SMITH BRAIN TRUST – Over the weekend, the livestream-only audience at Berkshire Hathaway’s annual shareholder’s meeting was teased with the message: Its chairman, Warren Buffett, “will have a ‘mild surprise’ for investors in a few moments.” The message filled audience members with anticipation.
That surprise: None of the world’s 20 largest companies in 1989 by market capitalization are among its 20 largest companies as of March 31, 2021. A bigger surprise, though, was just days ahead: official word – after years of speculation – that Vice Chairman Greg Abel is the 90-year-old Buffett’s likely eventual successor.
“There’s only one Warren Buffett,” Maryland Smith’s David Kass told Bloomberg shortly after Buffett revealed the succession plan Monday morning. “But he brings other strengths to the table. He exudes extreme competence.”
Abel, 59, as CEO of Berkshire Hathaway Energy (BHE), oversees energy holdings including subsidiaries in the industries of coal, geothermal, hydroelectric, natural gas, nuclear, solar and wind. He also is on the board of directors of companies including Kraft Heinz, AEGIS Insurance Services, and the Hockey Canada Foundation.
Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business and a follower of Buffett’s investments and philosophy since 1980 and who has taken many Maryland Smith students to Omaha to meet the “oracle” himself, notes: “Abel, of course, does not have the charisma, personality and reputation that Buffett built over decades, so he’s not going to have that magnetism that Buffett has. But he exudes extreme competence and success.”
Under Abel – once described by The Wall Street Journal as an astute dealmaker, BHE reported just under $21 billion in revenue in 2020. “[Abel] has a very successful track record at Berkshire, Kass says. “I don’t think shareholders can ask for anything more than that.”
Berkshire Annual Meeting Takeaways
Prior to the Abel news, there were shareholder questions and answers. And Kass, as he always does, sorted through those, identifying the key takeaways from those.
One shareholder asked about the decision by Buffett, as chief risk officer, to dump airline and bank stocks. Buffett said that with Berkshire’s 10% stake in each of the four major airlines, the government may have expected Berkshire to bail them out. Berkshire’s sales of the airlines represented only 1% of its total assets of $700 billion. Berkshire also cut back its stakes in banks. It currently owns 19% of American Express. Cash on hand represents 15% of Berkshire’s value, meaning that Buffett could have deployed up to $75 billion. “Looking back, you know, it’d have been better to be buying,” Buffett said. “I do not consider it a great moment in Berkshire’s history.”
Responding to a separate question as to why Berkshire “wasn’t more acquisitive in March 2020,” Berkshire Vice Chairman Charlie Munger replied: “It’s crazy to think anybody’s going to be smart enough to husband money, and then just come out on the bottom deck in some crazy crisis and spend it all. There always is just some person that does that by accident. But that’s too tough a standard. Anybody who expects that of Berkshire Hathaway is out of his mind.”
Chair of the Federal Reserve Jay Powell “acted decisively with speed” on March 23, Kass noted following the discussion. “There was a run on money market funds in March 2020 similar to September 2008. Congress also acted quickly – unlike in 2008 – since there was no one to blame,” he said. “Fiscal policy and monetary policy did the job – 85% of the economy is now running in high gear.”
“Berkshire is not a bank and therefore could not borrow from the Fed,” Kass added, further summarizing the discussion. “They could not depend on anyone. Banks drew down credit. The economy turned out better than expected. And [Buffett] is no longer interested in investing in the airline industry.”
For more of Kass’ insights, read 23 Highlights of the 2021 Berkshire Hathaway Annual Meeting.
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