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Some background for this post. This past week I had lunch with a very good friend that I had not seen in person since Covid began. We did keep in touch with long phone calls but no close contact. We talked for about three hours. Like myself, he has 60-70% of his investments in Berkshire.

As we were winding down, I commented that we had talked very little about Berkshire. He replied that we’ve about “talked out” Berkshire. What more is there to say?

I’ve been thinking about that and, except maybe for some specifics items, I think he’s right – at least for now. Let’s look at the broad picture.

Succession: We’ve known for some time now that Greg and Ajit would run BRK after Warren. Actually, that part of the succession has already happened for the businesses. The only remaining question was about who would manage investments. That was cleared up at this last meeting. Now it’s just about when Buffett moves on (Hopefully not soon.).

Investments: The potential investments that would impact BRK have become a well picked over menu. And the prices have been driven up by cheap money. Thus Buffett has clearly decided to wait until the next market drop presents better opportunities. No cap on the size of the cash pile. If interest rates stay relatively high, a lot of cheap debt is going to have to be refinanced in the markets. That could slam highly leveraged private equity firms and similar businesses. This will create opportunities. Patience is the strategy. Buybacks help some but can only provide limited capital consumption because of the market volumes.

Insurance: Ajit is firmly in control. For reinsurance, we’ll take advantage of attractive markets and sit on the sidelines when it’s not. Geico is being turned around and Ajit suggests a couple more years should see it fully competitive again. Insurance will be profitable, but cyclical.

BNSF: A lot of major capex is behind us. Double decking has almost been completed. Profitability lags competitors so the name of the game is cost control and right-sizing to match demand. What needs to be done is clear, let’s make it happen.

BHE: Demand is expected to grow rapidly, requiring a lot of capital. Recent events in terms of liabilities from wildfires have brought acceptable returns on those investments into question in some markets. BHE will do what makes sense and has made the issues public. It is an evolving situation.

Pilot: Berkshire now owns and the squabble has been cleared up. Some lessons learned. Right people now in management and operations are being upgraded. Pilot will react to how the markets evolve. Valuable real estate.

Manufacturing: Basically tied to GDP. Profitable but slow growth. Greg has established his position and become familiar with the managers and businesses. A wide range of businesses from good to not-so-good. Focus will be on tighter management. Underway. Greg’s leadership will lead and monitor.

Service and Retail – Also tied to GDP. Another mix of good to average businesses. Hard to get details. Will follow similar strategy to Manufacturing – tighter management, Greg will lead.

Given Berkshire’s size now, it’s hard for me to see significant growth opportunities in MSR. But it provides positive cash flow for investment.

Intrinsic Value: Long a favorite hobby of many of us. Now there are several estimates published by others. These range from fairly simple macro models to highly detailed sum of the parts studies. Frankly, you can choose your own estimate and find a study that mostly agrees with you. What seems clear is that BRK is selling closer to a conservative estimate now than in the recent past. But it remains an attractive choice for preserving capital with some growth. Compared with index funds, its large cash holdings and still conservative pricing make it attractive to value investors. And it has tax advantages. But not really that appealing to those with higher animal spirits.

The foregoing are my opinions – others may disagree with some or all. But they’re all areas that have been discussed in depth over many years.

Maybe that’s why this very intelligent board gets tempted to debate option strategies a lot. And to stray into other topics that may, or may not, have much relationship to Berkshire.

And why my friend and I talked mostly about other subjects.

Berkshire has become a widows and orphans company. And that’s just fine with me!😎

Succession: We’ve known for some time now that Greg and Ajit would run BRK after Warren. Actually, that part of the succession has already happened for the businesses. The only remaining question was about who would manage investments. That was cleared up at this last meeting. Now it’s just about when Buffett moves on (Hopefully not soon.).

Seems to me there is at least one remaining question: Who will do the stock picking? The equity portfolio is a substantial part of Berkshire's total value. Who will run it on a day-to-day basis after Mr. Buffett's exit?

To say that Greg Abel is in charge of capital allocation is not the same as saying he will do the stock picking. He is an operator. He has no history as a portfolio manager. If Todd Combs and Ted Weschler, career-long stock pickers, needed to be brought along slowly, allocated small fractions of the enormous Berkshire port, does it make sense that someone with no background in equity research or selection should be given charge of the whole thing?

If the board follows Mr. Buffett's advice and gives Mr. Abel sole responsibility for capital allocation, he could certainly delegate management of the public equity portfolio to a person or persons with more expertise in that function. But who?

