Though not an official term, the "Buffett premium" theory is an idea that Buffett's name or presence adds value to Berkshire Hathaway’s stock price. The term “Buffett premium” refers to an increased price investors are willing to pay for stocks because of Warren Buffett's name and reputation being attached to the company. If this premium does exist, it is impossible to pin a specific value on it.

Some believe a Buffett premium may have existed 20 years ago but that it no longer has any discernible impact. The theory is that Buffett's investing skill and charisma were more important before Berkshire Hathaway became just as established a name on Wall Street as Buffett himself.

Some analysts do not subscribe to a Buffett premium theory. According to them, Buffett’s presence at Berkshire Hathaway lends credence to its investment choices but only in much the same manner as the presence of any key player. These analysts believe in Berkshire Hathaway as an investment entity in and of itself, with its decades-long track record of success to support its rightful place in Wall Street lore.

For those who believe in a Buffett premium and are invested heavily in Berkshire Hathaway, possible repercussions of Buffett’s death or retirement are an important consideration for their financial future. If Buffett were to die suddenly, it is certainly possible the price of Berkshire Hathaway might suffer at least a temporary sharp drop.

The "Oracle of Omaha" may retain a supporting effect on stock price even from the grave. Any stock buys or acquisitions Buffett was planning on making just prior to his death may take on a magical quality all their own, in the end becoming successful in part because that is what Buffett expected them to do.

Finally, there are analysts who believe Berkshire will actually benefit from Buffett's departure, suggesting that for all his skill as an investor, Buffett has flaws and blind spots like anyone else, and Berkshire Hathaway will benefit from fresh investment perspectives that arise following his death or retirement.

  1. What is Warren Buffett's annual salary at Berkshire Hathaway?

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  2. Why doesn't Berkshire Hathaway pay a dividend?

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  3. Does the massive size of Berkshire Hathaway reduce its future returns?

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  4. Why does Warren Buffett largely avoid investing in the technology sector?

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  5. What's the largest charitable donation Warren Buffett ever made?

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  6. What is Warren Buffett's relation to "Supercat" insurance?

    Understand the concept of catastrophe reinsurance and learn how Berkshire Hathaway makes billions providing such insurance ... Read Answer >>
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