Is Berkshire Hathaway One of the Market's Most Underrated Compounders?

Warren Buffett's investment success made Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) a household name. He retired at the end of 2025, handing the CEO job off to hand-picked successor Greg Abel. And so far, Wall Street appears to be taking a show-me approach with Abel, since Berkshire Hathaway's stock is up just 2% or so in 2026, as of this writing, while the S&P 500 index (SNPINDEX: ^GSPC) has risen over 8%. Investors appear to be underestimating the compounding power of Berkshire Hathaway.

Berkshire Hathaway: So much money and so little to do with it

Berkshire Hathaway operates large insurance companies. It collects premiums up front, but pays out on claims in the future. It gets to invest the cash, known as the float, in between. Buffett made good use of the float, building a large portfolio of fully owned businesses and successfully investing in a small collection of large public companies. Abel has inherited this business. And, as of the end of the first quarter, the company's roughly $400 billion cash hoard.

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Investors appear to be worried that Abel won't live up to Buffett's track record. Time will tell, but the new CEO was trained by Buffett, and Buffett is still the board's president, so he remains available to help. Abel will do things differently, but it is unlikely that Berkshire Hathaway's approach will dramatically shift. And the big story is really all of the cash Abel has at his disposal.

While the market is trading near record levels, it provides a safety net. When the market eventually falls into a bear market, which is only a matter of time, the cash will give Abel the wherewithal to buy while others sell, just as his mentor did in the past. In the meantime, rising interest rates mean the cash is throwing off more income. This is not dead money; it serves an important purpose.

Abel is showing his discipline

So far, Abel hasn't been investing Berkshire Hathaway's cash aggressively. He made one relatively small acquisition of a business, homebuilder Taylor Morrison, that he believes will integrate well with other businesses currently in Berkshire Hathaway's portfolio. The big change in that isn't the investment approach, but the indication that Abel is likely to be more active in managing the company's portfolio of businesses.

That, in turn, speaks to a future that investors may be overlooking. Not only will Abel be able to buy when the market is on sale, but he may even enhance the internal growth prospects of Berkshire Hathaway's existing collection of businesses. The huge sum of cash on the balance sheet will make that easier, too. Compounding isn't something that takes place in a day or two; it grows over years and decades. Investors focused on technology stocks may be overlooking the long-term appeal of Berkshire Hathaway today.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.