The widely-held assumption was that Todd and/or Ted were being groomed to take over the stock portfolio once Mr. Buffett left the stage. That might still be true. But their exclusion from both the dais and the succession discussion at the AGM makes me wonder. Both were comfortable, independent portfolio managers before joining Berkshire. They did so for the chance to work with Mr. Buffett, a once-in-a-lifetime opportunity for a career investor.

Will they willingly continue as subordinates to Mr. Abel? Does everyone here think that's a given? Does anyone else think someone might have mentioned it during the succession discussion if such an agreement were in place?

Will Mr. Combs accept as permanent a mid-career conversion into an insurance executive, or did he accept the Geico CEO role because Mr. Buffett asked him to? Is he likely to surrender it and return to his first love, within Berkshire or elsewhere, after Mr. Buffett's departure?

Is this an on-topic topic worthy of discussion or is everyone content to wait and see? Mr. Buffett made his reputation as an investor in the public markets. It may not be as important a role at Berkshire as it was back in the day, but it's still pretty important. Does anyone think it's obvious who will succeed him in that role?

Yes, my thoughts too. Passed over, take your job and---. Not that harsh but Ted might be a billionaire and find other interesting things to do. Todd might be a backup to Able(?). They are all adults and are sure to have discussions. They are also are going to have many options. By chance their track record may be surprising. Plenty of reasons to keep watching this board.

I took Warren’s commentary to be more Pro-Greg & his CEO role and power as opposed to anti-T&T. Warren has made his wishes now known in public forum to the shareholders & beyond the Board, and I think he wants to empower Greg when the transition occurs. If Warren were receiving the baton, he would want same degree of trust, confidence and responsibility.

I can imagine Todd & Ted internally managing what they have been and the pension with more growth over time. I do not have a problem with Greg,like Warren, ultimately deciding whether they are deserving of more funds to manage under their umbrella. Greg seems quite fair and reasonable from all I have seen and heard from more knowledgeable folks in Omaha. Who knows, we could potentially be entertaining adding additional people to potentially help manage the equity positions. I do trust Warren & the Board to make the right call. They also have a lot more skin in the game than us!

Seems to me there is at least one remaining question: Who will do the stock picking? The equity portfolio is a substantial part of Berkshire's total value. Who will run it on a day-to-day basis after Mr. Buffett's exit?

Berkshire is too big these days to be impacted meaningfully by conventional stock-picking managers. Where something will make a meaningful impact, a la Apple, it is best approached as an enterprise capital allocation decision to take a substantial business position rather than a conventional portfolio management one.

There is no reason why Abel as CEO can view the stock portfolio as a set of stakes in businesses administered by a person or group of managers ( delegated to Tedd, Tod or anyone else). The CEO can then allocate capital, set hurdle rates and assess performance based on returns produced from this business segment over a period that makes sense ( 5 years at least).

This has been the way Berkshire has run its stock portfolio recently. 75% or so of the portfolio is concentrated in the top 4 or 5 positions and this has been the case for most of the prior decade.

Having had a few of these concerns over the years, I feel more comfortable with the model for the future than I did 5 years ago. Continuing to view stocks through the lens of business ownership is core to the Berkshire approach and I am happy to see it continuing as it is the core job of the CEO.

As an interesting aside, I was at the 2019 AGM in Omaha where Berkshire was trading at around 1.4x BV and most people I talked to expected at best a 8-9% return going forward as it seemed "fairly to richly valued". As it turns out, the stock actually doubled in the next 5 years despite all sorts of Covid related action. it never felt like it though !

Todd and Tedd will continue to run their own portfolios I think in a small way...however hopefully efforts will be concentrated on Apple type investments between the three of them that move he needle.

As we know WEB wants to focus on USA still so if I was in their position I'd draw up a list of the top 50 companies where a meaningful position could be taken and the criteria fit, moats etc and then review that watchlist regularly.

A meaningful position could be 5bn into a 30bn cap company or 50bn into a 1trn cap with a view to doubling your money (15%pa) over a 5 year horizon as the min hurdle rate.

T&T advising on intrinsic values / Outlook and Greg having final say and pressing the button

I don't think they need to do anything exceptionally clever or spectacular to achieve decent returns.

We all got to read the tea leaves our own way!

Ted and Todd are being provided opportunities for understanding businesses within the fold. Besides the cliché “you are a better investor if you are a better business manager”, there’s something fundamental about Warren Buffett’s own evolution. Everyone is still fixated with his ungodly investing performance during the early years but the few choices on outright ownership nearly rendered the entity an also-ran and possibly a dinosaur. Buffett is a terrible operating manager and it took folks like Bottle, Gottesman, Murphy et al to save Berkshire. Munger’s drilling helped Buffett overcome the haloed Graham approach. It worked for the millions, not the billions, let alone the soon to be trillions.

