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I was struck by this article in FT today. Company CEOs are usually a very optimistic bunch. Yet a very large percentage question the viability of their companies in 10 years. On this and other boards like Manlobbi's Descent we see many projections of what a company will be earning in 10 years and estimates of its IV. In Berkshire's case there is the added concern of an unprecedented change in CEO. I hope Buffet is asked this question in the next AGM, I would love to hear his views as it pertains to Berkshire owned businesses and major portfolio companies.

Chief executives have become increasingly concerned that their businesses will fail during the next decade, despite signs of improvement to the economic outlook for this year.

The coronavirus pandemic, energy crises, a war in Europe and heightened geopolitical tensions have left business leaders low on confidence, with a large portion of those surveyed by PwC, the global accounting firm, saying that they needed to become more resilient.

Of 4,410 chief executives polled by the firm late last year, 40 per cent said that they did not see their own companies as viable in 10 years if they stayed on their current path. The pessimism among business leaders towards the end of 2022 contrasted with better data than expected on the global economy in recent weeks.

'In Berkshire's case there is the added concern of an unprecedented change in CEO. I hope Buffet is asked this question in the next AGM, I would love to hear his views as it pertains to Berkshire owned businesses and major portfolio companies.'

Surprised at that level of pessimism especially with the egos of current CEOs.

I sense WEB continues to be optimistic of our businesses, investees, float, cash optionality and has us as well and conservatively positioned for the next decade as possible. He has had an amazing ability to see the future when others may not with NICO/ GEICO in 60's/70's ,BHE in 1999, BNSF in 2009, and investees like KO, AXP, AAPL, now OXY and CVX. Criticism surrounded a lot of these decisions early on that have paid off so handsomely.

I have a lot of comfort especially in the next decade with our wholly and partially owned businesses, cash, float and future predictable earnings. Greg has been there 24 years, Ajit 37 years, T&T over 12 years and we have a very pro-owner board and culture as they all are large owners themselves. I have faith we will be just fine, resilient and follow Rule #1.

Fascinating to think if we have $50B of 'normalized earnings' with 8% growth/year that mgt (and/or investee mgt with retained earnings) will need to allocate cumulatively in the next decade as much as our current market cap!

"we have a very pro-owner board and culture as they all are large owners themselves"

Outside of Warren and Charlie, I think the Board ownership is pretty weak. I own more than most.

Outside of Warren and Charlie, I think the Board ownership is pretty weak. I own more than most.

Well, the new guy owns $46m of BRK.A personally.
https://www.sec.gov/Archives/edgar/data/1067983/00...


Steve Burke, another son-of-a-Warren-buddy, owns $13.5m worth of A-shares.

Christopher Davis, another fairly new guy, owns $18m worth of A-shares.

Wally Weitz, another fairly new guy, owns $83m worth of A-shares

Charlotte Guyman owns $29m worth of A-shares.


I don't know about you, but when I read other public company's proxy statements it is rare to see material sums of money invested in company shares by members of the board of directors.

Fascinating to think if we have $50B of 'normalized earnings' with 8% growth/year that mgt (and/or investee mgt with retained earnings) will need to allocate cumulatively in the next decade as much as our current market cap!

I believe this is the key issue going forward - not succession. Where can such quantities of capital be placed at attractive returns?

In thinking about this, also consider that the two most capital intensive businesses of BRK - BNSF and BHE - don't depend upon BRK for financing. Both being regulated industries, they get their capital from internal cash flow and public borrowing for internal expansion. BRK may fund acquisitions but not maintenance and growth capex.

If one looks at privately controlled US companies, only Mars and Cargill could soak up huge quantities of cash. I doubt Koch is seen as a potential acquisition. While it's been some years since I looked at this in any depth, the size of other possible private US acquisitions drops off pretty rapidly.

So that leaves stocks, international companies, buybacks and dividends. And most of us don't want dividends - nor do the very large BRK shareholders. We don't have much of a track record internationally. Are index funds and buybacks our future?

Just rambling out loud on subjects that have been discussed many times before. Succession will happen - for better or worse. But that doesn't change the reality of the cash reinvestment challenge facing BRK.

If I had to guess where all this future capital gets put, I would guess that it looks something like the past.

