B10 G THE GLOBE AND MAIL | SATURDAY, MAY 17, 2025 GLOBE INVESTOR | REPORT ON BUSINESS A fter Warren Buffett sur- prised markets earlier this month by announcing that he was stepping down as chief executive of Berkshire Hathaway Inc., a funny thing happened to the company’s stock price. It barely budged. Those who had predicted a stampede out of Berkshire once Mr. Buffett left the scene will have to think again. Despite the imminent retirement of one of the greatest investors of all time, Berkshire stock remains up about 13 per cent this year. Judging from the lack of mar- ket reaction, many people seem to think the company will do just fine without Mr. Buffett oversee- ing every significant decision. Perhaps that reflects confidence that he has built a top-notch team to replace him. Or perhaps it simply reflects massive inertia. If you’re worried about the lat- ter, this is a good time to ask whether Berkshire is still worth buying or owning. Full disclosure: I’m grappling with this question in my person- al portfolio. I’ve owned Berkshire shares for just over 20 years and have done well with them – in fact, I’m up about 900 per cent on my investment. My problem is that I’ve never fully bought into the adulation that surrounds Mr. Buffett. A dec- ade ago, I grew skeptical about his ability to keep pace with the broad market and sold half my initial Berkshire stake. No insult to the great man: My doubts were rooted in how big Berkshire had grown. Mr. Buffett himself warned that he was finding it dif- ficult to turn up attractive invest- ments that were large enough to meaningfully affect the compa- ny’s share price. As it turned out, his misgiv- ings and mine were misplaced. Over the past 10 years, Berkshire managed to keep up with the red-hot S&P 500 index. That is an impressive feat. However, it’s not that impres- sive. Berkshire and the S&P 500 have produced nearly identical results over the past decade – a 246-per-cent gain for Berkshire versus a 237-per-cent total return for the S&P 500 with dividends reinvested. All things considered, I did just about as well on my non-Berkshire U.S. index invest- ments as I did on my remaining Berkshire shares. So why not just shun Berk- shire and buy a plain-vanilla S&P 500 index fund instead? This is where we get into matters of faith and speculation. Being a Berkshire shareholder involves a belief that the compa- ny has discovered a better way to invest. There is some evidence for this happy conviction. A 2013 research paper by An- drea Frazzini, David Kabiller and Lasse Pedersen of AQR Capital Management probed Berkshire’s track record under Mr. Buffett. After an impressive amount of mathematical analysis, the re- searchers concluded that the company’s secret sauce consists largely of leveraging safe stocks. This is not quite as simple as it sounds. Berkshire’s strategy in- volves three major components. First, it avoids speculative long shots. It focuses instead on de- pendable, boring companies – what the AQR researchers call “cheap, safe, high-quality stocks.” Coca-Cola Co., American Express Co. and Moody’s Corp. are fine examples. Second, it uses the float gener- ated by its insurance operations to magnify the returns from those safe stocks. (Float is the money that an insurer controls between the time that customers pay their premiums and the time that claims are paid out. The in- surer can invest that money, which amounts to free financing for its portfolio so long as the in- surer manages its risks properly.) Finally, Berkshire benefits from a corporate structure that insulates the company from fick- le investors. Unlike the situation at a mutual fund or a hedge fund, nervous investors can’t pull their capital during rough patches. This allows Berkshire to stick to its strategy through even the maddest market turmoil. These structural advantages seem likely to persist at Berk- shire even after Mr. Buffett is gone. Granted, it will not be an exciting company, but that is pre- cisely the point: By adding a modest amount of leverage from its insurance float to a portfolio that tilts toward reliable, high- quality stocks, it should remain capable of producing decent re- turns without undue risk. So does that mean it’s a buy? Opinions will differ. Greggory Warren, a Morningstar analyst, figures Berkshire is slightly over- valued. He puts a US$487 fair val- ue on its Class B shares, slightly below the US$510 they are now trading around. I can understand why Mr. War- ren is underwhelmed. Based on price-to-book value – the time- honoured way to value Berkshire – Mr. Buffett’s empire looks to be at the expensive end of its