Berkshire Hathaway Stock Soared in Q1 While the S&P 500 Struggled. Here's Why.

Many investors consider Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) a proxy for the stock market. After all, owning it gives you exposure to shares in many big companies hand-picked by one of the best investing minds ever. CEO Warren Buffett also has dozens of operating businesses under the Berkshire umbrella.

That makes it a diversified way to own mostly domestic stocks and businesses that track the U.S. market while hoping to exceed market returns over the long term. Yet Berkshire stock blew past the market in the first quarter.

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The stock soared by 17.3% in Q1, according to data provided by S&P Global Market Intelligence. That compares to an S&P 500 index that had its worst quarterly return since early 2022, falling by 4.6%.

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Warren Buffett is building cash

It's probably safe to say that Buffett didn't anticipate Berkshire shares jumping over 17% in the first quarter. He's a long-term investor, but if he thought shares were underpriced heading into the new year, he likely would have repurchased shares in the fourth quarter. Berkshire didn't do any share buybacks in Q4 though.

The company itself had a great year last year. Operating earnings jumped 27% over 2023. Those earnings have been steadily increasing on an annual basis since 2021. Berkshire ended the year flush with a record $334 billion in cash. That has it set up perfectly for a market sell-off.

Buffett's a long-term thinker

Buffett made it clear that he prefers to be in stocks rather than cash. In his annual shareholder letter he wrote, "Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned." Investors embraced Buffett's winning investment strategy in the first quarter, driving shares higher.

Trusting his investing acumen now looks like it is paying off. The tariff-driven market sell-off may just be giving Buffett and his team exactly what they wanted -- an opportunity to put that cash to work with companies at more reasonable valuations.

Should investors be greedy with Berkshire?

Now may be the time when Buffett puts his philosophy to be greedy when others are fearful to work. With the large amount of cash on hand, he could be looking for an impactful business to buy. Based on his track record, that would most likely be beneficial for Berkshire shareholders in the long run.

But Berkshire's stock isn't cheap. Buffett traditionally likes to use the price-to-book value (P/B) metric to value his business. That ratio currently sits at a 10-year high of nearly 1.8. While he has loosened his share buyback criteria in recent years, he previously limited it to below 1.2 P/B.

Investors may want to wait for Berkshire's share price to dip before buying at these levels. But taking a small position and then buying in stages could also be a good approach.

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Howard Smith has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.