Isabel Wang

Wed, Jun 25, 2025, 8:49 AM8 min read

For decades, investors around the world have paid extra for Warren Buffett’s capital-allocation genius when buying Berkshire Hathaway’s stock. They have routinely paid up just to ride alongside the Oracle of Omaha — a phenomenon known as the “Buffett premium.”

But that premium, a piece of Wall Street lore that is hard to accurately quantify, is looking fragile.

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Ever since the legendary investor announced in May that he plans to retire as CEO at the end of this year, Berkshire’s Class A BRK.A and Class B shares BRK.B have both fallen over 10% to trade in correction territory as of Monday afternoon, while the large-cap S&P 500 index SPX has advanced over 6% in the same period, according to Dow Jones Market Data.

Investors were no longer willing to pay a steep premium for Berkshire’s stock, with Class B shares trading at 1.5 times book value as of Monday, down from a recent peak of around 1.7 times on May 2 — the last trading day before the company’s annual shareholder meeting. It was at that meeting that Buffett told shareholders he planned to hand over the company’s reins to longtime designated successor Greg Abel.

“It’s completely natural that the premium would be reduced until the market really gets a full handle on what Berkshire Hathaway looks like in this new environment, with Greg Abel solely at the helm,” said Jim Thorne, chief market strategist at Wellington-Altus Private Wealth.

The “Buffett premium” refers to the additional amount investors are willing to pay for Berkshire’s stock because of Buffett’s reputation and investing track record. There’s no exact formula to calculate the premium, but investors usually compare Berkshire’s market value to its intrinsic value, or look at its price-to-book ratio to determine whether the stock is trading at an excess valuation that could partly be attributed to Buffett’s presence.

But many still question whether the “Buffett premium” has ever been more than a psychological buffer granted to one of the most trusted figures in the investment world.

“Buffett has had the luxury of most shareholders turning a blind eye to the numbers and not focusing on how well [Berkshire’s financial] returns have been over the past 10 to 15 years,” Greggory Warren, senior stock analyst at Morningstar, told MarketWatch in a phone interview. “I’m not sure if there’s a premium, but investors have been willing to give Buffett a lot of leeway to put up bad financial results.”