Berkshire Hathaway Stock Is Trailing the S&P 500 by About 10 Points This Year. History Says That Usually Doesn't Last.

Berkshire Hathaway B shares are up about 2% in 2026, trailing the S&P 500's roughly 11% gain by about 10 percentage points, but the article argues that prior large underperformance has often preceded relative outperformance. Berkshire held $365 billion in cash and Treasury bills at midyear, completed a $9.4 billion OxyChem acquisition, agreed to buy Taylor Morrison for about $6.8 billion, and repurchased $4.5 billion of shares in Q2. First-half operating earnings rose 17% to $24.3 billion, though underlying growth was about 6% excluding currency effects; the company is valued near $1.1 trillion, or roughly 23x trailing operating earnings.

Analysis

The relevant valuation question is not whether BRK.B is cheap on consolidated operating earnings, but whether Abel can redeploy excess liquidity at returns above the opportunity cost of Treasury bills and incremental repurchases. The current acquisition cadence modestly improves the narrative but is too small to materially change per-share intrinsic value near term; a sustained deployment program would matter more through 6-18 months. OxyChem adds cyclical industrial exposure while TMHC increases housing-cycle sensitivity, making Berkshire incrementally less of a pure defensive/quality substitute for the S&P 500.

The more immediate catalyst is capital-return signaling: continued buybacks imply management sees intrinsic value above the market price and mechanically concentrates ownership in the operating businesses. However, buybacks are only compelling if repurchases accelerate when BRK.B underperforms, rather than merely offsetting share issuance; quarterly repurchase disclosure is therefore the key 1-3 month watch item. A declining-rate environment is mixed: it reduces Treasury income, but can lift the value of long-duration equities held in the investment portfolio and lower financing costs across owned businesses.

Consensus is likely over-weighting the historical mean-reversion statistic. Prior relative-performance recoveries occurred under different starting valuations, equity-market concentration, and leadership regimes; BRK can continue lagging if mega-cap technology earnings remain the marginal driver of index returns. The better thesis is downside resilience plus optionality on a large dislocation, not a high-conviction prediction of immediate index outperformance.

Falsification would be a material deterioration in insurance underwriting, BNSF volume/pricing, or energy earnings that prevents normalized operating earnings from growing, combined with repurchases stopping despite a weaker share price. A sharp equity-market drawdown is also not unambiguously bullish initially: Berkshire's public-equity book would mark down before opportunistic deployment benefits become visible.

Key Decisions for Investors

• Initiate a 6-12 month long BRK.B / short SPY pair at approximately equal beta, sized modestly. Target 5-8% relative outperformance if capital returns accelerate or market breadth narrows; exit if BRK.B underperforms SPY by another 8 percentage points without a corresponding improvement in repurchase pace or normalized operating earnings.
• For long-only defensive exposure, accumulate BRK.B on broad-market weakness rather than chase a historical-rebound narrative. The intended payoff is lower drawdown and eventual deployment optionality over 6-18 months; avoid treating the position as a near-term AI-beta hedge.
• Monitor the next 10-Q for buybacks, cash deployment, underwriting results, and the split between operating improvement and FX/debt-related gains. If normalized operating earnings growth falls below low-single-digits while repurchases remain muted, downgrade the relative-value thesis rather than relying on historical seasonality.
• Avoid a directional TMHC purchase solely on Berkshire ownership. Any valuation uplift from a strategic owner is likely already reflected, while homebuilder earnings remain highly exposed to mortgage-rate direction, land inflation, and housing affordability; revisit only after deal terms and Berkshire's intended ownership structure are independently confirmed.