No. of Recommendations: 1
" Berkshire Without Buffett: What’s Next for the Company and the Stock
As the legendary investor prepares to step down as CEO, here’s what his designated successor, Greg Abel, should do to bring Berkshire into the 21st century."
Am I the only one who reads Barrons here?
No. of Recommendations: 1
WARNING< many of you shouldn't read this story, just sayin.
" If the case for investing in Berkshire once rested on Buffett, it will now have to thrive as a “normal” company, and it should do some things it never had to: pay a dividend, hold quarterly earnings conference calls, and perhaps even move to index some of Berkshire’s equity investments. Berkshire needs to become a different company—and it must play to Abel’s strengths."
No. of Recommendations: 0
" Buffett’s performance hasn’t met the “moderately better than average” bar in recent years. While he is renowned for his acquisition skills, the past decade and a half of takeovers has been disappointing. Lubrizol’s earnings are no higher than when Berkshire bought the company for $9.7 billion in 2011, and Berkshire’s stake in Kraft Heinz—the successor to Heinz—is worth less than the $9 billion Berkshire put into the investment. Precision Castparts is now worth more than the $37 billion that Berkshire paid for it, but it has taken 10 years to get there, and almost any other aerospace-related investment would have done better—even Boeing. Berkshire’s $13 billion purchase of Pilot looks fair, not great, while the 2022 purchase of insurer Alleghany for under $12 billion is one of the few real winners. Overall, Berkshire would have done much better to put the $80 billion it plowed into the five buys into an S&P 500 index fund."
No. of Recommendations: 1
For the record I don't want a 2 % dividend yield, 1 % is fine to start.
" Abel will have some tough decisions to make, starting with what to do with Berkshire’s cash hoard. It’s one thing for the company to bank hundreds of billions of dollars with Buffett in charge, but investors may want Abel to offer a plan to bring it down. A big acquisition seems unlikely given the elevated stock market. Abel’s plan could include buying back stock—Berkshire hasn’t repurchased shares since May 2024—but it should also pay a dividend, something the company hasn’t done since paying a tiny one in the late 1960s and nearly every non-tech megacap company does. Investors have been comfortable letting Buffett invest Berkshire’s cash and earnings, but with Abel at the helm, the argument for resisting a dividend breaks down.
A 2% dividend would cost Berkshire about $20 billion annually—less than 50% of its operating earnings. Even with that payout, Berkshire’s cash levels wouldn’t decline. That even argues for a potential special dividend. The downside for Buffett is that he would have to pay over $500 million a year in taxes if Berkshire paid a 2% dividend, given the size of his stake. That isn’t a reason not to pay one, though. A dividend is likely after Buffett’s death, so why not pay one now.
Abel will also have to decide what to do with Berkshire’s investment portfolio. Buffett has said that if Berkshire can’t top the market, investors might as well buy a low-fee S&P 500 index fund. It’s something Abel should consider with part of Berkshire’s equity portfolio. Berkshire’s stock-picking record in the past decade has been mixed: a big hit with Apple and Japanese trading companies, but several misses, including buying a big stake in Occidental stock before it bought the chemical business. Combs and Weschler probably have underperformed, too, with the latter believed to be responsible for two longtime portfolio underperformers, DaVita and Sirius XM Holdings.
Abel could also name a chief investment officer to oversee Berkshire’s entire portfolio, which is dominated by stocks. He could also start building a bond portfolio, like other insurers who park most of their investments in fixed-income securities. Berkshire runs a “barbell” portfolio of cash—over $350 billion—and stocks—$300 billion—and just $17 billion of bonds.
Abel’s ultimate success will depend on establishing his credibility—and Berkshire’s—without Buffett. He should start by buying more Berkshire stock. While nearly all of Buffett’s net worth is in Berkshire, that’s unlikely the case for Abel. He bought about $100 million of stock in late 2022 and early 2023, and his total stake is now worth $175 million.
That’s bigger than what most CEOs own. His net worth, however, is likely close to $1 billion after he sold a 1% stake in Berkshire Hathaway Energy back to the company for nearly $900 million in cash in 2022, and he earns more than $20 million a year. Buying stock at current levels would be a sign of confidence and commitment by Abel to Berkshire holders.
He should hold quarterly earnings conference calls, which would allow investors to better evaluate the complex company. He should also provide better financial disclosure by regularly releasing profit numbers on Lubrizol and other businesses, something Berkshire currently doesn’t do. More information on the insurance operations would be helpful, too, including policy trends at Geico.
Berkshire Hathaway
Berkshire Hathaway
More than anything, Abel must spin a new story. Buffett has said there are three million Berkshire shareholder accounts, a huge figure that somewhat overstates the number of individual investors. The company will need a new base to replace an aging group of individual holders. To attract them, Abel will need to articulate a vision for a post-Buffett Berkshire. It could be something like this:
“I plan to build on the platform that Warren Buffett created and use Berkshire’s durable and ample earnings for investments, acquisitions, share repurchases, and dividends. Berkshire will be a more focused company under my leadership, with greater financial transparency, and maintain a Fort Knox balance sheet.
“I realize I can’t be Warren Buffett. But with the help of our talented managers, I pledge to improve our subsidiaries and turn what is the largest conglomerate in the world into the best-run conglomerate. My goal is to attract a new generation of investors to Berkshire and position the company to produce market-beating returns over time.”
With over 80% of its revenue from the U.S. and a group of diversified businesses, Berkshire is the closest thing to a mutual fund in the stock market, and it should remain a worthwhile investment.
As long as Abel proves able.
Write to Andrew Bary at andrew.bary@barrons.com"
No. of Recommendations: 1
BTW, this explains the aggressive buyers in the brkb calls last week who front ran the volume in the common in anticipation of this Barrons cover. We shall see how it opens on Monday.
I guess my observations were dumb luck, again.
