Berkshire Hathaway is a ticking time bomb.

Last weekend, Warren Buffett announced he would resign as CEO of his beloved Berkshire Hathaway (BKR).

After a remarkable 60-year tenure, Buffett handed over the reins to his protégé, Canadian businessman Greg Abel.

I am a huge fan of Buffett. (We’ll discuss Greg Abel in just a minute.)

As I began to reflect on BKR without the legendary investor at the helm, I came to a surprising conclusion: Holders of Berkshire Hathaway stock should be selling right now.

You might find it near impossible to fathom one of the greatest American success stories spiralling to new lows. I get it.

However, the company's success was his success. Taking Buffett out of the equation changes the entire risk profile of owning BKR shares.

Millions of retirees with billions of dollars’ worth of Berkshire stock could ruin their retirement if they continue to own shares in the next few years.

Unfortunately, most investors are oblivious to the potential perils that lie ahead. And when they finally realize what’s coming, it’ll likely be too late.

Let me explain…

What Buffett Leaves Behind

Like most folks, I heard the news on Saturday that Buffett would be stepping down as CEO. I wasn’t watching the broadcast, but it didn’t matter. My social media and chat accounts blew up once it was announced.

Like most, I wasn’t surprised, given he’s 94. Instead, my initial thoughts jumped to Buffett’s incredible legacy.

It wasn’t until an email from my former colleague, Porter Stansberry, hit my inbox that these first impressions evolved into something far more meaningful for investors.

I’m sure most of our readers are familiar with Porter. He’s arguably the “Warren Buffett” of the investment newsletter business.

After founding my alma mater, Stansberry Research, he has published research at his company, Porter & Co, over the last few years. His insights and analysis are top-notch. I always open his emails.

His note on Monday touched on a topic he had discussed previously – the track record of Berkshire across different types of investments. You can read that note here.

Porter’s analysis shows that the public stock investments at Berkshire – implemented by Buffett, the venerable Charlie Munger, and Berkshire investment manager Ted Wechsler – have driven most of the superior returns over the past several decades.

Much like the overall stock market, a few key positions have driven the outperformance. Buffett himself acknowledges the impact that owning shares of Apple, Inc. (AAPL) has had on the legacy of Berkshire.

Porter contrasts this to the returns that Berkshire has seen from its considerable investments in acquiring private businesses over this same time. These acquisitions include companies like BNSF Railway, H.J. Heinz, Dominion Energy, and several others. Since the Global Financial Crisis, they’ve invested over $100 billion in these acquisitions.

He calculates that additional investments in these businesses bring the total to more than $200 billion, or about one-third of Berkshire’s equity.

His analysis shows that none of these major investments has outperformed the stock market. In fact, they have vastly underperformed from a return perspective and used a huge amount of capital. This includes over $25 billion of write-offs.

According to Porter, even worse is the over $100 billion of capital they have invested in Berkshire Hathaway Energy. Quietly, they have built the largest electric power company in the United States. Over two decades, they have not generated any dividends from this business and (according to a sale in 2022) may be looking at a $20 billion loss. But the loss could be double that amount.

The architect of this business?

Greg Abel.

The Real Risk

According to the media commentary, there has been talk that Berkshire is likely to become more active in making these private investments under his direction.

Considering their current cash holdings of almost $350 billion, that is a lot of dry powder.

Maybe going forward, Abel will do a better job than he has done over the last two decades. Given that length of time, though, I am not optimistic.

As a result, I am skeptical about Berkshire's ability even to come close to matching its historical returns. This is a real problem for the stock.

The book value of Berkshire right now is roughly $455k per share. This compares to the share price of the “A” shares of $776k per share or a +70% premium.

This should be considered the “Buffett” premium justified by his track record.

What happens, though, when he is no longer in charge (or not involved at all) and an executive with a far inferior track record runs the business? An executive who is also far less dynamic than Buffett or the wit of Charlie Munger?

Do you think thousands of investors will trek to Omaha to see Abel and a bunch of other suits drone on about utility businesses with terrible returns?

This is where the REAL risk exists for Berkshire shareholders.

Take the Profits and Run

Millions of investors – many retirees – hold billions of dollars of Berkshire stock in their accounts.

I hope Buffett lives another few decades, but the odds are against it. Once he is no longer involved, you can kiss BKR’s exorbitant premium goodbye.

Relentless selling will likely hit the shares. It’s how the stock market operates.

My concern is that many shareholders are unaware of this risk, and it could jeopardize their retirement.

Instead of ruminating on Buffett’s legacy and legendary trades, the most prudent way to celebrate his tenure as CEO is to take the profits and run for the exit.