The End of Berkshire As We Know It

There have been countless posts, articles and tweets this week about how the joy of attending the Berkshire Hathaway meetings in Omaha. The experience is not just watching Buffett hold court for hours while over 40,000 investors listen to his sage words, but also the serendipitous encounters with new friends and reconnecting with old ones.

This year that included flying back home on my friend Ricky’s private jet (well, it was a NetJets model plane on the exhibition floor), running into William Green and Steve Clapham at the Markel brunch, having dinner with MBA students and alumni from The University of Chicago Booth School of Business, the wonderful Capital Alliance events hosted by Ken and Vatsal, Matt Peterson’s generous hospitality at his must-attend event, meeting my friend Arjun just before heading to the airport, and then running into Brett Gardner on the plane back home.

In my article last year about the meeting, titled Reading Between the Lines, I mentioned that it was quite likely that Buffett was going to continue selling down Berkshire’s Apple (AAPL) position, he might consider taking Occidental Petroleum (OXY) private (got that one wrong) and that Greg Abel was going to take over both operations and investments for the company.

When I first read The Snowball by Alice Schroeder during the Great Recession, I came to the conclusion that there is no one like Warren Buffett and it is unlikely that we are going to see anyone like him for some time to come.

Introducing Ross Brittain’s review of the book, I wrote:

“The Snowball goes beyond Buffett’s financial empire to reveal the man behind the money, offering readers a rare glimpse into the life philosophies that have guided one of the greatest investors of our time.”

Warren Buffett’s decision at the annual meeting in Omaha to step down as CEO was bittersweet. Most investors were expecting this to happen and last year’s meeting made it abundantly clear that Greg Abel was the chosen successor.

One of the conclusions from William Thorndike’s book The Outsiders was that some of the best-performing companies had a CEO that was an excellent capital allocator who could rely on an outstanding COO to run the business. To expect Greg Abel to do both is a very tall order.

During the Q&A session when an investor asked Buffett why he picked Greg Abel, we got a long meandering answer that didn’t really answer the question.

Unless Greg can find and cultivate talent on the investing side of Berkshire, returns going forward might not be what Berkshire shareholders were used to when both Buffett and Munger were actively making investment decisions. Despite the pullback yesterday, Berkshire Hathaway (BRK.B) trades close to 1.7 times book value, a level at which the Oracle of Omaha would not consider buying back Berkshire stock.

There will still be environments such as when markets are in crisis or public valuations are stretched, where Berkshire Hathaway will serve as a lighthouse during a stormy night. However, the wind is no longer in the Berkshire sails.

I spoke to several investors to see if they are likely to come back to Omaha next year and every single one said yes. With Buffett continuing on as Chairman of Berkshire for now, investors will likely continue their pilgrimage. Hopefully Greg will be able to lean on Buffett for certain investment decisions.

Disclaimer: I hold a tiny position in Berkshire Hathaway. Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.