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I was just talking with a friend about how Buffett' departure will affect IV. I'm sure we all have opinions. AS for me, I will lower BRK's value. No-one is as good as Buffett at managing Berkshire's investment portfolio, neither the stock picks nor the fixed income allocation. No-one is as good as Buffett at acquisitions. No-one is as good as Buffett at choosing and working with the managers of the subs. Most importantly, no-one is as trustworthy at treating shareholders fairly.

Setting aside my opinions, the real test will be the long-term, sustainable growth rate of BV/share. For a while that will probably be about the growth rate of the value of the S&P 500 plus 2 percentage points or so. Not too long after Buffett's departure it will the growth rate of the value of the S&P 500 plus zero percentage points.

If I were buying all of Berkshire, I would pay at least 10% less if Buffett were not the CEO. How about you?

Am I worried about the culture? No. Like Munger said, Greg will keep the culture.

Am I worried about Greg? No. Like Buffett said, Greg will be a harder manager than he was, and is as good a capital allocator.

Additionally, Ajit, Todd, and Ted will be around.

The first AGM when Greg took questions he was very wooden and talked word salad. I was worried then. But over time, Greg has grown on me. If anything, BRK might be worth more post Buffett. Greg might unlock value in the businesses.

BRK might be worth more post Buffett. Greg might unlock value in the businesses.

There's going to be an emotional reaction when Buffett leaves the BRK scene. So be prepared for that. It will probably last longer than when Munger departed. But it's what happens after that that's important.

Greg is capable of unlocking a lot of value in the businesses. BRK is now an uncoordinated group of many businesses. It suffers the limitation of finding it difficult to reinvest its abundant cash flows. The era of still relatively cheap money and abundant competition from private equity has blunted its prior competitive advantage of being the lender of last resort. That might still change once more as the market is at peak levels of multiple improvement. Buffett may still have a final shot of picking up bargains. I - like others with most of my net worth in BRK - hope so. But we can't count on that for an ongoing solution to the problem of "bigness". We've been warned about that by Buffett for decades.

My base argument for Berkshire is that it will continue to retain its earnings. That will increase book value. As long as the market will place a multiple on book value, we will have a decent investment - not the past, but decent. But how long will the market place a 1.4 multiple on retained cash?

Meanwhile, we may be squandering the asset that BRK will still have - its very huge size.

Berkshire is built the way it is because Buffett likes doing what he enjoys doing, and avoids what he doesn't enjoy doing. That includes conflict. He doesn't want to manage businesses. He's not the one who puts pressure on individual businesses unless they're either (a) violating a promise - e.g. that the paint business won't market through big box stores - or (b) they're losing money in a way that can't be fixed. Otherwise, they're on their own.

Meanwhile, we have a large number of businesses, each with its own OH structure, operating independently.

Because of Buffett's management style, we now don't take advantage of the very size of BRK that limits it in reinvesting cash. The size that could permit operating efficiencies.

There must be very large opportunities to combine and make more efficient OH activities. From the Fortune article, look at what Greg has already done with the MSR businesses on operating margin. Look at what XOM has done with a far more efficient organization going in. Closing on $18 billion a year more in savings. What power would BRK have with a more combined purchasing organization given its size? Health, legal, HR, accounting, on and on .......

I'm not suggesting moving to the very centralized structure to the extent that XOM has. But BRK is far larger. There's lots of room in between for improvement.

These are the areas where Greg will have opportunities to more efficiently manage BRK. And he has the capabilities to do so. But he will need more management below him to permit him the time needed to focus on overall strategy, cash reinvestment, and high level management.

What might prevent him from doing so? My fear is that it will be viewed as a clash with the "BRK culture" as viewed by family members specifically voted to the board to prevent such changes. And with the voting power to do so

That's what I will be watching when Buffett moves on. What balance will the still controlling family votes reach between making BRK more efficient and preserving the "culture"? How well do they understand business going forward? Will Greg become frustrated?