trad- ing range over the past decade. However, Berkshire still pos- sesses unique advantages. Most notably, it has amassed a cash pile of US$333-billion. That gives it a huge amount of firepower if the market should tumble and buying opportunities emerge. If you’re like me and think that the U.S. stock market rests on a shaky foundation of mas- sive deficits and turbulent poli- tics, Berkshire offers comfort. It is cash-rich, managed by smart people and tilted toward value and quality. For now, I’m holding on. Is Berkshire Hathaway still worth your time? Being its shareholder involves a belief that the company has found a better way to invest, there is evidence for this IAN McGUGAN OPINION MARKET FORCES Pretty good for an old guy Warren Buffett’s track record over the past decade suggests his flagship Berkshire Hathaway can still generate good returns despite its enormous size. (Share price of Berkshire Class A shares in U.S. dollars) 2016 2018 2020 2022 2024 0 200K 400K 600K 800K THE GLOBE AND MAIL, SOURCE: S&P GLOBAL MARKET INTELLIGENCE Despite CEO Warren Buffett stepping down, Berkshire Hathaway Inc.’s stock remains up about 13 per cent this year. RICK WILKING/REUTERS S hopify Inc. will join the presti- gious Nasdaq 100 index on Mon- day, which is clearly good news for the company. But is the news worth US$25-billion? The Ottawa-based e-commerce soft- ware company will remain a solid fix- ture in Canadian indexes, including the S&P/TSX 60 index of blue-chip stocks, where it is the second-most valuable company behind Royal Bank of Canada. Here, it rubs shoulders not only with RBC but Toronto-Dominion Bank, Bank of Montreal, Enbridge Inc. and … zzzzz. No wonder investors are applauding Shopify’s inclusion into a basket of the biggest tech stocks in the universe. Af- ter Nasdaq made the an- nouncement May 12, the share price rallied 13.7 per cent in one day. It gained further ground on May 13 and 14, adding a total of US$25-bil- lion to the combined value of Shopify’s outstanding shares – or its market cap- italization – in just three days of trading. No doubt, inclusion in the index will deliver wider recognition for Shopify, which resides well outside the spotlight that is now focused on the Magnificent Seven tech superstars. With a market capitalization of US$143-billion as of Friday, Shopify is still a relatively small player next to the likes of Apple Inc., Microsoft Corp., Nvi- dia Corp. and Amazon.com Inc. The market caps of that elite squad start at about US$2-trillion. Their com- bined weighting accounts for nearly 40 per cent of the Nasdaq 100 index. Shopify will likely enter the index somewhere close to the top quartile – so, no slouch – and should attract more investor attention, especially if it moves up the ranks with solid growth. In its latest quarterly results, released earlier this month, the company report- ed that its revenues rose 27 per cent year-over-year. Its growth is outpacing the expansion of e-commerce, which reinforces the long-term bullish case for an expanding market for Shopify’s software. Greater visibility through the Nasdaq 100 can only help. But in joining the index, Shopify will also get new shareholders delivered to its doorstep: passive investors. These are exchange-traded funds and mutual funds whose sole purpose is to blindly track a benchmark, such as the S&P 500 and the S&P/TSX 60 index. The passive approach comes with key benefits: It’s cheap and effective, based on academic research suggesting it is hard for stock pickers to outperform major indexes over the long term. What’s more important – and rele- vant to Shopify – is that passive invest- ing is a dominant force now. Globally, as- sets in passive funds recently surpassed assets in actively managed funds, up from a 1-per-cent market share in the early 1990s. The Nasdaq 100 is a big deal within the passive investing universe. It pro- vides instant exposure to many of the world’s fastest-growing companies. It is also a strong performer. Over the past three years, it has outperformed the S&P 500 by nearly 30 percentage points. When a stock is added to any index, passive funds must buy it. When a stock is added to a particularly high-profile index such as the Nasdaq 100, the buying activity is going to be sig- nificant. “It’s not just a symbolic milestone, it has real mar- ket impact,” Phil Mackin- tosh, chief economist at Nasdaq, said in an e-mail. He added: “Markets are good at pric- ing in known future flows, and index re- balances are one of the most transpar- ent examples of that.” The Invesco QQQ ETF, an exchange- traded fund that tracks the index, has assets of more