‘Oracle of Omaha’ Warren Buffett puts an end to the tension and names his chosen successor | Business news
It was one of the most frequently asked questions in the business and investment world: who will succeed Warren Buffett – arguably the most successful investor of all time – as managing director of Berkshire Hathaway?
This weekend the question was finally answered.
Greg Abel, the current Berkshire Vice Chairman, is the Anointed.
For many years, the 90-year-old Buffett has had his millions of followers guess who would slip into his giant shoes.
He has often given the impression that he is enjoying the tension.
For example, Mr. Buffett was at a friend’s meeting in Arizona in 1998 where he reportedly held up an envelope and explained to the crowd that it contained details of his succession plan.
When the room fell silent, the tycoon opened the envelope before pausing to read the contents: “Check my pulse again.”
However, it was never denied that there was a succession plan on the train.
A handwritten letter from Mr. Buffett, due to be mailed to shareholders the day after his death, has been in an envelope on his secretary’s desk for more than two decades.
Let it begin: “I died yesterday.
“This is undoubtedly bad news for me, but it is not bad news for our companies.”
The Wall Street Journal reported at the time that his successor was likely to be one of three executives at the company: Ajit Jain, Tony Nicely, and Richard Santulli.
Mr Nicely has since taken a back seat at Geico, Berkshire’s insurance business, while Mr Santulli, who sold the NetJets corporate jet business to Berkshire, left in 2009.
Another contender, David Sokol, was seen as a hot favorite but left him a decade ago after questions were raised about his stock deals.
That leaves Mr. Jain, general manager of Berkshire insurance, and Mr. Abel, 59, who is currently running all non-insurance operations in Berkshire.
Now the company has answered the question – but only by chance.
Berkshire’s annual get-together, an event that typically attracts 40,000 or more visitors to Mr. Buffett’s hometown, Omaha, Nebraska, but was held online this year due to COVID restrictions, took place this weekend.
During a question-and-answer session, Mr. Buffett’s 97-year-old right-handed Charlie Munger was discussing Berkshire culture when he missed: “Greg will keep the culture.”
Frantic media speculation ensued until Monday, CNBC host Becky Quick, who knows Mr. Buffett well, reported that Mr. Abel was indeed the obvious heir.
She quoted Mr. Buffett as saying, “Directors agree that if something happened to me tonight, Greg would take control tomorrow morning.
“If anything happened to Greg tonight, it would be Ajit.
“You are both wonderful guys.
“However, the likelihood of someone having a 20 year old runway makes a real difference.”
Berkshire’s approach to boardroom succession is unorthodox to say the least.
Most companies are pretty clear about their succession planning.
Berkshire has kept its investors in suspense for many years.
Nonetheless, as one of the most famous American business leaders of all time, Buffett has arguably earned the right to defy the convention.
At the beginning of his professional career as an investment salesman, the ‘Oracle of Omaha’ founded his own investment firm in 1956, from which he bought shares in a troubled textile manufacturer called Berkshire Hathaway in 1962.
He took control of the company three years later and set about making it his investment vehicle.
It had a total annual return of 20% by the end of 2020, double the return an investment in the S&P500 with dividends reinvested would have made in that time.
Someone who backed Mr. Buffett with $ 1,000 in 1965 would have estimated the value of this investment rocket at $ 20 million by early 2020.
Berkshire itself is the seventh largest company by market capitalization in the S&P 500 index – after only Apple, Microsoft, Amazon, Alphabet, Facebook, and Tesla – and is valued at $ 641 billion.
It owns a few companies like Geico, the apparel maker Fruit of the Loom, and the fast food chain Dairy Queen.
The business with Berkshire Hathaway Energy is one of the largest utilities in the US and, in the UK, network operator Northern Powergrid.
Berkshire also owns Burlington Northern Santa Fe (BNSF), one of America’s largest railroad operators, operating 32,500 miles of railroad nationwide.
It has interests in a number of public companies including a 5.4% stake in Apple valued at $ 120 billion and a 12% stake in Apple Bank of America valued at $ 42 billion, a 19% stake in American Express valued at $ 23 billion, a 9.3% stake in Coca-Cola valued at $ 22 billion, and a 26% stake in Kraft Heinz valued at $ 14 billion.
It also owns stakes in US Bancorp, Moody’s, Chevron, and Verizon valued at more than $ 5 billion apiece.
For the past decade, however, Berkshire’s performance has lagged the S&P 500.
Berkshire has amassed roughly $ 145 billion in cash and has struggled to take advantage of it – in part because company valuations have reached levels where Mr. Buffett is reluctant to initiate acquisitions.
He hasn’t made a major acquisition in the last five years, and some investors are frustrated that the company missed some of it amazing rally in US stocks last year by keeping so much cash on the sidelines.
Cole Smead, portfolio manager at investment firm Smead Capital, said some investors have fallen a little in love with Mr Buffett over the past decade.
He told Sky News: “Buffett and Munger weren’t aggressive.
“When they really went back to ’08 and ’09, they didn’t show their historical aggression in deals back then.
“Now they’re frustrated with private equity paying ungodly sums of money, so the private markets are caught up in it.
“And then the public markets for US large-cap stocks in general, using the S&P as a benchmark, don’t look attractive to him – so they’re kind of caught up in it.”
“”Last springThey had chances, but again, there wasn’t much aggression on his part. “
Mr Smead said Berkshire’s portfolio was “really set up for the next US bear market” with all of their money.
“It was a very frustrating place for Buffett because this isn’t the 1960s when no one looks at stocks and no one has any information. There is just less fish in the barrel to fish for because there is just too much competition . “
Whether or not Mr. Abel – a former accountant who was described in a 2013 video message by Mr. Buffett as “a first class person” and “a smart guy who will never do anything stupid” – gets the chance to address all of these shortcomings in the near future are questionable.
Mr Buffett, the sixth richest person in the world who has pledged to give away 99% of his $ 96 billion fortune, is clearly in no hurry to step aside.