As Warren Buffett, CEO of Berkshire Hathaway, turns 92 this year, Berkshire investors will be looking for insights into the future of the company when Buffett’s annual shareholder letter lands on February 26th, reports an article in Barron’s. While Berkshire’s balance sheets are extremely healthy at the moment—ranked 6th in the U.S. market and valued at $700 billion—Buffett needs to focus on transition his company to the next generation of leadership.
Post-Buffett, there will be pressure to split up the company—something Buffett has spoken out against as keeping the company whole provides tax and many other benefits. One way to ease that pressure would be for Buffett to step down now and move his heir apparent, Greb Abel, into the CEO position so that he can get a handle on running the huge company while Buffett remains on as chairman.
Buffett also has two highly capable lieutenants in Todd Combs and Ted Weschler, both of whom manage only about 5% of Berkshire’s $325 billion equity portfolio. Buffett could have them take over more of that portfolio. Weschler, for example, has built up a $264 million Roth IRA portfolio from less than $100,000. Meanwhile, Buffett has had some investment misses over the last decade: a $32 billion deal for Precision Castparts in 2016 didn’t pan out, and he didn’t jump on the pandemic-driven selloff in stocks fast enough. On the flip side, his investments in Apple and Bank of American have returned fivefold and threefold, respectively. And instead of paying a dividend, he’s ramped up buybacks in his own company, accounting for 6% of Berkshire’s market value, the article details.
Berkshire’s stock has returned 29% in the last year. After lagging behind the S&P 500 index over the past 5 years, it’s beaten it in the last 12 months, and with the Class B shares around $315, it still looks very attractive to investors. The stock was a Barron’s top pick for 2022, and if Berkshire was paying a dividend as large, diversified companies usually do, there could be enormous demand for the shares from investors looking for income. But there was an overwhelming vote against paying a dividend by Berkshire’s shareholders in 2014, and Buffett hasn’t revisited it.
But many investors own Berkshire stock because Buffett is a legend in the industry, and they want to invest alongside him, the article contends. If he wants to keep veneer of impressiveness in the company after he’s gone, he needs to start preparing the company for that day now with a more concrete plan, so that Berkshire remains a success far into the future.