than US$320-billion, up from about US$140-billion five years ago. When the fund starts buying Shopify shares, it may end up directing nearly US$29-billion toward the stock, based on Shopify’s market cap and a likely 0.9 per cent weighting in the index. Active investors, who have bid up Shopify’s share price before this torrent of passive money arrives next week, could be anticipating good things ahead for the e-commerce company as its pro- file rises. The problem: The recent gains are well out of line with the typical up- beat reaction to index inclusion. According to research from Nasdaq, stocks outperform the market by about 1 per cent on average over the five days prior to inclusion in the index. Just 64 per cent of new inclusions gain ground on the day of the announcement. That makes Shopify a special case. Perhaps investors are betting that the company has a lot to gain from joining the Nasdaq 100. Or perhaps active traders are having a little fun at the expense of passive in- vestors. Investors bet big on Shopify’s Nasdaq promotion. Will it pay off? DAVID BERMAN OPINION DEEP DIVE In its latest quarterly results, released earlier this month, the company reported that its revenues rose 27 per cent year-over-year. Kristine Pollard, 46, nomad I retired last year at age 45 after work- ing as a police officer with the City of Toronto. My husband, Gean Oliveira, retired a few months earlier at 51, af- ter running his own IT consulting busi- ness. Shortly before we retired, we sold our home, car and almost all of our pos- sessions and packed what was left into two backpacks. We’re living a nomadic life, travelling to different countries for a couple of months, while keeping Cana- da as our home base. In the past year, we’ve been to Spain, Brazil, Argentina, Uruguay and Mexico. Time drove our decision to retire early. Both my husband and I had a par- ent who died relatively young after hav- ing just retired in their 60s. My job was also a big factor in my decision to stop working. As a police officer, I often saw people’s lives change in an instant. You never know what the future holds or when your time will be over. When Gean and I met in 2019, we started following the FIRE [financial in- dependence, retire early] movement. We also don’t have kids, which made it easier to save money. We lived on my salary and invested his income in the markets. We started investing in June, 2020, using a strategy known as the Smith Manoeuvre [a legal tax strategy that effectively makes interest on a resi- dential mortgage tax deductible]. We made it our goal to retire in 2028, when I turned 50 and would be eligible for my full pension, but then our investment strategy started to go better than expect- ed. It got to the point where we realized we could retire in 2024. We pay attention to the market ups and downs but are confident in our longer-term strategy, so we aren’t too worried. We plan to maintain our cur- rent standard of living through geo-ar- bitrage, which means we can easily move to a lower-cost location to save money when required. Retirement was a bit difficult at first. It was hard to go from a high-stress, fast- paced job to a lifestyle in which the only thing you need to do in the day is wake up and have a coffee. The challenge has been slowing down, learning to relax and being okay with doing nothing if we want to. We’re also trying to take better care of ourselves, spending more time with family and friends, travelling the world and meeting new people. It has been better than expected. I’m also find- ing a new passion for researching travel destinations. There are so many places to see and go. It’s exciting and fills up quite a bit of my time. We are trying to show others that re- tirement is changing; you don’t neces- sarily need to wait until you’re 65 or ol- der. We also created a blog and YouTube channel on which we discuss early re- tirement and show others that it’s pos- sible to leave work sooner and follow your dreams while you’re still young and healthy. My advice for others heading into re- tirement is to not only plan your financ- es but also how you want to spend your time. Having a goal or a purpose in re- tirement is the key. You need something to occupy a little of that quiet time in life. As told to Brenda Bouw This interview has been edited and condensed. After retiring, Kristine Pollard, left, and her husband, Gean Oliveira, are now living a nomadic life, travelling to different countries for a couple of months, while keeping Canada as their home base. This former Toronto police officer retired at 45 and chose the nomadic life TALES FROM THE GOLDEN AGE