My big worry is that Berkshire post Buffett will make a bad acquisition. I don't think that any CEO will be able to resist the temptation to make a major acquisition, and acquisitions usually don't work out well.

we have a large number of businesses, each with its own OH structure, operating independently. Because of Buffett's management style.......
..........
I'm not suggesting moving to the very centralized structure to the extent that XOM has. But BRK is far larger. There's lots of room in between for improvement.

These are the areas where Greg will have opportunities to more efficiently manage BRK.

This is exactly what would bring me to say partially goodbye. If what you suggest comes true, I would no longer trust Berkshire with 60+% of my net assets, would see it too much becoming a "normal" company, not the diversified fortress (actually several fortresses, independent from each other --- and that's the point here) any more for trusting it with most of my life's savings. My main interest for my investment in Berkshire is not optimizing returns but being 100% safe.

Greg..... What might prevent him from doing so? My fear is that it will be viewed as a clash with the "BRK culture" as viewed by family members specifically voted to the board to prevent such changes.

I very much hope it would be seen as such and prevented as long as possible. I even more hope that Abel himself does not want to go in this direction.

“ This is exactly what would bring me to say partially goodbye. If what you suggest comes true, I would no longer trust Berkshire…”

“Keep the faith” my friend. The “seamless web of deserved trust” is certainly intact, in my mind. Trust Warren and trust Greg, his chosen one, and a terrific board who are so thoughtful and eat the same cooking. I have no problem giving Greg authority to oversee adjustments and sensible renovations and add-ons to our Versailles. Keep the faith.

What power would BRK have with a more combined purchasing organization given its size? Health, legal, HR, accounting, on and on .......

Having worked with captive systems at Westinghouse, I would argue strenuously against this, or at least a super*well thought plan before doing any of this.

We had a captive system of IT (in the broadcasting division) which was far more cumbersome than off-the-shelf systems available to the rest of the radio/tv world. It may have interfaced better with the Electric Company, but that was little benefit (and in fact often costly) to those of us in the trenches.

Likewise we were hampered by HR concerns of importance to shipyards and turbine generators, but not so much to putting on the Mike Douglas show.

I’m not saying there might not be some savings around the edges, or perhaps even staring in plain sight, just that one should be careful about thinking you can send a legal issue from Pilot Travel Centers up to lawyers who mostly work on See’s Candy contracts. (Exaggeration for effect.)

A few years ago, there was a scuffle at a smaller sub - Acme Brick, maybe? Or the boot-maker? BH Corporate decreed that the sub must re-configure its pension program to limit the company's liabilities, and local management felt this would mean reneging on promises... Both sides were right, of course, and it got ugly.

At the time, I was bewildered that of all the companies in the world, Berkshire didn't have a pension management division, that the subsidiaries -could- buy into. Maybe even open it to outside business?

Then there was Haven, the health care initiative...



What is done at the corporate level now? Or is the realization of synergies decentralized? I hope that enterprising division managers have figured out how to market to each other - Shaw carpets and Manville insulation in the mobile homes... 1-800-call-ajit , for the railroad and the picture framer to get a 20% discount on insurance... ;)

What power would BRK have with a more combined purchasing organization given its size? Health, legal, HR, accounting, on and on .......


I too figure there are synergies that could be gained by connecting Berkshire subdivisions to other Berkshire subdivisions, and providing an (optional maybe?). But looking back on my work experience, I see a bunch of examples where such things didn't work. Our company did essentially the same thing in a handful of states. We were asked to use the main office's model of printer/plotter because it could to color and/or black and white. We showed them our combination of two plotters, one color, and one black and white was faster, cheaper, and locally serviced. They let us keep it, but I imagine there's lots of examples of something local being better than something central from a few states away. To say nothing of how difficult it is to get a decent nationwide health plan, that could be bested in many individual states.

These are the areas where Greg will have opportunities to more efficiently manage BRK. ...

Though you are no doubt right, I share the hesitation of some of the others, for a slightly different reason. Efficiency is generally the sworn enemy of resilience.

