Greg Abel Is Buying Warren Buffett's Favorite Stock -- but He's Unlikely to End the 13-Quarter Net Selling Streak of Berkshire's Former Boss

Dec. 31: Warren Buffett retired as CEO of Berkshire Hathaway and Greg Abel succeeded him. Buffett repurchased roughly $78B of Berkshire stock from July 2018–June 2024; after a 21-month hiatus buybacks resumed as shares traded at ~44% premium to book, but the company had been a net seller for 13 quarters (~$187B cumulative), Abel holds $373.3B in cash/cash equivalents/Treasuries, and broad-market valuations are extreme (Shiller P/E ~39–41 vs 155‑yr avg 17.35; market cap/GDP ~222%).

Analysis

Berkshire’s near-term story is not binary buyback vs. deployment — it’s optionality management. A large, patient cash war chest plus disciplined repurchases means management can act as a price-insensitive marginal buyer for specific deal sizes (bolt-ons, private equity-style take-privates) while using buybacks to smooth EPS when public valuations temporarily underprice intrinsic assets. That asymmetric optionality compresses the investible float and raises idiosyncratic convexity: modest allocations to BRK can act like voluntary illiquidity exposure with a management “stop-loss” against prolonged overvaluation.

The market backdrop elevates systemic tail risk and short-term dispersion. With headline indices richly priced, the most likely near-term catalyst for re-rating is either macro shock (rates/credit) or a cluster of corporate earnings misses that force mark-to-market resets; conversely, an unobstructed earnings upside cycle or regulatory relief for key tech winners would entrench the current premium equilibrium. Volatility will be the transmission mechanism — sudden index moves will expose who is truly running the book (active M&A vs. passive cash preservation).

Second-order winners: private sellers and mid-cap take-private targets, advisory boutiques, and corporate treasuries that can redeploy into buybacks in the interim; losers include momentum ETFs and highly levered equity strategies that rely on continued market liquidity. For implementation, prefer strategies that monetize convexity (pair trades and defined-cost hedges) rather than outright directional exposure, and bias towards 6–18 month horizons where corporate optionality and buyback cadence matter most.

Key Decisions for Investors

• Long BRKB (or BRKA for size-constrained accounts) with defined downside protection — buy 6–12 month ITM-to-ATM put protection equating to ~3–5% portfolio allocation. Rationale: capture asymmetric upside from management optionality while limiting tail loss if a macro drawdown occurs; target 12–24 month total return 15–30% vs S&P underperformance, cost of protection ~1–3% of notional.
• Pair trade: long NVDA / short INTC, 6–18 month horizon. Size to conviction (e.g., 2:1 notional NVDA:INTC) to express secular AI capture vs legacy foundry/CPU exposure; expected payoff is >2x if NVDA sustains share gains while INTC lags, max loss limited to premium paid on options or outright share movements if equity legs are used.
• Tail hedge the portfolio with a 6–12 month S&P put-spread (buy 20% OTM put / sell 35% OTM put) sized to cost ~1–2% of portfolio. This provides defined, asymmetric protection against a >20% index drawdown while keeping hedge financing manageable; unwind if realized volatility collapses or market breadth normalizes.
• Tactical liquidity trade: increase allocation to short-duration Treasuries / cash-like instruments and selectively sell or trim passive large-cap growth exposure. Use proceeds to fund the BRK long and NVDA pair; this reduces forced-selling risk and preserves optionality to deploy into meaningful dislocations within 3–9 months.