Occasional acquisitions - most recent was $11.6 Billion cash for Alleghany, next up is taking Pilot Company ownership up to 80% and consolidating. Bolt on acquisitions at many of the subsidiaries. Marmon bought a company just recently - https://www.aftermarketnews.com/ap-emissions-techn...

They don't need $50 Billion acquisitions, they can do a few $5 Billion, a few $15 Billion, etc.. there are plenty of companies in that size range. But who knows, OXY is friendly. Warren also seems to like Celanese, another female-led company that Berkshire has been buying.

BNSF pays out all of their earnings to Berkshire as dividends. Berkshire does still finance acquisitions at Berkshire Hathaway Energy, most recent was National Indemnity funding the pipeline purchases through a special preferred stock that is being rapidly repaid. There are plenty of acquisition candidates for BHE and that is how the company was built after all. Plenty of organic investment opportunities there as well.

Preferred stock financing deals with warrant kickers negotiated privately. (shocker, I know)

An actual bond portfolio for some of the insurance float - the recent interest rate environment made it seem like Berkshire had way more excess cash than it did because Berkshire chose to run the bond portfolio inside the insurance companies with such a short duration that most of it was classified as cash equivalents. This has just recently started to change.

Large cap equity purchases. A recent example is Taiwan Semiconductor. All we know is that it is big enough that it is likely a Warren purchase and that Berkshire held 60,060,880 shares at the end of September 2022. Subsequent to that date, TSM continued much lower and still trades at prices Berkshire was likely buying shares at. Which means Berkshire could own a lot more than 60m TSM shares when we get the next update. Current market value of the TSM stake that we know about (the 9/30/22 shareholdings) is $5.35 Billion. It could be substantially more if he kept buying - and why wouldn't he have kept buying?

Berkshire common share repurchases - the cheaper the better.

The above should be enough for the next team to keep the machine running without reinventing the place. If it ain't broke, it doesn't need fixing.

"Wally Weitz, another fairly new guy, owns $83m worth of A-shares"


I will have to look at the Proxy but I doubt he owns them personally. I suspect through his fund

Perhaps the same for Chris Davis.

Great on Murphy though

The shares are in his personal foundation (Weitz).

Chris Davis has quite a bit more Berkshire than that in the fund. I am only listing the personal holdings for these guys.

Some of it is inherited. These guys had smart Dads.

"These guys had smart Dads."


that is a good and true point!

thanks for clarifying.

One thing I found impressive about Wally Weitz is that as of 2020, his foundation had already given away $197 million. So likely over $200m by now and still with a valuable portfolio of securities. He has been very successful. Grew up in New Orleans but had the good sense to move to Omaha to raise his family.

''Mars and Cargill' private candidates for soaking up BRK excess cash.
Work 40 years for Cargill and while Cargill and McMillan family share dilution grows, both families have voted to remain Private. Further, they self fund and are very conservatively managed. Don't get me wrong. As a Cgl stockholder and retired former employee I'd like nothing better than to see their 'conservatively valued shares' go public.

As for BRK reinvesting cash flow, I've strong confidence opportunities will appear in our Boom/Bust economic model.
GLTA,
Paul

If I had to guess where all this future capital gets put, I would guess that it looks something like the past.

The list of corporations where the next CEO following a legendary CEO - and doing the same thing (successfully) is vanishingly small.

Not Bill Gates, Jack Welch, Henry Ford, Sam Walton, Jack Warner, Lee Iacocca, Howard Schultz, well, the list is endless. Disney stumbled around for a decade or two after Walt died, didn't they? I'm not saying a company can't be great (again) or even greater - the list above contains many that have gone on to greater glory, but others have stumbled along or been swallowed completely. In any event, almost *none* of them 'did the same thing' under the next CEO.

As one snide but prescient employee of mine said when I took over a business, 'every new guy is like the new dog on the street. He wants to pee on the bush a little just to mark his territory.' We ended up being fast friends, and yes, I made changes. So did the guy who followed me. And the guy after him. And this was at an already wildly successful location, so'

The list of corporations where the next CEO following a legendary CEO - and doing the same thing (successfully) is vanishingly small.

I think we have a Tim Cook situation here with Berkshire. We don't need a legend. We need to not incinerate money and stay rational.

But that doesn't change the reality of the cash reinvestment challenge facing BRK.

All good points. But of course BRK is not limited to ingesting private firms only. A number of recent acquisitions (PCP and Clayton Homes come most readily to my aging mind) were public companies.

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