For example, it's almost always most efficient to have a single supplier for a given item or service, but that's not usually what you need in the real world.

Just a thought. Be careful what you wish for.

Jim

Warren has been clear in recent public communications that he is slowing down. It’s obviously remarkable, as well as inspiring how long both he and Charlie kept pushing the limits for mortal beings.

The reference to Father Time in his recent memo and the comments to Fortune magazine certainly seem telling.

I heard Charlie was told towards the end, that he was going to loose his sight. His response: at 99, he started to learn braille, so he could continue reading. I’m sure Warren misses that kind of positivity.

Having been invested with Berkshire for more than half my life; having received so much from Warren and Charlie without anything in return: when the time comes for Warren to leave the stage, it will be a deeply personal loss. I struggle to fathom how these distant strangers had such an effect on me and many of you. But here we are. I know it’s not just the money.

As a footnote, I’m not remotely worried about Berkshire with Greg Abel in charge.

Like many of you, I trusted this man, Warren Buffett, I never met, with my life saving and I was never disappointed in anything he ever did.

From what Buffett has said over the years about his father and people like Rose Blumkin. To be trusted, completely, is one of the human qualities he admired most. And he would say it is one that is a choice, open to everyone. I trusted Warren one hundred percent and continue to do so. I sure hope he is doing well, if a little slower than before.

I'd like to recommend this twice. :)

>I'd like to recommend this twice. :)

This is possible, though indirectly - and I highly encourage. When the post is exceptional, definitely copy-paste the URL and post it elsewhere (in social media) or email the URL to friends interested in the subject. Some will then recommend the post, and furthermore if they like the culture here they will add their own ideas and insights further down the track.

- Manlobbi

It may be worthy to comment, and unfortunately/fortunately this won't be "liked", that through three decades of participating on Berk forums with the like tab...

...that group consensus views are often not good ones. I can easily name countless examples but that's too personal.

So I'll just toss out some awareness of the reality of the most liked posts, they simply aren't the wise ones at times when dealing with investments.

Life is great...if you can stand it. Not sure our mentors Buffett and Munger reached out of approval on their investment decisions.

“It may be worthy to comment, and unfortunately/fortunately this won't be "liked", that through three decades of participating on Berk forums with the like tab...”

Not sure why you’re so concerned with “likes”.

Many here have appreciated your investing posts, so what do you think about BRKs value post-Buffett?

My WAG: a period of lower valuations while Mr Market comes to grips with new management. Berkshire buys back a lot of stock during this time. Followed by a euphoric stage when Mr Market realizes that deals can and will be made.

Likes are group think, said and done. It isn't that I'm against likes, it is simply that the best thoughts are often heavily chastised here. And it has happened repeatedly.

I'm certainly not writing about Jim's Berk valuation posts which get the most likes of all. But again I do not think it is sound thinking to seek approval or group cohesion if an investment forum is seeking it best environment.

My dad, part owner of a newspaper in Lexington, NC (just sold to the NY Times), died Jan 10, 1975 and I inherited 25 shares of Berkshire in a trust. The trust had several stocks in it and it was worth about $35,000 total. Because for some time after "owning" Berk I'd never heard of Berkshire and had little interest in knowing what the company was about, I often thought to myself, "If I could get my hands on that stock, well I'd sell it and buy a Jeep CJ5." My ignorance ended when I went to work for a stock brokerage and analyst firm (banks and insurance) McDaniel Lewis in Greensboro and Marshall Johnson got my attention. At some point (the year escapes me) Marshal said, "Charlie, you need to re-do the spread sheet on First Citizens Bank and Trust Co. and that 'crackerjack' Warren Buffett has bought a chunk from High Point Bank and Trust's trust department which I manaage." On an electric typeswriter I produced a new spreadsheet including the words that "Warren Buffett has bought the stock from an estate at 50% of book value."

I still own all 25 shares, I've been to 22 annual meetings and shaken hands with Warren Buffett. I've eaten next to him at Gorat's! Fun stuff.

