Berkshire’s Q2 Profit Halved, Stock Dropped 10% — Was Buffett Wrong?

TradingKey - After reporting a more than 50% decline in second-quarter net profit and continuing to be a net seller of stocks, Berkshire Hathaway (BRK.A), led by legendary investor Warren Buffett, fell sharply — down 3.6% intraday and closing at its worst level since February.

On Monday, August 4, shares of Berkshire Class A dropped 2.65% to $692,600, while Class B shares fell 2.90% to $459.11.

Berkshire Hathaway Stock Price, Source: TradingKey

Profit Plunge and Investor Concerns

The immediate triggers for the sell-off were:

• A 59% year-on-year drop in net income
• A 3.8% decline in operating earnings
• Continued net selling of equities
• A $3.8 billion impairment charge on its stake in Kraft Heinz (KHC) — the second major write-down since 2019

Although the KHC loss is non-cash — reflecting an adjustment of book value to market value — it has raised questions about Berkshire’s ability to generate returns from its long-held investments.

Berkshire has not repurchased any shares since May 2024 and has now recorded 11 consecutive quarters of net stock sales. Its cash pile stands at $344 billion, near an all-time high.

Buffett’s Legacy at a Crossroads

For decades, Buffett has embodied disciplined investing, patience, and unwavering confidence in American business. Now 94, he has led Berkshire for over 50 years. Later this year, Greg Abel will succeed him as CEO.

Kyle Sanders, an analyst at Edward Jones, said investors believe Abel will eventually earn trust, but near-term catalysts — such as increased investment activity, a major acquisition (like railroad operator CSX), or a resumption of buybacks — were absent in Q2, leading to disappointment.

Berkshire’s stock has fallen about 10% in Q2 and is down more than 13% from its May peak.

Is Buffett’s Strategy Outdated?

AJ Bell analysts noted that even as U.S. stocks rebound, Berkshire continues to underperform — suggesting investors are not yet convinced the company can maintain its edge without Buffett and the late Charlie Munger at the helm.

Barron’s highlighted a broader issue: markets are currently rewarding risk-taking and high-growth narratives. Companies like Palantir, driven by AI hype, have soared, while many value stocks have lagged.

Berkshire is the largest holding in the Russell 1000 Value Index — the quintessential value stock.

Neuberger Berman observed that “animal spirits” are back — investors are chasing momentum, not fundamentals.

Historical Resilience vs. Current Underperformance

Historically, Berkshire has tended to underperform during tech-driven rallies, as investors rotate into high-growth sectors. Its conservative, diversified model is often seen as defensive — a safe haven in downturns, not a leader in bull markets.

But UBS pointed out that during periods of economic slowdown or market volatility, Berkshire has often outperformed the broader market and financial peers — thanks to its diversified business portfolio, strong cash flow, and fortress balance sheet.