Berkshire Hathaway's Greg Abel Dumps Amazon and Loads Up on Alphabet. Is It the Better Buy?

Berkshire Hathaway is a massive investment company run by Warren Buffett that buys shares in other businesses—think of it as a professional investor managing a portfolio (a collection of stocks). Greg Abel is Berkshire's portfolio manager, and he recently made a significant decision: sell some Amazon shares and buy more Alphabet (Google's parent company) shares instead. On the surface, this looks like a simple swap, but it reflects a deeper judgment about which company offers better value. To understand why one stock is considered a 'better buy' than another, investors rely on financial ratios that standardize the comparison—because Amazon and Alphabet have different sizes, different earnings, and different stock prices. Just as you wouldn't compare a $50 used Honda to a $50,000 new Ferrari using only the price tag, investors can't compare tech stocks using only their share price. Ratios like price-to-earnings and price-to-book let them ask: which stock gives you more value per dollar invested?

• Berkshire sold Amazon and bought Alphabet, suggesting Alphabet offers better value → investors compare companies using financial ratios rather than headline stock price.
• Greg Abel likely examined the price-to-earnings ratio, which divides a stock's price by its annual earnings per share → a lower ratio may signal undervaluation.
• Price-to-book ratio measures stock price divided by net assets per share → it shows how much investors pay for each dollar of the company's book value.
• A lower P/E or P/B ratio doesn't automatically mean 'buy'—strong fundamentals and growth expectations matter → ratios are inputs, not answers.

Portfolio

A collection of stocks, bonds, or other investments held by one person or organization.

Price-to-earnings ratio (P/E)

A stock's share price divided by its annual earnings per share; used to compare whether a stock is cheap or expensive relative to its profits.

Price-to-book ratio (P/B)

A stock's share price divided by its book value per share (total assets minus total liabilities, divided by shares outstanding); shows how much you pay for each dollar of net assets.

Earnings per share (EPS)

A company's total net income divided by the number of shares outstanding; represents the profit attributable to each share.

Book value

A company's total assets minus total liabilities, as reported on the balance sheet; the net worth recorded in the financial statements.

Valuation

The process of determining what a company or stock is worth; investors compare asking price to expected future cash flows and assets.

1. 01

   Would a lower P/E ratio for Alphabet versus Amazon alone justify selling Amazon, or must investors also consider growth prospects?

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   Answer: Students should recognize that a lower P/E is only one data point. A very low P/E can signal undervaluation, but it might also reflect low growth expectations or higher risk. Abel likely considered both the current valuation ratio and Alphabet's future earnings potential. The key is not to treat P/E as a magic number—it's a starting point for deeper analysis.
2. 02

   If Alphabet's book value per share is lower than Amazon's, what does that suggest about the two companies' asset bases or capital structure?

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   Answer: A lower book value per share could mean Alphabet carries fewer assets on its books per dollar of stock price, or it has taken larger depreciation/amortization charges, or it returns cash to shareholders efficiently. It does not automatically mean Alphabet is in worse shape—it depends on the industry and business model. Students should avoid assuming higher book value = safer.
3. 03

   How might a Berkshire shareholder react if Alphabet's fundamentals weaken next quarter—would the initial P/E advantage still matter?

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   Answer: This is a critique question with no single right answer. The strongest responses will note that portfolio managers must rebalance if conditions change. If Alphabet's fundamentals weaken, the favorable P/E disappears, and the decision to own it becomes questionable. This illustrates why ratio analysis is ongoing—not a one-time decision. Berkshire's track record shows they adjust.

Start by drawing two columns on the board: Amazon and Alphabet. Write their current stock prices, then ask students if price alone tells you which is cheaper. (It doesn't—a $150 stock is not automatically more expensive than a $100 stock.) Then calculate a simple P/E ratio example using made-up numbers: if Amazon earns $10 per share and trades at $150, its P/E is 15; if Alphabet earns $6 per share and trades at $120, its P/E is 20. Even though Alphabet's stock price is lower, it trades at a premium to earnings. Circle the P/E numbers and label them 'valuation multiples'—the lens through which professional investors like Abel compare companies. Close by asking: does a lower P/E always mean buy? (No—it's a signal, not a guarantee.)