Given time for you young people neither Greg nor Warren will be of any connection to Berkshire and it likely won't be too long before all this comes about. I'm not nearly as positive as most here apparently think and not nearly as convinced that the past will determine the future.

I would hope as a shareholder that Berkshire will be broken up and I think it is inevitable that it will be. It is going to be incredibly difficult for any one manager even as talented at Greg to spread his obvious abilities throughout the organization which is terrifically diversified. People here mention repeatedly the Burlington and Geico underperformance, it is my guess these type things are inevitably going to grow.

I am in a large family of cousins who all own Berkshire and all have owned it for more than 45 years. Most of us think this way and it is not in any way either disrespectful to Buffett nor Greg or Munger. In most ways it is a compliment to them, the challenge of maintaining this business that is so affected by individual skills of people who aren't young is just not something easily achievable or maintained.

That's cool Charlie - I saw this article about the times buying the paper
https://www.nytimes.com/1973/10/24/archives/times-...

I would hope as a shareholder that Berkshire will be broken up and I think it is inevitable that it will be.

This does seem likely at some in the not too distant future. There are few who can (arguably) create value by combining jet engines with SNL like Jack Welch, or candies and railroads like Buffet. The replacement will do what Immelt did. It’ll probably be the right thing to do too.

I’m surprised this isn’t a more prevalent scenario for the foreseeable future.

Hello ZiggyD,
I understand, respect and appreciate your thoughts, especially regarding “few who can create value by combining…candies and railroads like Buffett.”

Here are the “nuts” I can’t crack.

The break up of Berkshire Hathaway could trigger significant tax liabilities. The company holds substantial unrealized capital gains in its stock portfolio and a breakup could trigger a taxable event. Additionally, selling off individual subsidiaries could result in capital gains taxes for the company.

The synergy created by Berkshire's Insurance operations provide a steady flow of capital for acquisitions and investments, while subsidiaries like BNSF Railway and Berkshire Hathaway Energy generate stable cash flows. Breaking up Berkshire could disrupt these synergies and expose individual businesses to greater market volatility.

Buffett and his team have been actively involved in succession planning, grooming a new generation of leaders within the company. Greg and Ajit seem to me to be very capable.

I dunno, ZiggyD. While a BRK breakup is not impossible the (breakup) stars would need to align: mkt dynamics, poor post Buffett leadership, the BRK Board and the larger shareholders to grease the BRK breakup skids.

Perpetual Wealth and Health to you and yours, ZiggyD.
Silverlinin

The break up of Berkshire Hathaway could trigger significant tax liabilities. The company holds substantial unrealized capital gains in its stock portfolio and a breakup could trigger a taxable event. Additionally, selling off individual subsidiaries could result in capital gains taxes for the company.

There are many ways to split up a company without triggering a taxable event. Many companies have done that, e.g. GE. A common way is to spin-off part of the company to shareholders, say BNSF or GEICO. This is usually done if management feels Wall St is penalizing the company's valuation for complexity, and the sum of the parts is worth more than the whole.

Another way, which Buffett has used in the past, is to exchange shareholdings in a company for a division of the company. Buffett did that with Gillette/PG for Duracell. He also did exchanges with Washington Post for local TV stations.

He also did exchanges with Washington Post for local TV stations.

That's right but of course the main thing he swapped for with Graham Holdings / Washington Post was a large block of Berkshire Hathaway shares. The TV station was just put in there to include an "operating company" to satisfy the IRS.

Personally, with no comment on what "should" be done, I would place the bet that Berkshire is not broken up in the next 20 years. My crystal ball is hazy beyond that.

If $1 trillion MC compounds at 8% for 20 years you end up with $4.66 trillion minus whatever effect share repurchases have. Maybe the best thing is a more aggressive share repurchase plan (Tim Cook following Steve Jobs) where the market cap doesn't go up all that much but the price per share continues to do its thing for a few decades.

Personally, with no comment on what "should" be done, I would place the bet that Berkshire is not broken up in the next 20 years. My crystal ball is hazy beyond that.

