathaway. But I kind of believe that. I wish he was in charge of the entire equity portfolio. We don't know what's going on, but there's not a lot of transparency there. So we don't really know. So it is the end of the cult of Berkshire Hathaway. I don't know what I'm going to talk about on these podcasts going forward. Maybe I'll just talk about, you know, the, the not so great additions to the Berkshire Hathaway portfolio. But we'll keep an eye on it of course because it really is one of the last remaining of the value investor portfolios with a prominent value investor at the helm. There's a few others so we're gonna have to check in with some of those as we move forward here. But it's still a growth pickers market. There's not a lot of great value names out there, but there's some and there's some in these hated areas as we know in the banks, in energy, yes it's still hated even with oil being higher. And then there are some in the retail area but that is a tricky buy as we've seen. And also in transportation there is some value to be found in not just the airlines but also in trucking logistics in general that's been in a recession for several years. Home builders also value but in a value trap right now on the home builder side and anything home related so appliances, paint, all of this, those are heading or in the value camp now including the home furniture retailers, things like Home Depot. But I'm keeping an eye on it because they are cyclical. If I can get them cheap enough I would be interested in something like a Home Depot because it does have the brand even though it's built out quite a bit now globally. If I can get it cheap I will. Home Depot forward PE right now is at 20. It's only supposed to grow earnings 2.2% this year though price to sales is at 1.8, PEG ratio 3.5 with the price to book of 21. So none of this is cheap enough for me yet. So the stock is, has plunged down. It is around the five year lows but that was coming off of the pandemic highs. And so people really haven't thrown in the towel yet on Home Depot. So I'm keeping an eye on it. But these are the kind of stocks maybe we'll see in Berkshire Hathaway. Maybe they'll go into something like a Home Depot on a deep value play or maybe even something like a whirlpool. Also at multi, multi year lows here. But it's a value trap right now. Those earnings not really recovering. It's The Zach's number five, the earnings expected to be down 59% this year after falling 49 last year. They did have to cut the dividend. Did they get rid of it completely? I'm not sure, but they definitely did a dividend suspension cut. Something's going on there with the dividend, so don't buy it for the dividend. But this is something that to keep an eye on as well for value investors. And we'll see if maybe Berkshire Hathaway might be interested in a brand like this struggling this bad because it's not going to stay down for forever, right? We are still going to buy appliances at some point. So whirlpool ticker WH R it is number five and you know, still decline expected there. So keep it on your list. So let's recap the stock tickers we talked about again. There's a lot going on. There was MasterCard ticker MA, Visa ticker V as in Visa Chevron ticker C V as in Visa X cvx. We talked about Delta Airlines D A, L ticker there. Macy's is just M. A lot of single, single digit tickers tells you how old they are. And at least with Macy's, hard to get that single ticker. Google or Alphabet now G O, O G L And then we tacked on Home Depot at the end ticker HD Whirlpool WHR at the end there. And as always, I'll be covering everything going on in the value universe. This is kind of a downer of a podcast, right? The end of the cult of Berkshire Hathaway. It had to end at some point and it's happening now. But we will soldier on in the value investor way. And I hope you join us every week, get us on Apple, get us on YouTube on our own podcast channel. Go to. You go to Zach's podcast on the channel or go to. You can find us on our own channel. Go to zoom Zachs.com and click on the podcast link up at the top. You'll find the Value Investor Podcast there and you can listen in on all the older episodes as well. But be sure to find us somewhere and I'll see you again next week with some more Value Stocks this material
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is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this podcast without seeking the services of competent and professional legal, tax or accounting counsel. Publication and distribution of this podcast is not intended to create, and the information contained herein does not constitute an attorney client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities company sectors or markets identified and described were or will be profitable. All information is current as of the date herein and is subject to change without notice. Any views or opinions expressed may not reflect those of Zach's investment research as a whole.