No. of Recommendations: 35
In the interest of providing an independent opinion to this very important question, my view below is posted before reading the responses in the thread.
The facts:
$380b+ in cash.
Large cap public companies fully valued, or overvalued.
Large private companies not willing to sell to Berkshire.
Berkshire not cheap enough for buybacks.
The operating companies continue to send huge amounts of additional capital to headquarters every week.
Warren can’t find anything of significance to buy.
This dry spell has lasted for a few years now (I think 2022 was the last year Warren was swinging when everyone else was selling).
Warren is stepping down in a couple of weeks. Berkshire and Mr Buffett do not tiptoe into decisions.
Greg Abel, will take FULL control.
He is not Warren Buffett but we certainly can’t complain, either how long Warren has kept going, or how good we should feel about Warren’s skill in picking his successor to manage the 2026 and beyond version of Berkshire. (A firm that has evolved many times over the decades to what it is today.)
I think if Warren was younger, he would maybe have done something about the current excess capital already but he may have been content to let things sit and clear out the concentration in Apple. Safe in the knowledge, that the baton is about to be passed and Mr Abel will begin to make his mark soon.
We of course don’t know what external events will unfold in 2026, in terms of opportunities. If everything stays elevated or goes higher, I don’t think Greg will let the cash build up for another year or two. It’s already a problem.
What will Greg do? If conditions remain identical, there is not much he can do, other than the taxable dividend leaver, or pile up even more capital until the price to book contracts sufficiently. I doubt he would deliberately pursue a strategy of crashing the price to book and would consider it unfair to selling shareholders.
I don’t think Greg, or anyone else is going to be able to pull off another Apple in current conditions. Stock picking on a major scale is kind of over, unless something major happens in markets. Certainly, the record since 2008, indicates that Berkshire’s size is too much of a handicap. If Warren can’t do it, Greg certainly can’t and I doubt anyone else will be trusted with the huge amount of excess capital.
Buffett has said buying the index is not appropriate, as investors could do that themselves. Market timing is a fools game according to Buffett.
I don’t know, but will conclude with dividends and buybacks seem increasingly likely. Unless the public and private market prices fall to a level that even a lessor mortal than Mr Buffett, could intelligently allocate the capital.
Will be interesting to see if there has been a temporary pause that is lifted during 2026.
Now I can read the other replies and see how wrong I am!
Also reminded of Charlie’s comments on the subject:
It’s a nice problem to have.
What kind of a world gives you Warren Buffett for 60 years and gives you someone not as good and you complain.
Berkshire is so strong now and has so much momentum, that in some ways, it’s a little easier to manage.
Speaking of Charlie. What are the top three ways to destroy Berkshire:
1. Buy low quality assets, or hugely overpriced assets. There are plenty on offer.
2. Take on lots of leverage.
3. Ramp up insurance premiums by reducing underwriting quality.
We can be sure Greg Abel will avoid irrational and group think behaviour like the plague. And as Charlie might have said: sure that’s half the battle won.
Have a lovely Christmas everyone and may there be many more here, after Mr Sunshine has retired, even if there is less to discuss.
Evbigmacmeal