Agreed. Surprised so many are talking breakup. Didn't both Buffett and Munger say Greg will preserve the culture? Isn't that why Howie is there?

A couple of ideas on what will happen (I have not researched data to support this, just speculation)...

1.) Price-to-Book premium will decline. This would translate to lagging the S&P for a year or two while investors who only remained in for Buffett exit. A decision might also be made to buy shares if they drop below the historical (approximate) 1.2 P/B mark.

2.) From a narrative perspective, the market will be looking for mistakes in leadership's performance. This would also contribute to a decline in market value though not a decline in the underlying businesses.

3.) The company will need to keep growing. Although it's easy to focus on the equity portfolio, it will be interesting to see what industries and companies become acquisition targets. The conservative financial structure and abundance cash will continue to create opportunities, particularly when the market cycles to being irrational.

There are few who can (arguably) create value by combining ... candies and railroads like Buffet.

I would assert that it's not really that difficult at all. Doing it that outstandingly is impossible, but doing it materially well is not a big deal.

The big advantage is to have a culture of rational capital allocation. Don't give more capital to a unit that isn't investing it with decent returns, strip them of their FCF and send it tax free to head office, which will invest in the best available opportunities. This is the one big advantage for any conglomerate.

The main thing is that the vast majority of firms are not rational capital allocators, they are empire builders, allocating capital to things that are either "more of a bad business" or fads or vanity projects. Consequently attempts to garner the conglomerate advantage generally fail for them.

Given the weak competition in this regard, and Berkshire's very deeply seated tradition of rational capital allocation (and even acknowledging that it's a thing!), there can be a pretty decent advantage for a long time post Buffett. Don't let a unit reinvest badly, and don't let head office get sucked into bubbly optimism when picking targets.

Jim

I wish we had more of an owner/operator coming and then I'd be more with Jim on this. But it seems we are ok for a while to go. I should take comfort knowing all the old guys at the top are younger than me!!!!!!!!!

“Given the weak competition in this regard, and Berkshire's very deeply seated tradition of rational capital allocation (and even acknowledging that it's a thing!), there can be a pretty decent advantage for a long time post Buffett.”

Agree. When I think of our culture I think of integrity, honesty, patience, discipline, Rule #1, understanding risk, flexibility, wise allocation and seeing the world as it truly is. I also anticipate large buybacks in time as the cash pile keeps growing, even at less if a discount to IV. I’d be shocked to see any groves spun off. Greg & the Board will not disrupt what has worked so well for 60 years imo, but his allocation role will be Much more challenging given our size.

We don't really have to worry about analyzing what will happen post Buffett. We already can see it. I'm saying this with 40% of my net worth in the stock, so I am not throwing stones, I wrestle with how to handle this position.

Under Abel's watch, BNSF has performed poorly, he has been in charge of the non-insurance operations since 2018.

Under Jain's watch, GEICO has lost to progressive quite handily. He is very honest about how GEICO has lagged, great, I love honesty, but where is the performance?

This has not hurt overall stock performance, however.

Greg is complete corporate-ese when he talks. "my team, the team, etc..."- he doesn't answer questions directly either. Becky Quick asked him straight up "will you be buying more Berkshire stock..."- Abel: "i will always be investing in Berkshire". Simple answer would have been, "I will buy more, sure, depending on valuation, and my personal circumstances"

Greg was the default pick, Sokol was the number one choice, Buffett has blind spots.

I am talking myself into selling some :)

Under Jain's watch, GEICO has lost to progressive quite handily. He is very honest about how GEICO has lagged, great, I love honesty, but where is the performance?

GEICO's problems preceded Ajit's take over of insurance units in 2018. If anything, Ajit should get the credit for working hard to fix it. It was the prior management of GEICO and also Buffett who ignored the importance of telematics to car insurance business for far too long unlike Progressive which had been using telematics for well over a decade.

There were several questions in annual meetings about GEICO before 2018 and Buffett routinely underplayed the importance of telematics and said everything was great at GEICO.