No, they don’t want that part of history to repeat itself with T&T. Greg will help educate. He’s a great operator , the biggest takeaway for me this annual meeting.

It's really good to see this serious, on-topic, discussion. Thanks all.

Below are some notes I've taken from the replies - not a summary, just reminders. So, with apologies,:

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Ultimatespinach: Who will do the stock picking? Is this an “on topic” topic worth of discussion?

Oscar255414: Yes. Plenty of reasons to keep watching this board.

WEBspired: No problem if Abel wishes to increase their money managed

Ppant: Berkshire is too big these days to be impacted meaningfully by conventional stock-picking managers. Where something will make a meaningful impact, a la Apple, it is best approached as an enterprise capital allocation decision to take a substantial business position rather than a conventional portfolio management one.

There is no reason why Abel as CEO can(not) view the stock portfolio as a set of stakes in businesses administered by a person or group of managers ( delegated to Tedd, Tod or anyone else). The CEO can then allocate capital, set hurdle rates and assess performance based on returns produced from this business segment over a period that makes sense ( 5 years at least).

Blackswanny: Todd and Tedd will continue to run their own portfolios I think in a small way...however hopefully efforts will be concentrated on Apple type investments between the three of them that move he needle.

BRKnut: We all got to read the tea leaves our own way!

Ted and Todd are being provided opportunities for understanding businesses within the fold. Besides the cliché “you are a better investor if you are a better business manager”, there’s something fundamental about Warren Buffett’s own evolution.

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My takeaway is that this is a significant topic to discuss. And that Ted and Todd can be part of a combined team effort to find significant investment opportunities for BRK. Greg will head the team.

Below are some thoughts on the subject.

o If there is to be a significant ongoing stock picking activity, Greg will not have time to do the investigations in depth. Buffett, Ted, Todd, and others emphasize the amount of reading needed. As Ted put it, you need a "variant" insight into an opportunity to outwit the market. You need to understand the basis for what the market is thinking to know when you might have an edge. That takes a lot of reading. Greg is going to be very busy helping the existing businesses become more efficient in a slow growth GDP. Others are going to have to define the opportunities for consideration.

Buffett, long ago, made the correct decision for himself that he would be of more value concentrating on asset allocation than managing the businesses. And that's what he strongly prefers to do anyway. In one sense, Buffett runs his life to do things he enjoys doing and to delegate or avoid things he doesn't enjoy doing. He doesn't like confrontation, and that's sometimes part of business management. He did keep track of how the various businesses performed by frequent reports and his photographic memory to recall the past. But he rarely intervened. Buffett is a prodigy.

That isn't Greg. He knows operations and has the ability to understand businesses - current or potential. So he will "invert" the CEO role that Buffett has played. As Buffett needed managers he could trust, Greg will need advisors he can trust. He will make final major decisions on asset allocation. Fast if needed. An obvious role for T&T.

o Investment opportunities large enough to impact BRK today are limited. We will need to be very well prepared to act when market downturns provide opportunities.

o What hasn't been brought up is "what's in it for T&T?"

If the original compensation package still holds, they agreed to a $1 million annual salary plus some percent of what investment results they achieved vs the S&P 500 over a five year period IIRC. That's peanuts - particularly if they've followed the "don't lose money" philosophy of Buffett in a market driven by the magnificent seven. As someone has pointed out, they also don't enjoy leverage from float as Buffett does. In addition, they've been diverted to other chores by Buffett.

I sincerely hope their compensation has been modified. But, that's not why they took the jobs. The ability to work closely with Buffett is the incentive. There were other pluses - availability of capital, freedom from dealing with anxious clients, time spent to manage a fund, etc. They could concentrate on what they enjoyed. But Buffett is the draw. Ted spends more on weekly commuting to Omaha than his income from BRK.

Both Ted and Todd are already independently wealthy so compensation isn't an issue now. What about after Buffett passes on? As others have suggested, they need to have a broader role defined and compensated. And, if they're concentrated on infrequent, large, WRO BRK investments, will that be enough to hold their interest?

I don't expect them to immediately bail out when Buffett is no longer CEO. They have too much respect for Buffett and Berkshire to jump ship on Greg. But, for how long?

Todd strikes me as a Berkshire lifer. I think Ted has broader interests in life, especially as time passes. Just my reading of them - no data.

So, I also vote "Yes". This is a worthwhile discussion "on-topic" topic.

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