Hello Berkfan,
I very much appreciate and relate to your position talk. I too, am relatively (total portfolio considered) very long BRK. Filling Buffett's shoes is a daunting task. Speaking of a daunting task, one of my most personal ones is my bias to compare Greg and Warren.

Buffett's leadership - Rich in investment understanding and long-term vision.
Abel - Rich in strong operational focus and demonstrated strong track record in managing the Energy biz which is quite large and complex.

Greg will never be Warren and have decided to: 1. Trust Warren’s replacement judgment and 2. do nothing but wait and watch what post Buffett-era brings.

Perpetual Wealth & Happiness to you and yours.
Silverlinin

Personally, with no comment on what "should" be done, I would place the bet that Berkshire is not broken up in the next 20 years. My crystal ball is hazy beyond that.

Well, that's longer than my estimated lifespan. What happens afterwards will be something for my heirs to deal with. So I'm good.

And I'm projecting that Berkshire won't be broken up in the next 23.4 years, so I'm staying for the ride.

And of course the breakup could entail a big windfall.

Buffett's leadership - Rich in investment understanding and long-term vision.
Abel - Rich in strong operational focus and demonstrated strong track record in managing the Energy biz which is quite large and complex.

That sounds like a good thing. The founder is not always the best manager as a company evolves. I read an article on the evolution of oil companies that described what is the most important expertise as a company matures. At start-up, the key people are geologists and landmen with imagination and vision coupled with risk assessment abilities. Mid -cycle, production engineers are the key. Late cycle, financial management is most important. A super manager evolves and matures with the company, and Warren has done that as well as anyone, but going forward the company has changed into something extremely large, and operations and efficiency are more important than looking for company changing opportunities.

That's what I will be watching when Buffett moves on. What balance will the still controlling family votes reach between making BRK more efficient and preserving the "culture"? How well do they understand business going forward? Will Greg become frustrated?

Great post. When I read The Snowball, I found myself amazed that Howie, who apparently has little interest in business, really, and seemed very much a wild man, was deemed the cultural herald for Berkshire beyond Warren's tenure. And one of Buffett's contradictions is he talks a good game about nepotism, but here we are, with this board...and he's given his children rather extraordinary sums (certainly by my measure) on a not-one-time basis over the years.

I look forward to the Greg/Ajit/Ted/Todd era, and will miss Warren.

Ajit is no spring chicken himself

Indeed, nor is Howie. Even Greg isn't young, and most of these folks are so wealthy that they can step away and do whatever they please without a care in the world.

I've wished for some new blood in the board, and their leadership ranks, for some time. Todd and Ted were a start but that was about 15 years ago. I thought Tracy Britt Cool was going to fill that role, but she went off to found her own little Berkshire type entity (Kanbrick, a private equity firm) so that was that. Their youngest board member (I forget the name, I just looked up their ages) is 55, and youngest by about 7 years - Greg seems to be the next youngest.

The new Pilot CEO Adam Wright is an up and coming person and highly regarded by both Warren and Greg. Greg Abel spoke very highly of BHE CEO Alicia Knapp (age 46) who has been at Berkshire for over 20 years . Joe Brandon who is 63 and could fill in for Ajit.

I heard many talks of resilience at work; what I would follow that with is "what opportunity cost are you going to assume, in taking on resilience measures, as they all cost in time/$/people."

We split refuelers for the USAF and they're based out of two fields - that's a matter of strategic persistence, but then you lose the economy of having all similar assets in one area for maintenance and such. The DoD does this on many fronts, and it is expensive.

It is rare in business. Just-in-time logistics rules the roost. Dr. Michael Osterholm, who is a very regarded epidemiologist (back in the early days of HIV, and literally wrote the book on pandemics...which I read during our pandemic) came to work for a discussion in 2015. He talked of this - of the narrow and fragile paths for many of the most critical drugs. He also talked about drugs for outbreaks, and that there's no money in them thus they're not really stockpiled or researched much, but that the industry for impotence pills was bigger than all pandemic drugs combined.

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